Development Finance Accountability Mechanisms

If you have identified an international development bank in your investment chain, there is a good chance that it has its own complaints office, usually known as an “accountability mechanism.” An increasing number of national agencies, including bilateral development banks, export credit agencies and aid agencies, also have their own accountability mechanisms. Most accountability mechanisms have a degree of independence from the financial institution’s day-to-day management.

If the community you are supporting has been harmed, or fears harm, caused by a project that is backed by a development bank, they may be able to file a complaint with the bank’s accountability mechanism. For example, if the community is harmed by a mine that is financed by the International Finance Corporation, you can file a complaint to its accountability mechanism, the Compliance Advisor Ombudsman (CAO). Each accountability mechanism has its own procedural rules for handling complaints, so it is important to read the rules published by the mechanism you are considering using.

Note that some accountability mechanisms, such as the Asian Development Bank’s Accountability Mechanism, require that you first try to resolve your grievances directly with the development bank’s operations staff or management. In such cases, before filing a complaint, write to the senior management of the financial institution outlining the grievances and what you want the institution to do. Provide a deadline to respond, which will indicate that the community intends to file an official complaint to the accountability mechanism if they don’t get a satisfactory and timely response. Sometimes the threat of filing a complaint can be just as effective, or even more so, than the actual filing of the complaint in getting the institution to take action. If this doesn’t work, you will have the paper trail that you need to take the matter to the accountability mechanism.

Your complaint should clearly explain the harms suffered or anticipated due to the project, along with the remedies and other outcomes sought. If you have a report setting out the impacts, you can send this along with the complaint. For most accountability mechanisms, it is advisable for the complaint to also describe violations of the institution’s policies and procedures.

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While some accountability mechanisms accept very short, simple complaints, it is often helpful to provide details about the violations and resulting harm, as well as supporting evidence. Taking the time to develop a strong complaint will help the community be more prepared to engage with the process with clear information about the facts and impacts. Providing detailed information will also help the people working at the mechanism better understand the situation, enabling them do a better job of trying to resolve the problems or assess compliance with relevant policies. Finally, many development banks and their company clients respond defensively to complaints. If you decide to use the compliance function, which is explained below, the institutions lawyers will write a response to your complaint. If your complaint is well written and backed by evidence, it will be harder for the institution to refute or discredit the claims.

Most accountability mechanisms address complaints through two functions: 1) dispute resolution and 2) compliance review.

Dispute resolution is a voluntary dialogue process between the parties, which is typically the community complainants (sometimes supported by CSO advisors or representatives) and the company, but can also involve the development bank itself and other responsible actors in some capacity.

Typically, the accountability mechanism hires a neutral mediator to facilitate negotiations between the parties or to support other voluntary processes to resolve grievances. The process often takes several months or even years. Accountability mechanisms usually also have a mandate to monitor the implementation of any agreements reached.

Compliance review is a process of assessing whether the bank has violated its own social and environmental policies, and whether violations have caused or contributed to the harms suffered by the complainants. While compliance reviews focus on whether the bank complied with its own rules for providing financing and supervising their clients, a good investigation will also assess whether the bank’s client met environmental and social standards on the ground. After investigating, the accountability mechanism produces a report that may, depending on the mechanism, include recommendations on how to remedy any harms caused by non-compliance. Generally, the mechanism submits the report to the bank’s leadership, which decides whether to accept any recommendation or implement any remedial actions along with its client. This process and the rules for how the banks respond to compliance reports and recommendations varies across mechanisms and banks.

In deciding whether to use dispute resolution or compliance review, it is important to focus on the community’s goals, its capacity to engage in a mediation process, and which function is more likely to achieve the desired result. For many communities, it is strategic to choose both functions, since they have different pros and cons, as described below.

Dispute resolution provides an opportunity for direct dialogue with the company causing harm, and the involvement of an independent mediator, along with other factors, can help mitigate the power imbalance between the community and the company. Dispute resolution also allows the community to prioritize issues and negotiate for the specific solutions they want, such as water restoration, better conditions at resettlement sites or any other type of resolution to the problems. The community can choose to stop the process at any point if they believe it is not effective at addressing their problems. However, since it is a voluntary process, the bank’s client (which is usually responsible for the harm) may not agree to participate in the first place, or if they do, they may not participate in good faith with a genuine intention to listen to the community and remedy harms.

Dispute resolution processes may take several years, and effective participation requires good community organizing and a significant time commitment by at least some community members. To be successful, community representatives will likely need training in negotiation skills and support throughout the mediation process. Also, if there are security concerns, it is hard to keep community members’ identities confidential in these processes, since they typically need to sit across the table from the company.

