A bigger bank should mean a better bank for communities affected by climate change
By Rabi Thapa
At the 2023 Independent Accountability Mechanism Network (IAMnet) Annual Meetings in London, participants discussed accountability and climate change for the first time. A session considered whether international financial institutions (IFIs) have adequate safeguards in place for projects with climate change impacts, and if accountability mechanisms were ready for an anticipated increase in related complaints.
As discussed at COP28, there has never been a more critical time to consider how fossil fuels can be phased out and more emphasis placed on climate mitigation and adaptation projects. The World Bank has declared that “Climate change, poverty, and inequality are the defining issues of our age” and, according to a recent press release, plans to devote 45 percent of annual financing to climate-related projects for FY2025.
Accountability faces the challenge of keeping pace with plans for a “bigger and better” Bank, both with respect to complaints associated with conventional development projects, including mining for minerals needed for the energy transition, and renewable energy projects such as wind and solar farms. Accountability and transparency were discussed at COP28, but focused on financial flows rather than project-level accountability for communities experiencing the harsh realities of climate change.
Increasingly, complaints are referencing climate-related impacts. The World Bank-funded West Africa Coastal Areas (WACA) Resilience Investment Project seeks to strengthen the resilience of coastal communities in nine countries, including through engineering works to reduce coastal erosion. A recent case with the Bank’s Inspection Panel focused on two WACA sub-projects in Togo and highlighted the project’s impacts on fisherfolk livelihoods. Similarly, the Compliance Advisor Ombudsman (CAO) of the International Finance Corporation/Multilateral Investment Guarantee Agency is currently handling several cases with climate impacts, including a complaint filed by over 100 citizen groups and 19 affected communities, which cite both local and climate impacts from 19 proposed or active coal plants in the Philippines.
David Hunter, professor at American University’s Washington College of Law, explains that the human rights approach, which IAMs draw on, can be applied to development projects with climate impacts: “The climate commitments that countries are making can be enforced through domestic law. We can link climate change impacts to interference with the human rights of local communities; IAMs can access this attribution science to show how climate change has exacerbated harms to the community. Also, climate change now has to be considered throughout the project life-cycle. Failure to do so can be the basis for an IAM case. Whether harm has been caused by the project or by climate change may not make a difference to the community and shouldn’t make a difference to the IAMs.” Even where causality between individual projects and climate impacts is difficult to establish, Hunter maintains, IAMs can facilitate a dialogue that focuses on improving the communities’ living conditions without having to prove whether climate change, bad project planning or both have caused the damages.
Sonja Derkum, head of the Independent Redress Mechanism (IRM) of the Green Climate Fund (GCF), clarifies: “A complaint processed under dispute resolution can provide an entry point to discuss and try to resolve challenges arising in specific project circumstances. Here, the scope of discussion will be restricted to impacts or potential impacts connected with the project and/or the complainants. In most cases, though, the impacts of climate change will go beyond the scope of the project and the complainants. The public nature of the discussion should, as is the case in the IRM’s dispute resolution procedures, include relevant actors so that the dialogue and solutions reached within such a process include as many stakeholders as possible.” On the other hand, Derkum says, “Compliance review offers an opportunity to look at the policy and practice in any given financing institution and their financing partners regarding how they go about their commitments related to climate change. Compliance review can clarify the decision-making process and, optimistically, spur institutional change where there are minor or major policy gaps.”
How the complaints process is conducted can have a huge impact for climate change-related impacts. In mediation, more complex arrangements may be structured to accommodate multiple stakeholders in climate-related cases. As Wolf von Kumberg, an independent arbitrator and mediator at Arbitra, says: “Mediation isn’t just the process of having the discussion. It’s also the process of designing the process itself, and mediators are skilled in this process design aspect and in managing the process until you get to a resolution. Mediation can be adapted to the situation, so it has a lot of scope dealing with climate issues.”
Many practitioners emphasize the need to properly implement existing IFI safeguards. After all, most complaints arising from both conventional and renewable energy development projects deal with the same issues—lack of consultation and disclosure of information, compensation for land, displacement of communities, and disruption of traditional livelihoods. Scott Adams, senior dispute resolution officer at the World Bank Accountability Mechanism, says: “Clean energy transition and climate adaptation and resilience projects can raise the same challenges as any big development project. We might be fixing one problem but creating new ones that weren’t there before. These are potential sources of conflict, and in the case of Bank projects, complaints relating to the project could come to us. As mediators and facilitators we can bring the stakeholders together, bring these challenges to light, and try to find a way forward that works for everybody.”
Climate change impacts will go beyond local projects, so IFIs will need to adapt and enhance existing safeguards, while IAMs will need to build the skills to be able to check compliance against these changes in safeguards. New approaches and guidelines are in fact being developed by IFIs, either to address growing renewable energy needs (e.g., the World Bank set up the Climate Smart Mining initiative in 2019), or to reduce greenhouse gas emissions in existing infrastructure industries (e.g., the International Finance Corporation is working to decarbonize the cement industry).
