Why Every IAM Should Have The Power to Self-Initiate Investigations

Introduction

The fundamental “do no harm” mandate, as iterated across the sustainability policies and frameworks of Development Finance Institutions (DFIs), requires readiness to prevent, mitigate, and remediate environmental and social harm when risks come to light.  In this regard, the Independent Accountability Mechanisms (IAMs) of DFIs – which connect impacted communities with the financial institutions – are integral risk prevention, mitigation, and remediation tools. 

Most IAMs currently require complaints to be filed by people directly harmed by projects in order to be eligible. Although IAMs should be community-centered justice tools, the requirement that complainants must be from directly impacted people can limit access to justice.  While it would be ideal if directly impacted people were able to file cases and demand justice whenever harm occurs, significant barriers to access can make it nearly impossible for that to happen. 

There is an obvious solution: equipping IAMs with the ability to self-initiate compliance investigations.

The State of Good Policy

The ability to initiate compliance investigations is presently enjoyed by at least five IAMs, including:

1. the Compliance Advisor Ombudsman of the International Finance Corporation and Multilateral Investment Guarantee Agency (IFC/MIGA CAO);*[1]
2. the Independent Complaint Mechanism of the Germany-based International Climate Initiative, otherwise known as Internationale Klimaschutzinitiative;*[2]
3. the Social and Environmental Compliance Unit of the United Nations Development Programme (UNDP SECU);*[3]
4. the Independent Redress Mechanism of the Green Climate Fund (GCF IRM);*[4] and
5. the Independent Recourse Mechanism of the African Development Bank.*[5]

Other IAMs like the Complaints Mechanism of the European Investment Bank (EIB-CM) are permitted to recommend an investigation without a formal complaint, but such recommendations are subject to approval by some other authority.*[6]

Across the IAMs, the threshold level of concern needed to justify an IAM-initiated investigation can vary.  For example, the IFC/MIGA CAO policy allows the IAM to prod “particularly severe harm,” matters of “systemic importance” to the IFC, and the potential that actual or feared reprisals have discouraged people from filing formal complaints. As another example, the UNDP SECU Investigation Guidelines permits proactive investigations to “respond to significant potential or actual harm to an individual or community” based on “an existing (but yet unidentified) failure of UNDP to meet its social and environmental commitments.”

The Project-Affected Peoples’ Mechanism of Asian Infrastructure Investment Bank (AIIB PPM), the Accountability Mechanism of Asian Development Bank (ADB AM), the Office of Accountability of the US International Development Finance Corporation (DFC OA), the EIB-CM, and the Independent Complaints Mechanism of Proparco, DEG and FMO (Proparco/DEG/FMO ICM) are all either currently undergoing policy review or expected to commence review in the near future. The Boards of Directors of these institutions must entrust the power to self-initiate complaints to the IAMs so that harms to the environment and project-affected communities can be promptly and adequately addressed and so that their money truly meets its mark. 

Importance of Self-Initiated Compliance Investigations 

Although IAMs rarely initiate investigations on their own – since the year 2000, only 13 instances of IAM-initiated investigations have been identified*[7] – IAM-initiated investigations have since become landmark cases emblematic of the need for greater accountability in development finance. Examples include cases that concerned the exploitation of tea plantation laborers in Assam, India (Tata Tea), forceful evictions and reprisals against land rights holders in Honduras (Dinant), and the sexual abuse of children in for-profit schools of Kenya (Bridge International Academies).

Although the case examples are few, they are mighty; the lessons from them reveal that proactive investigation can be powerful to (a) prevent and mitigate harm to the environment, (b) proactively address the chilling effect of actual or feared reprisals aimed at silencing the dissent of rights defenders, and (c) hold financial intermediary lending accountable. 

