The Long Struggle for Accountability of IFIs: The case of the EIB and the World Bank (2009)

Bank-financed projects can involve significant social and environmental costs, such as displacement of local communities, threats to indigenous peoples, and the destruction or degradation of the environment not to mention failure to respect and enforce human rights. In response to NGO’s pressure, the international financial institutions eventually established a series of policies and procedures that sought to offset some of the environmental and social risks. Some faster than others, the World Bank in 1993, the European Investment Bank in … 2008!

The EIB just launched a public consultation on its Complaints Mechanism Policy, Public Disclosure Policy and Transparency Policy; first round of consultation ends July 24th. An opportunity for the European Civil Society and affected communities to tackle the policy of secrecy favoured by the Bank.

On March 18, 2009, for the first time in history, two of the major International Financial Institutions (IFIs) the World Bank and the European Investment Bank recourse mechanism representatives (1) met in Brussels and presented their respective rights to appeal. The World Bank Inspection Panel and the IFC & MIGA Compliance Advisor Ombudsman (CAO) joined the EIB Corporate Responsibility and Complaints Office and the European Ombudsman at the invitation of the Counter Balance coalition of NGO’s(2), Eurodad, and the Environmental Defense Fund (EDF).

This event follows up on the November 2006 CEE Bankwatch Network conference on EIB accountability: “Right to Appeal” – International Financial Institutions and accountability – on the way to independent compliance and appeal mechanism for the European Investment Bank.(3)

In 2006, no independent recourse mechanism was set up for the European Investment Bank and it has been a long struggle for the coalition of international NGO’s to push for reforms that would ensure the European Investment Bank creates a recourse mechanism in order to allow the local communities, often supported by western NGO’s, to file complaints when harmed by a project which received an EIB grant.

Although the World Bank was the first IFI to establish a pioneering accountability mechanism (3), according to Dr Maartje van Putten, former member Inspection Panel World Bank and former MEP: ”Many writing about the Inspection Panel have recognized its impacts on the operations of the World Bank: greater transparency and accountability and a voice given to affected people. Nevertheless, the Inspection Panel is still criticized for weaknesses in its mandate” (4). It is well-known to the NGO’s monitoring the activities of the World Bank that there were frequent attempts within the World Bank to diminish the powers and mandate of the Inspection Panel since its creation. NGO’s thus have a decisive role in watching over the IFIs accountability and recourse mechanism, always pushing for more transparency and effective control of IFIs.

Construction of Sardar Sarovar Dam

Picture credit: Sardar Sarovar Dam on the Narmada River (India)/International Rivers

Since July 2008, the EIB and the European Ombudsman signed a memorandum of understanding to authorise the European Ombudsman to hear complaints from European citizens as well as non-European citizens. With a current investment portfolio in more than 130 countries, the EIB, the EU house bank, is increasingly involved in lending operations outside the European Union. Its support for projects in South Africa, Asia, Balkans, the Middle East, and Latin America constitutes a significant portion of lending under the EU’s external development and economic cooperation programmes. It was thus impossible to leave a closed door to complaints arising from non-EU 27 citizens.

Recourse mechanism

In short, the World Bank Inspection Panel’s role is to carry out independent investigations into whether the World Bank has complied with its policies and procedures. Its function is triggered by a Request for Inspection, normally from people affected by a World Bank-financed project. The Inspection Panel, after receiving Management’s Response to the Request, independently assesses whether the criteria for an Inspection have been met and then recommends to the Board of Executive Directors whether or not the matters complained of should be investigated. If the Board approves a recommendation to investigate, the Panel will engage in research and fact-finding and provide its findings, independent assessment and conclusions to the Board. Management will submit to the Executive Directors for their consideration a report indicating its recommendations in response to such findings. All reports are made public.

According to its own internal evaluation, the World Bank continues to perform poorly when it comes to a coherent integration of environmental goals into its country strategies and investment portfolios” comments Korinna Horta, Environmental Defense Fund. The evaluation dated 2008 underlines three problems:

  1.  the lack of a common framework that would allow the World Bank Group to understand the full range of environmental impacts of its interventions, there is the risk that its private and public sector branches work at cross-purposes;
  2. the lack of internal coherence by reformulating its environmental strategy, taking into account the private sector and the protection of global public goods;
  3. the fact it is doing a poor job of monitoring and evaluating the environmental impacts of the programs it supports.

In that respect, the European Investment Bank has a long way to go. “To this day, we still have no transparency with regards to how the environmental and social guidelines are implemented internally in the loan evaluation process by the Bank. We do have however evidence gathered in fact-finding missions outside the EU that the EIB does not itself assess the environmental and social risks nor inform and consult local population in the developing countries, as it is prescribed in its procedures” comments Huub Scheele, Both Ends/Counter Balance coalition.

