After international outcry for greater accountability and transparency, in 1999 the World Bank established The Office of the Compliance Advisor Ombudsman (CAO). The Ombudsman’s role is to review complaints from private citizens who claim to have been harmed by private sector development projects funded by World Bank organisations.
When created, CAO was a first of its kind accountability mechanism, and in many ways, is world leading. Yet its effectiveness in dispute remediation and enforcing accountability has often been called into question.
In a recent case, lodged against the International Finance Corporation (IFC), residents of 13 villages in western Guinea allege a $200m loan made by the IFC to the Compagnie des Bauxites de Guinée (CBG) mining project violated IFC’s environmental and social Performance Standards, as well as international law.
Funding controversial projects
The complaint filed by 540 villagers to CAO comes amid a backdrop of local discontent surrounding Guinea’s burgeoning mining sector. The West African nation is believed to have the largest reserves of bauxite in the world, which the government, along with international companies, has been eager to exploit.
Growth in mining projects however, has come at the expense of proper government oversight and livelihoods of locals, according to an investigation by Human Rights Watch (HRW).
CBG, which is co-owned by the Guinean government, US-based Alcoa, the Anglo-Australian Rio Tinto and the Guernsey-registered Dadco, has a mined deposit located in Sangaredi, as well as exclusive rights over a 579km2 mining concession in north western Guinea.
According to the 2018 HRW report, since CBG operations began in 1973, it has taken land from rural farmers without adequate compensation, exploiting the Guinean government’s failure to provide legal protections to customary land rights, and has polluted local water resources and air quality.
Yet despite this legacy, the company was still granted funding from the IFC, even though, according to the 2012 IFC Sustainability Framework, it was required to conduct environmental and social due diligence of CBG’s activities.
David Pred, co-founder and executive director of Inclusive Development International (IDI), a US-organisation supporting the complainants along with two Guinean NGOs, says IFC justifies these kinds of investments by arguing it will serve to raise standards and improve performance and human rights.
“That is good if there is genuine political and financial will to meet the IFC Performance Standards; but we often see only lip-service and a continuation of long-standing practices of externalising environmental and social costs,” he says.
Effectiveness of CAO
IFC policy states that if a client fails to comply with its environmental and social commitments as expressed in the legal agreements and associated documents, the IFC will work with the client to bring it back into compliance. If the client fails to re-establish compliance, the IFC will exercise its rights and remedies, as appropriate.
So far CAO is still in the process of assessing whether the Guinean villagers’ case is suitable for mediation. But Pred says IDI has heard bilaterally from CBG and IFC that they will agree to enter into a mediation process, though the commitment has yet to be formalised.
Pred acknowledges that CAO provides an accessible and independent mechanism for affected communities to pursue redress and that the system can be effective – but it often isn’t because it is entirely voluntary.
“IFC clients should be contractually required to cooperate with the CAO dispute resolution process, and if a compliance investigation finds the standards have been breached and people have been harmed, then CAO should have the power to order remedies,” he adds.
A 2017 report by the Berkeley International Human Rights Law Clinic, which studied the effectiveness of CAO in holding World Bank organisations to account and remediating disputes, found that while in many ways it has been very effectual, there were some failings and discrepancies.
For example, during the period it studied, which covered 72 cases, CAO did not mediate an agreement or conduct an audit in 62% of the cases it deemed eligible for review. In the majority of cases it investigated, CAO acted as a convener of dispute-resolution meetings rather than an investigator.
According to the author’s statistical analysis, complaints filed about extractive industries projects were significantly less likely to reach an agreement with the company, and for these cases CAO’s intervention lasted significantly less time when compared to those against non-extractive industry projects.
Similarly, the higher the revenue of the company involved in the project, the less likely it was for the complainant to progress to compliance review. For example, cases involving IFC’s largest borrowers— projects with loan commitments greater than $20m had significantly shorter duration than complaints with smaller project loans.
“There are clear tensions around whether economic issues should be prioritised over environmental and social ones,” says report co-author Roxanna Altholz, co-director and clinical professor at Berkeley International Human Rights Law Clinic.
Altholz and her co-author Chris Sullivan studied five different global projects, including several extraction ones, where communities had raised concerns about the social and economic impacts, and found these concerns were not sufficiently addressed. The projects moved forward, Altholz says, because they were deemed to be economically important to the host governments, the companies pursuing them and the IFC by providing investment returns.
“The community members [we spoke to] often described CAO as window dressing and conveyed a lot of frustration at its intervention,” says Altholz.
“But that is because it is very difficult to pursue a mission of accountability if the organisation doesn’t have the authority to make orders or provide remedy – those are the defining characteristics of accountability.”
Should the IFC have withheld investment?
The reports’ findings and the recent complaint against IFC certainly raise questions. For example, in the Guinean case, given the poor level of governmental oversight – well known because of CBG’s legacy of disputes with local residents – should the IFC have withheld investment?
“I don’t think that is the right question to be asking,” says Jim Wormington, a researcher for HRW Africa division, who notes that the IFC has put some pressure on CBG that has resulted in some improvements in environmental management.
“The question should be: if the IFC decides to invest in this project, what should it be doing to address not only the projects standards as it moves forward but also the legacy of CBG in the region?”
Wormington argues the IFC should do more and could have done more to pressure CBG.
“It is the right organisation to do this but it is unwilling to put the necessary kind of stress on these companies,” he says.
The IFC were contacted for comment for this article but did not reply. In a 2018 letter, CBG said it has improved environmental and social management since receiving the IFC loan and will consider any grievance related to past land acquisitions.
However, Pred says IDI want to see a fully-fledged commitment by the IFC and the other financiers to ensure the dispute resolution process succeeds in delivering redress to the Boke population for CBG’s decades-long legacy of harm.
Time for Change
Overall, Altholz says the IFC and CAO could do more in these cases if it wanted to.
“Arbitration agreements and provisions are a very normal part of a contract and are a condition loan parties often subject themselves to all over the world, they agree to a way to resolve disputes,” she says.
“The IFC, and the World Bank in general, has been reluctant to make real accountability of the loan agreement.”
However, she adds, while it is relatively easy to draft the provision, it is difficult to provide real oversight of environmental and social issues, but not impossible.
Mechanisms such as CAO are crucial and are sometimes the only form of potential redress available to communities harmed by internationally-financed development projects.
And where, like in Guinea, there is a desperate need to balance out the benefits mining can bring to communities, such as jobs and local investments, with better governmental oversight for land reclamation and environmental standards, capital providing organisations like the IFC could – and should – use their significant power better to wield change.