1. Prevent and Mitigate Harm to the Environment 

In cases of potential and actual harm relating to the environment, biodiversity or fundamental rights of disadvantaged groups (such as children), there are often no distinct individuals who are eligible or well-positioned to bring such complaints.  Directly impacted people only bring complaints when they have access to information about a harmful project, its investors, and the complaint offices available to them, but this information is often not readily available. Complaint processes also involve significant time and energy, and not every community will overcome these barriers to ultimately bring a complaint. Yet, environmental harm in particular can have very serious long-term consequences that banks should care about, even if they do not impact any one group of people in the short-term or the people impacted are not in a position to raise a complaint. For example, evidence of excessive greenhouse gas emissions or fear of threats to biodiversity in local environments might not result in clearly defined harm to one particular person or group, but must be remedied through a compliance review against the DFIs’ policies. Where an IAM becomes aware of potential harm from media reports or from demonstration of harm in similar projects which warrant urgent appraisal of adherence to relevant procedures, self-initiated investigations can be a valuable way to ensure accountability and prevent or mitigate harm. As the DFIs increasingly put the energy transition and sustainability at the center of their value and mission and claim to be the climate bank of the future, they must put their resources where their mouth is and commit to the prompt and effective remediation of environmental harm through self-initiated compliance investigations. 

Prevention

Self-initiated complaints allow IAMs to investigate procedural and institutional shortcomings that could lead to grave harm in specific cases before such harm occurs, even if there is not a formal complaint. 

For example, after the explosion of the Deepwater Horizon offshore drilling rig in 2010 in the Gulf of Mexico that demonstrated the harms of offshore drilling, the CAO initiated a compliance appraisal (i.e. a preliminary investigation) on the Jubilee Oil Field in Ghana after identifying it as the only direct IFC project investment in deepwater offshore oil and gas projects. There was clearly serious potential harm to the lives of workers on the oil rig, the biodiversity and survival of many species in the ocean near the rig, the environment, the livelihood of local fishermen, and the health of countless communities whose health could be harmed by a potential spill. Despite no particular person being in a position to pursue a claim, the CAO was able to self-initiate a compliance appraisal to ensure policies and procedures are followed. 

While the appraisal disappointingly concluded that a formal compliance audit of IFC’s due diligence of the investment was not required, it did lead to the establishment or improvement of certain environmental, occupational health and safety management, and emergency response plans. This case offers a precedent of an IAM-initiated investigation which proactively identified and appraised a specific project in the absence of any case-specific grievances, due to the obvious catastrophic and lasting environmental impact that offshore oil projects could cause and did cause. 

Mitigation

The eligibility criteria of most IAMs prevent them from proceeding when complaints strictly relate to the environment and biodiversity, or another form of global public goods, unless the people bringing the complaint are able to express that they are discreetly impacted (or could potentially be discreetly impacted) by the harm in relation to a specific project. The existing cases demonstrate that IAM-initiated investigations are particularly helpful in addressing serious environmental harms or risks that have come to light, even if they are not known to the groups who could potentially pursue a claim. When harm occurs in relation to a global public good which affects us all, it should not be on local communities to shoulder the burden of investing significant time and resources to navigate through the IAM processes. 

The recently commenced investigation by the UNDP SECU into the potential abandonment of activities in an “integrated farms” project in Chad demonstrates how the tool can be used to ensure that unaddressed project failures do not cause potential harm to the environment or people. In this case, SECU had no knowledge of any specific harm to stakeholders, but noted reports of noncompliance with multiple UNDP policies and standards in the cancellation phase of the project, risking a failure to execute a responsible exit strategy crucial to the local environment and communities. For example, the construction site for the integrated farms was unfinished, with infrastructure material openly exposed on the site that might cause harm to the local environment and communities if left unaddressed. The outcome of the investigation remains to be seen, but it is apparent that the ability of IAMs to self-initiate investigations without the benefit of a formal complaint is crucial to ensure accountability to communities during and after a project has concluded (or been abandoned).

In another example, upon reading civil society briefing papers calling into question potential violations to the rights of Indigenous Peoples with respect to a wetlands resiliency project in Peru, the GCF IRM initiated a preliminary inquiry to determine whether further investigation was warranted. After interviewing GCF Secretariat staff and external stakeholders, the IRM found credible and concerning risks of harm with respect to the potential miscategorization of the project’s environmental and social risk level and failure to obtain the FPIC of impacted Indigenous communities. 

The IRM ultimately determined that the best course of action was not to initiate a compliance investigation but, rather, engage in a dialogue with the GCF Secretariat to explore time bound remedial measures to address the issues. Nonetheless, the availability of a self-initiated investigated process resulted in preliminary inquiry that achieved agreed-to actions intended not only to correct issues specific to the project in Peru, but also instruct on how to prevent other projects from experiencing similar issues. By securing commitments from the GCF to develop guidance notes on FPIC requirements and E&S risk categorization when projects involve Indigenous Peoples, the IRM’s process for self-initiating investigations has helped to ensure that the rights and interests of Indigenous Peoples are better respected and protected in the future, without relying on any specific Indigenous People to bring the complaint. 

