IFI governance

Background

From accountability to action – the role of management

7 October 2016

7 October 2016 | Minutes

Panellists:

Daniel Peters – US Treasury, formerly worked at US World Bank ED’s office

Lalanath de Silva – incoming head of Green Climate Fund independent redress mechanism

Kate Geary – BIC Europe

Osvaldo Gratacos – CEO CAO

Presentations:

Green Climate Fund (GCF):

  • Had served in compliance panel of ADB from where he is departing. Has done research on compliance mechanisms from the CSO side.
  • Many similarities between IFC and GCF – as both focus on use of financial intermediaries (FIs), which is a challenging area.
  • Difference – GCF has very specific mandate from UNCCC to fund transformative projects.
  • Engagement of management in projects – Management is perceived as not working closely with CSOs as generally don’t see it as function of management – rather of states or client. Tend to engage only reactively when problems are identified. This is not sufficient. Does not foster relationships.
  • In complaint process, or compliance side, early engagement of management is very important. In ADB this happens – special project facilitator – engages management and complainants. At IFC interaction happens late in the day. Recommends earlier involvement of management as this avoids entrenched positions.
  • In general, management response to issues identified has not been good. Management is required to develop an action plan. In ADB – formerly panel responsible to produce recommendations for remedial actions was opposed by management and disbanded. Some plans result in little or no action. Better effort required of management.
  • Management responsiveness begins at project design stage – it must have capacity to address issues. This is why institutions have safeguard units. Unfortunately – there is little capacity at the design stage – ES staff are not empowered. Internal personal management, and incentives are barriers – may speak up, but may not take a strong stand at the design stage.
  • What is meant by accountability: preventive systems; corrective actions (CAO, etc); punitive or sanctions area (element not covered by mechanism) should be dealt with internally by management however. In many cases of gross negligence staff are not punished and are instead promoted.

BIC:

  • Presentation of findings of Glass Half Full report
  • Overview of serious harm caused to communities. Report finds that “Outcomes of complaints rarely provide adequate remedy for harms suffered”
  • Focus on prevention – need to make IFI involvement clear. IFC FI investments are not transparent.
  • IFIs should not rely on client systems or reporting alone. Currently persistent over-reliance.
  • Need to ensure that projects are rejected if there are serious concerns.

Responding to harms

  • Some positive examples of management intervention – Mumbai Urban Transport.
  • Sometimes response is commensurate – suspension of loans to Cambodia.
  • Suspension of palm oil investments.
  • When audits find that harm has been done, the rejection of audit findings in adding insult to injury.
  • GHF report found that Action Plans were developed in only 7% of cases. Varied quality of plans – lack of consultation with communities in development of action plans remains a key shortcoming. They should mandatory in every case.
  • Need to ensure that communities are protected from reprisals. IEB has an appeal mechanism when communities disagree.
  • Allow space for IAM – eg, management should push governments and clients to engage with IAM and open space for site visits.

Fundamental observations:

  • ‘Human rights free zone’ – IFI standards are not compatible with international human rights law.
  • Perhaps IFIs will not learn lessons until they are forced to pay. Need to lift immunity of IFIs.
  • Need to make recommendations binding.

Word to Tata Mundra community member related community experience with IFC process.

  • Noted that community was not provided CAO report
  • IFC did not visit the community. This is insulting
  • At least ADB visits the community and conducts studies – disagrees with findings, but appreciates that they visit.
  • The lack of response from IFC is very disappointing to community members.
  • Depleted fish catch.
  • Double standards – use of dubious EIA agency which is being used by both ADB and IFC.

