Finally, a Development Financial Institution Has a Policy for Remedying Harm
This milestone is not only a leap forward for International Finance Corporation but also a hopeful sign for communities harmed by development projects around the world.
In a historic moment, the International Finance Corporation became the first development finance institution, or DFI, to adopt an explicit policy on remedy. On April 15, IFC published its Remedial Action Framework, formalizing a commitment to address environmental and social harms caused by IFC-supported investment projects.
This milestone is not only a leap forward for IFC but also a hopeful sign for communities harmed by development projects around the world. The Remedial Action Framework (RAF) is a cornerstone in a broader shift at a moment when the World Bank Group is planning to undertake a major overhaul of the environmental and social accountability systems on the public and private sides of the institution. The RAF sets the stage for a profound institution-wide commitment to avoid and remedy harm at the entire World Bank. Whether the grievance mechanisms and accountability systems of the institution change, or amendments to the environmental and social policies occur as part of this overhaul, the principles and drive for this cultural shift at the institution must now be rooted in the notion that remedy is possible at the World Bank.
As project-affected communities have illustrated through the years, harm is harm—no matter what type of investment may have led to it.
The IFC/Multilateral Investment Guarantee Agency (MIGA) framework is the result of years of advocacy, discussion, and perseverance by numerous stakeholders both outside and inside the institution, as recognized in the RAF itself. The strenuous efforts from civil society organizations (CSOs) and project-affected people from around the globe stemmed from firsthand experience of harm as well as technical recommendations and proposals to ensure that the remedy is centered on the rights and the needs of those who have been harmed.
The RAF is a fundamental part of an approach that will focus on remedy but will also make considerations about when and why to exit a project responsibly, as established in its Responsible Exit Approach issued in October 2024.
How the IFC/MIGA RAF Works
It is particularly meaningful that the RAF acknowledges that, like all development institutions, IFC and MIGA must play a role in the “remedial action ecosystem.” This recognition signals a full understanding of the core tenet of international law, namely that institutions should avoid infringing on the human rights of others and should address adverse human rights impacts when they have contributed to harm.
The RAF aims to provide a structured approach to address harm arising from the environmental and social (E&S) impacts of projects supported by IFC/MIGA. While the emphasis on the differentiated roles that IFC/MIGA and their clients play in providing remedy for harm remains, the support by IFC and MIGA for these remedial actions is a central part of the equation, focusing on:
- Prevention and Preparedness
- Access to Remedy
- Contribution to Remedial Action
The RAF will apply to all IFC-supported investment projects and all investment projects covered by MIGA political risk insurance guarantees. It makes distinctions for IFC/MIGA’s support for remedial actions, asserting they will vary depending on each case, stemming from factors such as the type of investment, proximity to harm, and other factors. Reaching an understanding of how these factors will be considered will require more detail than what is included presently in the RAF.
IFC/MIGA’s contribution to remedy will entail the use of influence and leverage to encourage clients to take remedial action, as well as providing support for enabling activities, such as fact-finding, technical assistance, and community development activities. Ultimately, the extent and effectiveness of these contributions will depend on the levels of engagement and participation from those seeking remedy.
While the RAF does contain references to institutional risks associated with providing direct funding for remedial actions by IFC/MIGA, it also acknowledges that the primary focus on enabling activities is meant to minimize these risks.
Notably, the RAF was approved on an interim basis, pointing to the importance of its three-year piloting phase to implement the approach. Practical application and enforcement of the RAF will certainly be the biggest challenge, but the inclusion of regular interactions with stakeholders, updates, and a final assessment to be conducted with the Compliance Advisor Ombudsman (CAO) to incorporate lessons learned to perfect the final policy is positive.
Prevention and Preparedness
The RAF emphasizes sustainability frameworks and the value of strengthening prevention and preparedness and facilitating remedy through grievance mechanisms, echoing a long-standing demand from civil society that avoiding harm must be prioritized over managing its aftermath. It is admirable to finally have IFC recognize the crucial need to identify and manage E&S risks and potential impacts to avoid harm in the first place, but this too will require a change in operations and culture at IFC so that every aspect of IFC’s operations is seen through an environmental and social lens—a shift that aligns with a human rights-based approach.
Assessing a client’s preparedness and capacity to properly identify and mitigate environmental and social risks and to provide access to remedial actions in the event of harm is one of IFC/MIGA’s primary roles. If IFC/MIGA are committed to the complementary roles required for remedial action implementation, then this primary role becomes ever more salient and fixed to its new mandate.
