This update was co-written with Vijaya Ramachandran, senior fellow at the Center for Global Development and originally posted on the Center for Global Development's Commentary and Analysis page.
In the wake of the United States Supreme Court’s decision in Jam v. IFC, which centered around harm to farming and fishing communities caused by Tata Mundra, a coal plant financed by the International Finance Corporation (IFC), the board of directors for IFC launched a major review of its environmental and social accountability framework. The review team, comprised of experienced and knowledgeable individuals, was led by Peter Woicke, a former CEO of IFC.
The team has completed its work, but IFC’s board has yet to release the final report. It must do so now.
What happened with Tata Mundra?
In June 2011, an association of fishing communities in Gujarat, India, filed a complaint with the Compliance Advisor Ombudsman (CAO) of IFC. The communities said that the construction of a 4000 MW coal-fired power plant in the Mundra region of Gujarat, financed in part by a $450 million loan from IFC to Coastal Gujarat Power Limited (CGPL), had destroyed the environment in which they lived and worked. The communities said that they were forced to move from their homes, and that their families had suffered from poor health as a result of air pollution and groundwater contamination. In November 2013, the CAO agreed with the communities regarding their claims and asked IFC to take action.
For reasons that are still not clear, IFC failed to respond to these charges. In February 2017, the CAO published another report, reiterating its concerns. Still no response.
With few options left, the complainants turned to the US court system, filing a lawsuit against IFC. IFC responded by challenging their ability to file suit at all—claiming it had absolute immunity from being held accountable in US courts. The case made its way to the US Supreme Court, which in February of 2019 decided that IFC was not, in fact, above the law. The case was sent back to the lower courts to be decided on its merits and is still in litigation.
Is Tata Mundra part of a larger trend?
Tata Mundra’s problems occurred at a time when IFC already had accountability mechanisms in place. Its independent accountability mechanism—the Compliance Advisor Ombudsman—was widely considered to be the gold standard among DFIs, and its environmental and social performance standards served as a model to other institutions. Yet, over a period of almost ten years, IFC failed to respond to the problems raised by the Tata Mundra project. It wasn’t the first (or last) time.
The CAO has experienced a significant growth in its caseload. Like Tata Mundra, some cases remain in the monitoring stage for extended periods of time, while IFC works to bring projects back into compliance. For example, complaints filed in 2013 on IFC investments in Assam/Tata Tea, and Bujagali Energy remain in the monitoring phase. Other cases are closed when IFC’s investment in the client ends, regardless of whether the harm to communities has been addressed (see, for example, complaints filed on IFC investments in Eco Oro, Corporacion Dinant, Ficohsa). Meanwhile, communities are left waiting for years even after having their concerns confirmed by compliance reports.
Potential outcomes of the review
The accountability review presents an opportunity for appropriate, targeted recommendations in at least three important areas.
Remedy: IFC must take swift action in response to findings of noncompliance and must remedy any harm that results. There should also be a way for IFC to take remedial action even after its investment ends—particularly when a compliance case is still open. Remedy should also be viewed as more than just compensation. Recently, the World Bank took responsibility and remedial action in response to its own independent accountability mechanism, the Inspection Panel, finding that it had failed to appropriately monitor and supervise a project in Uganda that led to gender based violence and child sexual abuse. The Uganda case is an important example of how an institution can respond to complaints as well as learn lessons from its failures—important goals of the compliance process.
CAO Independence: The CAO has a multi-stakeholder selection process for replacing the head of the CAO and a prohibition against that person working for the World Bank Group after their term ends. However, the head of the CAO currently reports to the president of the World Bank Group, rather than to the Board of Directors. The review should recommend a reporting line shift for the CAO. It should also call for maintaining aspects of the current framework that ensure the CAO’s independence, including the multi-stakeholder selection process as well as the CAO’s decision-making authority over whether to proceed with an investigation.
CAO Resources: A steady increase in caseloads implies that a larger budget is needed to meet its responsibilities. As IFC increases its activities in conflict-affected and fragile states, it is likely that it will face even more challenges. A well-resourced CAO is critical to IFC’s success in difficult places.
IFC’s board must disclose the report now
While neither the impetus for the report nor the credibility of the review team is in question, the legitimacy of the review is at risk should the final report not be disclosed in a timely manner. During the course of the review, the team was able to receive input from a reference group, which included IFC clients and members of civil society [including Jolie Schwarz, an author of this post]. But the review team was not given the budget or mandate to consult with communities impacted by IFC’s projects. The external members of the reference group were also not given the chance to comment on the final report. Releasing the report in a timely manner presents an opportunity to engage with a broad audience including those who will ultimately be the end users of new mechanisms that emerge from the review.
Philippe Le Houérou, the outgoing CEO of IFC, leaves a strong legacy for promoting sustainable development. His successor will face many challenges. Amongst the most important of these are the significant gaps in IFC’s accountability framework that have led to—and if unaddressed will continue to result in—devastating impacts for the world’s poorest communities. Releasing the review will maintain momentum for ongoing reforms and set the stage for further change. Keeping it hidden, on the other hand, could result in the institution backsliding under new leadership that that has not internalized the difficult lessons learned by Tata Mundra and Jam.
Photo credit: Tierney via Adobe Stock