2. Proactively Address the Chilling Effect of Actual or Feared Reprisals

IAM-initiated compliance investigations are also needed because it is too dangerous for many project-affected communities to file complaints, regardless of whether they are able to request that their identities be kept confidential. 

While instances of actual or feared retaliation experienced by communities are underreported, data reveals that retaliation is common. Of the 1,953 complaints in the Console, at least 68 raised issues of actual or feared retaliation. This number naturally excludes cases where actual or feared retaliation stopped communities from bringing complaints.

There is also a significant overlap between issues of retaliation and environmental issues: out of 68 complaints tracked on the Console which raise issues of actual or feared retaliation, 23 also raise environmental issues [See Chart 1]. In other words, the different barriers to remedy for project-affected communities are compounded by each other: communities are expected to overcome barriers to access information and invest significant time and resources to initiate complaints based on claims of actual or feared direct harm to themselves; however, when they can, they often face serious risks of reprisal. Vulnerable communities (e.g. women, children and Indigenous Peoples) disproportionately suffer.

It is therefore ever so important that IAMs be empowered to initiate compliance review themselves rather than waiting for a request from complainants or the Board when there is a risk of or actual reprisals. 

This was proven useful in response to allegations of violence against farmers on and around palm oil plantations in Honduras by security forces under the control or influence of project implementers. It was effective to consider whether the environmental and social safeguards obligations existed when violent clashes between miners and police forces occurred near mining operations in South Africa. It was even necessary to assure compliance with environmental and social policy when investment support ostensibly underwrote military actions to quash politically-motivated rebellion that threatened the sustainability of mining projects in the Democratic Republic of Congo. In each instance, the CAO was able to ensure scrutiny of violent acts connected to IFC/MIGA investments.

3. Hold Financial Intermediary Lending Accountable

DFIs have dramatically increased the use of financial intermediaries (FIs) - national and regional banks, insurance companies, microfinance institutions and private equity funds - in recent years. The IFC, for example, increased its investment in FIs (both loans and equity) from roughly $1 billion in 2001 to nearly $5 billion annually from 2001 to 2016. It is now investing more than half of its portfolio in FIs.

However, an alarmingly large percentage of investments made through FIs fail to adhere to the DFIs’ environmental and social policies. An extensive audit of 63 FI investments self-initiated by the CAO (out of a total of 911 FI investments undertaken between 2006 and 2011) found that only 30 of the 63 audited investments were fully consistent with IFC’s E&S Policy and procedural requirements.

Despite the clear need for accountability for policy and operational failure, it is incredibly difficult for project-affected communities to trace the financing back to the DFIs when projects are financed through FIs. The reasons are twofold. Firstly, the client confidentiality provisions binding on many FIs, combined with the lack of explicit disclosure requirements on FIs even when there are no confidentiality restrictions, result in a significant lack of transparency on the end use of DFIs’ funds. Further, DFIs have themselves made few efforts to publicly disclose information on their FI sub-projects, making it prohibitively difficult for project-affected communities to identify and access the appropriate grievance channel.

As a result, even when project-affected communities over significant barriers to bring complaints and even in the absence of a high risk of reprisals, the failure of DFIs and their FI sub-clients to provide timely disclosure of project-related information prohibits communities from ascertaining whether there is an accountability channel available. Taking the IFC as an example, as of September 2024 only 20 out of the total 349 IFC/MIGA complaints filed with the CAO tracked on the Accountability Console relate to FI lending. Only 5 of those 20 complaints were filed in 2017 or later (while 90 of the total IFC/MIGA complaints were filed in 2017 or later), evidencing that the proportion of FI-related complaints have stayed flat over time despite the drastic increase in FI lending in the last decade.  This is a worrying trend, particularly in circumstances where a 2020 external review of IFC/MIGA’s environmental and social accountability framework found that IFC’s FI lending was inadequately governed, with many FI clients failing to adequately assess and address E&S risks.

The ability for IAMs to initiate complaints could bridge the significant accountability gap in relation to FI lending. 