The Office of the Compliance Advisor Ombudsman (CAO) is the independent recourse mechanism for the private sector arms of the World Bank Group: International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA). The CAO has three roles including a problem-solving role, a compliance review role and an advisory role.

Most of the problem the CAO seems to encounter the outreach to the rest of the world. Their mechanism allows the CAO to start an investigation on their own without a complaint, which is actually what happens in most cases.

The EIB Complaints Office acts as the internal function of the EIB Complaints Mechanism, whereby it centrally manages all complaints of maladministration1 against the EIB Group with a view to fostering its accountability and transparency towards its stakeholders whilst ensuring the effective and efficient treatment of such complaints. The exhaustion of the internal complaints mechanism procedure is a necessary requisite for any complaint to be entitled to escalate to the European Ombudsman. The EIB Complaints Office reviews the admissibility of each complaint and decides which procedures to follow. This can be either handling the complaint as an official complaint to be directly dealt with by the EIB Complaints Office or to recommend measures of recourse prevention by assisting the services in their reply to the complainant.

The European Ombudsman investigates complaints about maladministration in the institutions and bodies of the European Union. The Ombudsman can also launch inquiries on his own initiative. If the case is not resolved satisfactorily during the course of his inquiries, the Ombudsman will try, if possible, to find a friendly solution which puts right the case of maladministration and satisfies the complainant. If the attempt at conciliation fails, the Ombudsman can make recommendations to solve the case. If the institution does not accept his recommendations, he can make a special report to the European Parliament. This procedure has yet to be tried by a non-EU citizen or NGO harmed by an EIB supported project in the developing world.

How effective is it?

Only time will tell how efficient the European Investment Bank recourse mechanism will be. “We can already voice concerns, says NGO’s coalition, with regards to the lack of transparency e.g. knowing which firm/public agency has been granted a loan by the EIB which automatically grips the possibility to lodge a complaint if no one knows the project is financially supported by one or more EIB loans. It is a common use for the EIB to withhold information on the basis of the Bank public non-disclosure policy which is currently under review” (consultations will take place from May to July 2009).

According to Huub Scheele, Both ENDS, chairing the panel debate, “In most cases, without the help and support of western NGO’s, local communities affected would not know about both the recourse mechanism nor the mandatory information the company recipient of the EIB grant should have had towards them”. Indeed, it is extremely hard to convey information on a complex mechanism in writing or via the internet when locally information routes are mainly word-to-mouth and, if lucky, the radio. These parameters taken into account, it is a small miracle when developing countries citizens get to the point of exercising their right to appeal.

Corine Barella

(1) The panellists: Huub Scheele, Both ENDS/Counter Balance (Chair); Korinna Horta, Environmental Defense Fund; World Bank Inspection Panel – Werner Kiene, Chairman of the Panel : Alf Jerve, Member of the WB Inspection Panel ;Peter Lallas, Executive Secretary of the WB Inspection Panel ; Emily Horgan, Program Officer at CAO ; Compliance Advisor Ombudsman (CAO)- Henrik Linders, Senior Specialist ; EIB Group Compliance office – Felismino Alcarpe, Head of Division, Corporate Responsibility Policies ; EU Ombudsman – Fergal Ó Regan, Head of Legal Unit ; EP Petition Committee – David Lowe, Secretariat of the Committee.
(2) Friends of the Earth Europe, Friends of the Earth International, Global Transparency Initiative, Bank Information Center, Campagna per la Riforma della Banca Mondiale, WEED, Urgewald, Les Amis de la Terre
(3) CEE Bankwatch Network Campagna per la Riforma della Banca Mondiale, WEED, Urgewald, Les Amis de la Terre Both ENDS Bretton Woods Project
(4) The World Bank Inspection Panel was created upon the heels of an intense seven-year controversy over the World Bank funding of Sardar Sarovar Dam on the Narmada River project in western India, which catalyzed NGO lobbying for increased accountability and transparency at the World Bank. According to an independent review (The Morse Commission) of Sardar Sarovar, there was a history of systematic violations of World Bank policies and loan agreements, particularly those relating to environment and resettlement of people.
(5) Dr. van Putten was a Dutch member of the European Parliament for 10 years and served on the World Bank’s Independent Inspection Panel from 1999 to 2004. She participated in the November 2006 CEE Bankwatch Network conference on EIB accountability: “Right to Appeal” – International Financial Institutions and accountability – on the way to independent compliance and appeal mechanism for the European Investment Bank”.