The RAF should be praised. It has also created an opportunity to institute an approach to remedy within the entire World Bank Group at the perfect moment.
And as IFC begins the process of updating its Sustainability Framework, it is the perfect time to capture the principles and thrust of the Remedial Action Framework and Responsible Exit Approach in a manner that enhances broad adoption and integration of the approach to remedy at the entire institution.
Although the RAF does not mention the Responsible Exit Approach—including a reference to IFC/MIGA’s leverage over a “former client”—it nods to its relevance by recognizing the challenges faced when clients are not willing to address situations of harm. Planning with clients to ensure a responsible exit from all projects—and leveraging the role of IFC/MIGA in contributing to remedy through enabling activities—remains fundamental.
Accessing Remedy
Based on the background provided in the RAF, one would assume that the framework is the result of the 2018 external review of the E&S accountability of IFC and MIGA, including the role and effectiveness of the CAO. Yet, civil society organizations that have been advocating for accountability and remedy for decades would quickly point to problematic projects such as Alto Maipo, Titan Cement, and Tata Tea, recalling the numerous communities who filed complaints proving the inadequacy of the system. For many of them, the ultimate catalyst for the turnaround would be the Tata Mundra case. This case—and the landmark Jam v. IFC litigation by Indian fisherfolk—highlighted the gaps in accountability when IFC dismissed the CAO’s findings and recommendations to bring the project into compliance and to provide remedy for communities.
Considering this history with the CAO, it is all the more notable that IFC/MIGA has embraced access to remedy as part of the holistic approach to remedial action within the RAF. They recognize the vital necessity of putting in place effective, reliable, and independent grievance mechanisms to address complaints raised by project-affected people when things go wrong.
IFC/MIGA emphasizes the client’s creation of an effective project-level grievance mechanism while maintaining the existence of IFC’s internal grievance mechanism—the Stakeholder Engagement and Response office—and the CAO. Together, these mechanisms make up the diverse cadre of options with varied levels of outcomes and results. By acknowledging the opportunity to capture lessons from the RAF’s initial implementation to inform updates to IFC/MIGA Sustainability Frameworks and the upcoming CAO Policy review, IFC/MIGA notably endorses raising the level of engagement and usefulness of these mechanisms.
For some time, CSOs and project-affected communities have been advocating for improvements to the CAO and grievance mechanisms at DFIs worldwide. Years of experience and long-standing collaboration led to the creation of the Good Policy Paper Guiding Practice from the Policies of Independent Accountability Mechanisms. These recommendations have been useful for numerous institutions seeking to improve their accountability frameworks with the ultimate goal of facilitating access to effective remedy.
What Constitutes Remedial Action for IFC and MIGA?
As stated in the RAF, “IFC/MIGA as development institutions have a role to play in the context of the broader remedial action ecosystem and may contribute to remedial action in the following ways:
- Use of available financial, contractual, and/or relationship influence and leverage to encourage clients and other responsible parties to take remedial action to address harm […]
- Provide support for enabling activities, including fact-finding, technical assistance/capacity-building, and/or community development activities.”
Even though the role of the client vis-à-vis IFC/MIGA is permanently interlinked, IFC/MIGA has approved an approach to remedy that still puts the client at the forefront of managing E&S risks and impacts, as well as funding and implementing remedial actions.
The initial perception of what was possible for a World Bank institution has evolved, noting IFC/MIGA’s commitment to contribute to Remedial Action as set forth in the RAF. While restating their role in using financial and contractual leverage to encourage clients to take remedial actions to address harm, IFC/MIGA will also provide support for enabling activities that will allow clients to provide solutions to project-affected people.
The scope of enabling activities may potentially allow for a broad range of actions by IFC/MIGA. While this will require practical experiences from the piloting phase to test and perfect the framework, initial considerations of enabling activities as presented in the RAF are promising as a minimum starting point:
- Fact-Finding: To provide additional information that may inform the creation and design of remedial actions by a client, IFC/MIGA may contribute funding to hire third-party experts who can complement dispute resolution and compliance processes at the CAO. In past cases, the lack of funding for these fact-finding efforts has become an obstacle that may stall or even stop dispute resolution processes between community complainants and clients, resulting in fruitless efforts.
- Technical Assistance and Capacity Building: Communities that have been harmed are often the most willing to act, working collaboratively to rehabilitate their lands or recover their waterways and ways of life. By providing funding for technical assistance and training so project-affected communities can address environmental impacts such as contaminated water sources, IFC/MIGA will be respecting a community’s agency and rights to remedy in direct ways. IFC/MIGA’s clients may also receive this type of assistance and capacity building to aid in implementing and monitoring corrective and remedial actions.
