A proposal for Ajay: No evolution without remedy

13 December 2023

At this October’s World Bank and IMF Annual Meetings in Marrakech, we heard from the Bank’s President Ajay Banga, who prefers to be addressed by his first name, that the World Bank needs to evolve into a “better” and “bigger” Bank that operates at greater speed and scale. This raised concerns among civil society organisations (CSOs), like the two we represent, that have repeatedly witnessed environmental and social harms caused by World Bank projects. and experienced how difficult it is for affected people to secure redress for those harms. Despite our well-founded fears that a bigger Bank functioning at a quicker pace will cause more harm, we are prepared to offer Ajay a deal.

So, Ajay, here is the proposal: We can accept that the Bank must evolve and that “ending poverty on a livable planet” requires bold actions. In return, we ask that the Bank accept and bear the risks of those actions.

In other words, the Bank needs to add remedy to its Evolution Playbook.

Embracing a new remedy approach in line with the UNGPs will support the Bank to tackle the crises of our time without externalising risk onto the poor communities it is committed to serve.

Put simply, “remedy” means taking action to ensure that adverse human rights impacts caused by development projects are addressed and rectified. Absent a commitment to remedy, even with the best of intent, the Bank will fund projects that externalise costs to project-affected people and the environment. Adding remedy to its Playbook need not slow the Bank or make it more risk averse. On the contrary, embracing remedy will enable it to move more quickly on bolder initiatives, secure in the knowledge that it has the tools to course correct if things go wrong (see Observer Summer 2022).

Yet, we’ve seen intense resistance from the Bank. Earlier this year, the International Finance Corporation (IFC), the Bank’s private sector arm, opened a public consultation on a proposed approach to remedy. In 2020, an independent expert review, led by former IFC CEO Peter Woicke, made pointed recommendations regarding the need for a remedy framework. Rather than addressing Woicke’s recommendations, however, the IFC threw up a smokescreen, proposing a pilot of undefined measures seemingly designed to distract from its unwillingness to remediate harms caused by its projects. Global civil society gave the paper a resounding fail, urging the IFC to go back to the drawing board and draft an approach that accords with international standards.

Per the United Nations Guiding Principles on Business and Human Rights (UNGPs), if a project’s financier contributes to harm, it must also contribute to remedy. A financier contributes to harm if it: (a) has knowledge of, or should have known of, potential or actual adverse human rights impacts caused by a client or investee; and (b) fails to take reasonable steps to prevent or mitigate such impacts through its due diligence and supervision processes.

Bridge Academies scandal points to acute need for IFC remedy fund

Shocking news of child sexual abuse by teachers at schools run by an IFC client, Bridge International Academies, provides an opportunity for the World Bank Group to show that it understands its responsibility to contribute to remedy when it has contributed to harm. The IFC invested in Bridge in 2013 to help it scale up a chain of for-profit private schools in Kenya and beyond. But according to a leaked investigation by IFC’s internal watchdog, the Compliance Advisor Ombudsman (CAO), the IFC failed to identify or mitigate the obvious child protection risks that emerged from its client’s cost-cutting business model. Worse, it is reported that when evidence of sexual abuse at Bridge schools emerged, the IFC ignored it, instead hatching a plan to “neutralise” CAO’s lead investigator and delay revelation of the abuse, lest the news “spook investors”. In March 2022, IFC exited the investment without taking any steps to ensure that the Bridge child sexual abuse survivors received remedy (see Observer Summer 2022). This is a clearcut example of the IFC contributing to egregious harm.

That’s why we join US Senators Elizabeth Warren and Peter Welch and civil society groups around the world in calling on IFC to contribute to a remedy fund for Bridge child sexual abuse survivors. The IFC should do this together with Bridge and its other investors, which include an array of other development finance institutions from the UK’s Commonwealth Development Corporation to the US’s Development Finance Corporation. In November, the IFC responded to our letter saying that it had already “worked with Bridge to address gender-based and child safety issues” and claiming that its exit from Bridge was “responsible”, but did not commit to remediating the harm.

We’ve heard skeptics say that it would create a “moral hazard” for financiers to contribute to remedy. This is backward thinking. Moral hazard exists where a company takes on excess risk because it knows someone else will pay the price. Following this definition, it is the ability to externalise environmental and social costs onto project-affected communities that creates a moral hazard, as this incentivises financiers and their clients to take on projects without fully accounting for – and indeed being accountable for – their impacts. Sure, hypothetically financiers could create a moral hazard for their clients if they were to regularly accept too much responsibility for remedy. But they can avoid this exposure by ensuring that investment agreements require clients to address environmental and social harm and incorporate sanctions if they fail to do so.

Embracing a new remedy approach in line with the UNGPs will support the Bank to tackle the crises of our time without externalising risk onto the poor communities it is committed to serve. The alternative is grim: A bigger Bank, externalisng the costs of development on the poor, with greater speed and at greater scale than ever. That is why we say there can be no evolution without remedy and ask Ajay to accept our proposal.