 

For a good example of the potential of dispute resolution, see:

Compliance review is typically less time consuming for community members. At best, the final report may validate the community’s concerns and find breaches of the applicable social and environmental standards. At some institutions, the bank is required to respond to non-compliance findings by working with their client to implement remedial actions. Sometimes they are required to consult the community about how to remedy the problems. However, because complainants do not typically play a large role in compliance review processes, they have less ability to shape priorities or solutions. These processes may also take several years and the accountability mechanism may not agree with all of the community’s concerns. In many cases, even strong compliance reports and recommendations do not translate into needed change on the ground because accountability mechanisms do not have the power to enforce their findings and recommendations.

For a good example of the potential of compliance review, see:

With either dispute resolution or compliance review, it is important to use other forms of complementary advocacy both before and after filing a complaint to increase pressure on the relevant actors to do the right thing. This includes advocacy aimed at the senior management and/or board of directors of the development bank, as well as other actors in the project’s investment and supply chain. For example, once you file a complaint, it is a good idea to write to a company’s shareholders, lenders and buyers, and other key pressure points, to alert them to the complaint. If the community wants to try mediation, you can ask those actors to use their leverage with the company to implore it to agree to mediation and engage in good faith to address the community’s concerns. Media advocacy when you file a complaint or when it is found admissible by the mechanism can help increase pressure on the company and the development bank.

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In setting the ground rules for a dispute resolution process, it is important to avoid overly broad confidentiality rules. This is important because it is often helpful to engage with other actors along the investment and supply chain throughout the process to keep them updated and ask them to use their leverage if the company is not negotiating fairly.

During compliance review, you should engage with the development bank throughout the investigation to ensure that the case remains visible during what can be a slow process. Once the investigation is complete, you should be prepared to advocate for a specific outcome with the institution’s leadership, such as the executive directors and/or highest level of management. Remember that it is the institution’s leadership that will ultimately decide whether to approve any remedial actions.

Using accountability mechanisms is most effective when complainants and their allies remain actively engaged in advocacy with the relevant institutions and other actors throughout the process. Even if you end up with a strong agreement or final compliance report, there needs to be pressure on all relevant actors to actually implement remedial actions.

Financial intermediary complaints

In the past, most development banks loaned money directly to companies and governments managing large projects. However, development banks are increasingly allocating large portions of their lending to commercial banks and private equity funds. These “financial intermediary” clients then lend the money to end users. The money is difficult to track, even for the development banks themselves, which poses serious transparency and accountability problems.

As development banks have increased their financial intermediary portfolios, the number of financial intermediary complaints to accountability mechanisms has increased as well. If there is a development bank in a project’s investment chain, even if the bank is not directly supporting the project, you may be able to use the bank’s accountability mechanism. However, many mechanisms’ procedural rules were not developed with financial intermediary complaints in mind, and it can be challenging to know whether a financial intermediary complaint will be eligible prior to filing.

The International Finance Corporation’s accountability mechanism, the Compliance Advisor Ombudsman (CAO), has received the highest volume of financial intermediary complaints. Its policy adopted in 2021 now includes specific criteria for these complaints.

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If the community decides to file a complaint to an accountability mechanism about a project financed by a financial intermediary client of a development bank, there is an important difference to keep in mind. The development bank does not have a direct relationship with the company operating the project and therefore the company may not have committed to respecting any environmental and social standards, so it may feel less pressure to participate in the complaints process. This makes it even more important to conduct complementary advocacy, including engaging other actors along the investment and supply chain and asking them to use their leverage to create pressure on the company.

If you are considering a financial intermediary complaint, it is advisable to seek the advice of an organization experienced with these types of complaints.

To read an example of how communities effectively used a financial intermediary complaint as a key part of their strategy to secure justice for forced displacement, see:

USEFUL RESOURCES

The Independent Accountability Mechanisms Network (IAMnet) brings together the most active development finance accountability mechanisms. Its members include the accountability mechanisms associated with the following institutions, whose website addresses are linked below:

African Development Bank (AfDB)

Environmental Defender Law Center

Asian Infrastructure Investment Bank (AIIB)

European Bank for Reconstruction and Development (EBRD)

European Investment Bank (EIB)

Green Climate Fund (GCF)

Inter-American Development Bank (IADB)

International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA)

United Nations Development Programme (UNDP)

World Bank (International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA))

Several other bilateral and regional development finance institutions are also members. The network has developed criteria for membership, including independence from the operational management of the institutions and principles for cooperation between mechanisms. It also developed a guide for addressing the risk of reprisals in complaint management. Several of the mechanisms have also produced useful guides and toolkits relevant to a variety of accountability and complaint-related topics.

You can find links to organizations that assist communities in filing complaints to accountability mechanisms on the Using Non-Judicial Grievance Mechanisms page.