US Treasury:

  • US is interested and engaged in MDB/ IAM. Looking at GCF mechanism.
  • Shares similar concerns as others. Perspective of shareholder (previously at US ED’s office). Now working at Treasury on accountability issues.
  • There is a need for a proactive preventative approach – work with clients- consultations, ensure clients have robust ESMS of clients; need for redress mechanisms within projects.
  • Disclosure and IFI access for communities. Communities must know when/ whether IFIs are involved. This should help in early identification of issues.
  • When formal complaints take place it is incumbent on management not to be defensive or take legalistic approach. Should focus on need to remedy issues. Particularly given institutions have privileges and immunities.
  • Must respond adequately to findings.
  • Two cases presented: Bad: Meduki power plant in South Africa – Inspection Panel – par excellence example of legalistic approach. Good case: Dinant – IFC management was initially reluctant but has now developed a good action plan.
  • Role of the Board: There may be cases that the Board must step in. This does not happen frequently. Institutions must be accountable, as they are eventually responsible.

Chair:

Focus on prevention is key. Represents Mongolia – which would appreciate support in responding to cases. At times Board speaks as it is separate from management. Agrees that immunity and privileges seem at odds with approach to private sector and that lifting immunities and privileges would perhaps focus the minds of Board members.

CAO:

  • Too much attention focused on reaction to problems. Accountability is not an outcome but a state of mind.
  • Role of management is multi-faceted. Start with disclosure. Disclosure is imbedded into all institutions, including safeguards. Community engagement and participation at the front end. Hear the words of ‘inclusive development’ often – need for consultation.
  • Need to focus on project-level grievance mechanism. At CAO, this is not always the case – allows clients to identify issues.
  • Course-correction – Not a back-end approach. It has entry points at every stage of the project cycle.
  • Complaints and mechanisms should be last resort. What is the role of management in dispute resolution mechanism? Management should not fear CAO or IAM mechanism involvement.
  • Lack of acknowledgement by management is of the difficulties faced by communities in bringing cases to light is very troubling – bringing forth complaints is stressful, difficult and potentially dangerous. Management must recognise this is the case. Communities must be included in solution framework. Need for clear justification by management where disagreement arises. Management responses tend to be open-ended. Must be time-bound and clear.
  • Non-compliance must be addressed by client – through management support and pressure. Need to internalise ‘lessons learned’.
  • There have been some positive steps taken, however there remains a need to ensure action plans are develop at the specific project level.

Discussion:

IFC – Morgan Landy:

  • IAMs are core. CAO is core part of IFC. Proud that CAO the ‘best in class’ mechanism. Agrees with need for better management involvement at an earlier stage. Would support more use of dispute resolution. In the past staff were less sure about their involvement at early stages.
  • Noted recent example of Albania where staff have been involved at an early stage and have visited the project several times to address issues of concern.
  • Working to internalise findings and experiences in cases where complaint becomes a compliance issue –IFC has been asked to increase engagement in IDA and FCS, therefore learning is essential.
  • IFC has posted a new document on lessons learned on its website.

Questions:

  • To what extent has the change of mentality vis-à-vis acceptability of bringing up problems been internalised by the organisation? Need to change incentive structure away from focus on project pipeline.
  • Frustration with president Kim’s performance at town hall meeting. It seems many people within the institutions need support.
  • IDA replenishment – how will ES framework work in FCS. Has the balance between financial and ES risk at FCS been analysed and a new mechanism developed to deal with the complexities of fragile countries?
  • Part of difficulty with process centres on client selection – Private companies would react positively to a clear, well-publicised and consistent framework.
  • There is a need to ensure that all voices are heard in investigations – eg. FICOHSA and Dinant. Representatives from both should be invited to attend and provide their perspectives.

Question to Board: what is the responsibility of board in regard to brining non-compliant projects into compliance and ensure remedy.

IFC response:

  • Everything that IFC finances is available prior to project approval as projects are listed on the website 60 to 90 days prior to approval. Appreciates need to focus on incentive. New CEO is very focused on development impact. Agree that all staff need same incentives.
  • Emphasise that IFC is changing – eg – heavy participation of IFC staff at recent civil society roundtable event.

Board response:

  • Board seeks to ensure compliance through safeguards. It is the Board’s responsibility to bring projects back into compliance. Concerned in constituency that some small countries will not have resources to implement safeguards.

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