Uptake of Independent Accountability Mechanisms at MFIs

Responding to stakeholder expectations, leading multilateral financial institutions have adopted Independent Accountability Mechanisms. They typically provide problem solving, compliance review and, in some instances, broader advisory services. Their case load and sectoral distribution varies considerably. Should IAMs be expanded to other bodies, like the Equator Banks?

 

 

There has been a remarkable uptake of independent recourse and accountability mechanisms (IAMs) at multilateral financial institutions (MFI). IAMs have been established in response to demand for greater accountability and transparency at MFIs. IAMs were mandated to receive complaints about adverse environmental and social harm from MFI-supported projects. In response to eligible complaints, IAMs typically provide problem solving, compliance review and, in some instances, broader advisory services.

IAM of Major MFIs
Name of MFI Name of IAM or Unit Set Up
African Development Bank (AfDB) Independent Review Mechanism 2004
Asian Development Bank (ADB)

Accountability Mechanism

2003
European Bank for Reconstruction and Development (EBRD) Project Complaint Mechanism (PCM) (previously Independent Recourse Mechanism) 2004
Inter-American Development Bank (IADB) Independent Consultation and Investigation Mechanism or ICIM (previously Independent Investigation Mechanism) 2010
(1994)
International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA)

Office of the Compliance Advisor/Ombudsman (CAO)

1999

 

Problem Solving

Most IAMs are designed to provide structured and participatory problem solving services. Following receipt of eligible complaints by project affected individuals, communities or their proxies (such as NGOs), IAMs provide facilitation and mediation services and a space for dialog. Although often viewed as the most valuable aspect of IAMs, the problem solving approach can only succeed if parties involved in the dispute are willing to engage and commit to a journey that may lead to solutions. 

Compliance Review

In addition to having a problem solving function, IAMs are typically also designed to conduct compliance reviews. The objective of such reviews is to determine if and how MFIs applied their social and environmental policies and procedures during project appraisal and/or implementation. Contrary to some expectations, the MFI’s client/investee is typically not a central subject of an IAM compliance review. However, given that it takes two to tango, the need to understand the effectiveness of MFI appraisal, adherence to policies, approach to monitoring and other interventions does shed light on the performance of the investee too. Often, IAMs perform compliance reviews after the mediation option has been attempted without reaching a desirable outcome.

Advisory Role

Some accountability mechanisms have been given and/or pursue broader advisory mandates (while others deliberately avoid this role). Some of the resulting initiatives may be perceived to be overlapping with, for example, routine staff monitoring and trouble shooting of projects, the policy making and supervisory role of the board, the role of evaluation units, and technical assistance and capacity building initiatives that could be performed by other parties. However, the unique make-up, role and credibility of many IAMs can result in unique additionality related to their advisory role. In particular, an IAM involvement can materially improve stakeholder engagement and buy-in.   

Variation in IAMs' Case Loads

A brief review of complaints lodged with IAMs of selected MFIs suggests major differences between their case loads and their sectoral distribution. This can be seen by taking a look at the cases registered by the EBRD and IFC. 

EBRD’s PCM: The 2011 Annual Report of EBRD’s Project Complaint Mechanism (PCM) identifies five projects that attracted one or more eligible complaints (ten complaints were rejected). The majority of the eligible complaints relate to infrastructure/power projects as listed below. In FY2011, no complaints were lodged in sectors such as extractives or financial intermediaries. This is despite of on-going NGO advocacy campaigns targeting related EBRD projects and activities.

EBRD’s registered IAM cases in FY2011

Project Name

Country

Sector

D1 Motorway (Project canceled)

Slovak Republic

Infrastructure

Tbilisi Railway Bypass (4 complaints)

(Project canceled)

Georgia

 

Infrastructure

Boskov Most Hydro Power Project

(2 complaints)

FYR Macedonia

Power & Energy

Ombla Hydro Power Project

Croatia

Power & Energy

Paravani Hydro Power Project

Georgia

Power & Energy

 

IFC/MIGA’ CAO: The case load of IFC/MIGA’s Compliance/Advisory Ombudsman (CAO) office are detailed in its FY2011 Annual Report. It details 9 projects (listed below) which attracted eligible complaints and/or were transferred from the CAO’s problem solving mechanism to its compliance review function. The extractive sector, including two major oil pipelines, dominate the complaints deemed eligible by the CAO in FY2011. Invoking its advisory mandate, the CAO also initiated other initiatives, including a Compliance audit of IFC's financial sector investments in FY2011.

 

IFC/MGA’s cases registered in FY2011

Project Name

Country

Sector & Comments

PT Weda Bay, Nickel

Indonesia

Extractive

Mozal aluminum smelter**

Mozambique

Extractive

Pronaca Expansion

Ecuador

Agribusiness

Bujagali Energy-04 and 05

Uganda

Hydro Power

India Infrastructure Fund: Dhenkanal District

India

Financial Intermediary

Panama Canal Expansion

Panama

Infrastructure

Chad- Cameroon Pipeline-02

Cameroon

Extractives

BTC Pipeline-33

Georgia

Extractives

Tata Ultra Mega

India

Power & Energy

 ** See also BHP MOZAL Smelter Back for OECD MNE Review

 Have you been an MFI client/investee that was subject to an IAM intervention? How did the IAM intervention manage to add value? Do you see value in expanding the IAM concept to groups like the Equator Banks (see also Should Equator Banks use Assurance?). You may also be interested in a related blog entry: Asian Development Bank updated its IAM.

 

 

About the author: Mehrdad Nazari (MBA, MSc, LEAD Fellow) is a Director of Prizma, a niche ESIA and CSR advisory practice. He was previously a Principal Environmental Specialist at the EBRD and spearheaded problem solving initiatives relating to the Kumtor gold mine in the Kyrgyz Republic before the EBRD set up its IAM. Mehrdad also assisted IFC’s CAO with a compliance review of the IFC relating to the Lukoil Overseas Project/Karachaganak project in Kazakhstan. Mehrdad served as an expert witness on an international arbitration case before the World Bank’s International Centre for Settlement of Investment Disputes (ICSID). He also contributes to ESIAs, stakeholder engagement, corporate responsibility or sustainability reporting and capacity building programs. Access Prizma’s latest newsletters here.

 

4 Comments to Uptake of Independent Accountability Mechanisms at MFIs

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