Conclusions/Recommendations

Threats of reprisals and lack of information disclosure are real barriers to accountability and show us that banks should not rely on complaints from affected people as their only way to initiate investigations into potentially harmful projects. DFIs should use all means at their disposal (e.g. effective implementation of their anti-retaliation policy and greater transparency of the FI sub-clients receiving funds) to address them. However, in a world where such barriers will continue to exist in the near future, self-initiated investigations can help bridge the accountability gap.

The Boards of Directors of the AIIB, ADB, DFC, EIB and Proparco/DEG/FMO, should use the opportunity of ongoing and upcoming reviews of their respective IAM’s policy to entrust each IAM with the power to self-initiate complaints. Other DFIs must also follow suit at the next opportunity. If IAMs do not have the power to decide to look into potential noncompliance with environmental and social rules, DFIs will continue to find themselves contributing to grave harms to the environment and the most vulnerable communities and calling into question whether they truly intend to “do no harm.”

ENDNOTES

[1] See 2021 IFC/MIGA CAO Policy, paras. 81-82 (“CAO may initiate a compliance appraisal of one or more Projects or Sub-Projects in response to an internal request from the CAO DG, the President, the Board, or Management.  Such internal request may be made in circumstances where: [i] an appraisal is deemed necessary to review environmental and social compliance issues of systemic importance to IFC/MIGA; [ii] concerns exist regarding particularly severe Harm; or [iii] Project-affected people may be subject to, or fear, reprisals, preventing them from lodging a complaint with CAO”).

[2] See 2022 IKI ICM Policy, para. 5 (“If the (ICM) receives information from a credible source that an IKI project is having a direct, negative impact on a person, a group of persons, communities or the environment, or if there is evidence of corruption, fraud or misappropriation of funds; and ii) the resulting harm is not insignificant; it may decide, on the basis of prima facie evidence, to initiate proceedings”).

[3] See 2017 UNDP SECU Investigation Guidelines, paras. 3-4 (“Investigations may also be triggered on SECU’s own initiative by the Lead Compliance Officer, or at the request of the UNDP Administrator. When this occurs, disclosure of documents will occur in a manner similar to disclosure pursuant to complaint processes triggered by community complaints. UNDP takes all reports of alleged breaches of social and environmental commitments seriously, and all allegations are assessed to determine whether an investigation is appropriate. . . . Proactive investigations are defined as investigations intended to identify and respond to significant potential or actual harm to an individual or community resulting from an existing [but yet unidentified] failure of UNDP to meet its social and environmental commitments . . . .”).

[4] See 2017 GCF IRM Terms of Reference (Revised), para. 12, (“If the IRM receives information from a credible source that a project or programme funded by the GCF has adversely impacted or may impact a community or person or a group of two or more persons, and where such information, if true, would pose a significant reputational risk to the GCF, the IRM may initiate proceedings under this modality only if the person[s] adversely impacted [is] or [are] unable to access the IRM”).

[5] See 2021 AfDB IRM Operating Rules and Procedures, para. 75 (iv), (“Under specific circumstances, the Director of IRM may initiate  Compliance  Reviews.  These circumstances could relate to: [i] Complaints raised to the IAMs of co-financiers in a Bank Group co-financed Operation for which no complaint has been submitted to IRM; [ii] Operations in the public domain where there is a reputational risk for the Bank Group; [iii] Cases  where  IRM  receives  information  from  a  credible  source  that  a  Bank Group Financed Operation has adversely impacted or may impact persons, a community or the environment; or [iv] Cases where IRM is informed of a risk of retaliation if a Complainant came forward. [v] If a Compliance Review could provide an important learning opportunity”).

[6] See 2018 EIB CM Policy, section 5.1.6 (“In addition to complaints submitted by external stakeholders, an EIB-CM inquiry [assessment, investigation or mediation process] may be initiated . . . .  By the Inspector General, either on his own initiative, or on the basis of a reasoned proposal from the Head of EIB-CM”).

[7] In addition to the 8 CAO cases initiated by the Vice President on the Console linked within the text, one case initiated by the GCF IRM and one CAO case initiated by the World Bank President are available on the Console here. A case initiated by the UNDP SECU and two cases initiated by the CAO Vice President (in relation to financial intermediaries lending and Compañía Minera Antamina S.A. in Peru respectively) are not currently available on the Console.