In that regard, some IAMs may be better placed than others to take on climate change complaints. Sonja Derkum outlines the IRM’s focus, which derives from GCF: “Climate change is mainstreamed and integrated into every aspect of GCF’s programming and operations. GCF places a large emphasis on concrete results in terms of climate mitigation and adaptation. This can arguably be considered an equally important priority compared to return on investment.” She explains: “How IFIs interpret climate-related objectives within their risk evaluations will significantly influence the integration of climate considerations across these institutions.” Finally, the IRM possesses two extensions to its mandate that boost its ability to identify and resolve complaints early in climate projects: firstly, it devotes a share of its resources to building the capacity of local grievance redress mechanisms, and secondly, unlike most IAMs, it is able to self-initiate complaints (rather than only respond to complaints filed by external requesters), assisted by its media monitoring of GCF projects.
Other IFIs such as the Asian Development Bank (ADB) are revising the safeguards against which their IAMs will measure their projects. A draft Environmental and Social Framework is currently under consultation that features climate change prominently, with mandatory project-level requirements designed to “avoid and, where avoidance is not possible—minimize, mitigate, and compensate for adverse impacts of ADB projects on people and the environment, taking into consideration climate change risks.”
Kate Geary, co-director at Recourse, refers to “the dance between the mandates of IAMs and the standards that they can use”, but also points out the opportunities provided by climate challenges and massive increases in climate finance to meet IFI targets. According to her, now is the time for IAMs to ask for proportionate resources and a broadened mandate to secure accountability for communities.
However, Dustin Schäfer, head of the IFI-Team at Urgewald, warns: “It’s clear that IFIs will spend more money faster, but I don’t see enough efforts within the institutions to address the additional risk this involves, especially if, as intended by the World Bank, you go into fragile conflict states. More generally, IFIs see accountability as an obstacle to faster disbursement and bigger lending volumes, and I don’t see that that the institutional culture and incentives are yet in place to make sure that you not only achieve the development impact of every dollar you spend, but also prevent undermining of this investment because of negative impacts.”
The very nature of climate change requires projects to incorporate resilient approaches and adaptive infrastructure for long-term sustainability. Much of this pertains to project planning and design. When Requesters file a complaint during the planning stage of a project, it may be possible for Management to make changes to the project that make it more resilient to climate change and for the IAM to hold the parent institution to account and potentially learn wider lessons. David Hunter explains: “IAMs can bring expertise to the table that helps both parties understand the trendlines in planning for resilience down the road. In fact, adaptive planning could be provided as an optional service.
The complaint submitted in respect to the WACA Resilience Investment Project in Togo, for instance, has improved the World Bank Inspection Panel’s understanding of how climate change impacts can relate to project assessments and IAM compliance investigations. A blog by Panel Chairperson Mark Goldsmith states: “[T]he combination of climate change impacts (in this case on high coastal erosion rates) and human activities, can present additional challenges to the preparation of key project safeguard instruments such as the Environmental and Social Impact Assessment (ESIA) and Resettlement Action Plans (RAPs) … These high erosion rates can mean that the area of land considered and associated potential impacts for a project may change from the time the ESIA analysis is done to when the construction period starts—there is, what could be termed a ‘moving baseline,’ and any potential RAPs may need to take this into account.”
According to Wolf von Kumberg, IFIs will be involved in both funding new renewable energy projects and decarbonizing older infrastructure. As a result, “Mediation can be structured so as to be used, not only once a problem arises, but potentially also when the project is being discussed, because people who are trained as mediators can also facilitate mediation at the outset of projects.” Early stakeholder engagement is critical as this can play a key role in resolving issues before breakdown of trust and potential harm to the communities affected.
In terms of sector-specific skills, Kate Geary highlights the growing risks that energy transition minerals pose, particularly to indigenous lands, and its implications for IAMs: “I think skilling up on indigenous rights and how to involve indigenous peoples in mediation or in in compliance reviews, alongside biodiversity expertise, is a whole area that will have to be expanded.” Referring specifically to a CAO dispute resolution process ongoing in Guinea to address the impacts of the mining of bauxite (a critical component of electric vehicles), she stresses the importance of benefit-sharing for communities and how we should learn lessons from past projects to avoid “green extractivism”.
Building up capacity, learning lessons and disseminating them, and advocating for an expanded mandate is linked to the resources available to IAMs within the framework of “bigger and better” IFIs and the political will of the shareholders to provide them. Dustin Schäfer acknowledges the competing demands that IAMs face in this regard. He says, however, that IFIs need to change their approach towards accountability and consider their IAMs as an independent resource that can be used to improve processes and identify problems early on—just as his own institution, Urgewald, provides IFIs with independent research. He adds: “We all know this is very challenging, but to address the complexity of climate change, IFIs need an eye on the ground and should not ignore the evidence from compliance investigations.”
Finally, David Hunter points to one of COP28’s early outcomes as a potentially valuable model for communities most affected by climate change—the Loss and Damage fund: “This fund is essentially a no-fault remedy fund for victims of climate change; a similar fund for loss and damages from bank-financed development should be possible. For some of these projects, it just doesn’t take that much to help the people affected. If we felt that there was a moral, development-based obligation, rather than a legal obligation, to not impose all the costs on a community for some broader benefit, one could imagine a dispute resolution process that was able to use this funding—call it a development fund, maybe—to facilitate an agreement, or for compliance to lay the ground for communities to be able to claim compensation.”
Climate change has generated immense challenges for communities across the world, but creative solutions are being hammered out across the board by institutions working to address its impacts. IAMs too will have to evolve with the challenges facing them, old and new, if they are to fulfill their mandate to serve communities facing not just the impacts of climate change, but also the impacts of climate change mitigation and adaptation.