- Community Development Activities: The resilience of communities that have lost their livelihoods due to environmental harm is often a measure of their dignity and cultural identity. By demonstrating that community opinions are received in the design, launch, and implementation of community development programs offered, IFC/MIGA will legitimize their role, encouraging ownership of these programs and activities.
Additionally, while IFC/MIGA expect that enabling activities will be the preferred mode of engagement in most cases where project-level remedial action is warranted, the RAF states that this does not prevent them from proposing other modalities for approval by the Board.
Cost of Remedial Actions and the Role of IFC/MIGA and Their Clients
A major question and point of contention over these last years has been the cost of providing remedy. Here, the matter of differentiated roles has a direct bearing on the question of cost when IFC’s client is responsible for managing E&S risks and impacts. Something worth noting is the fact that private sector clients who joined IFC/MIGA consultations on the approach to remedial action were never opposed to remedy, but mainly concerned with how this could be done. They acknowledged the role of a project developer in remedying harms resulting from project construction, operations, etc. Their main question was always how to implement such a policy and how the costs would be allocated.
The RAF is clear about the costs for remedy, stating that under IFC’s Sustainability Framework, clients are responsible for managing E&S risks and impacts as well as funding and implementing remedial actions. While this would seem straightforward, the purpose of DFIs and the implementation of their mandates are at the core of an often nebulous division of roles. Considering this, the detailed description of IFC’s Sustainability Frameworks within the RAF comes into focus, as it is precisely the issue of a client’s ability to comply with IFC’s E&S policies and standards that makes IFC’s adjacent role more obvious and essential.
As we face environmental and climate crises globally, and financial institutions join in multiplying funds available to address the growing need for solutions, we can now point to the first remedial action framework and concrete driver for ways of addressing harm and providing remedy.
For instance, if IFC’s E&S due diligence at project appraisal is done properly, and if supervision and regular monitoring during project implementation are carried out entirely, then IFC can be sure that its client has managed E&S risks and impacts. As a result, the client adhered to IFC’s Performance Standards, applying the mitigation hierarchy correctly by taking all measures necessary to prepare for and avoid or minimize adverse impacts to the environment and preventing harm to people. However, when IFC fails to supervise and monitor its client properly, or when initial due diligence is lacking, or it neglects to notice a low-capacity client, then the risks are likely to materialize, causing harm.
If IFC realizes these errors, it may request corrective actions and changes to E&S Action Plans, so its client brings the project into compliance, yet this is not guaranteed. These are precisely the types of errors that have led affected communities to file complaints at the CAO, and the issues IFC has been grappling with for many years, ultimately leading to internal shifts and restructuring in E&S governance at the institution after assessing the entire accountability system.
Funding for contributions to remedial action by IFC will be obtained through the project’s funding structure, donor trust funds, IFC’s administrative budget, or operational risk capital. At the same time, MIGA’s contribution to remedial action activities is limited to available trust funds or existing budgetary resources.
Ultimately, the fact that IFC/MIGA has incorporated the possibility of using its own financial resources to contribute to remedial actions in the RAF, while still mentioning their concern for the risk of doing so, points to a change in perceptions that will ideally continue to shift the mode of thinking at the entire institution. Simply said, remedy should be seen as the goal from now on and something that should color all decisions at development finance institutions.
Implementation and What’s Next
The RAF was approved by the Board of Directors of both IFC and the MIGA on April 3 on an interim basis for three years. Implementation of the RAF during the pilot phase will require IFC/MIGA’s regular engagement with stakeholders to receive input and share updates.
As an essential part of the initial six months of implementation, IFC and MIGA, in consultation with the CAO, will have to define and track key performance indicators related to efficiency and effectiveness to ensure proper monitoring of the interim approach. IFC/MIGA will also monitor implementation, providing the boards with briefings and annual monitoring reports.
A final assessment in consultation with the CAO will be carried out at the end of the three-year period. The final policy will incorporate lessons learned and proposed revisions for review by the boards.
Remedy or Bust
The RAF should be praised. It has also created an opportunity to institute an approach to remedy within the entire World Bank Group at the perfect moment. As project-affected communities have illustrated through the years, harm is harm—no matter what type of investment may have led to it. As we face environmental and climate crises globally, and financial institutions join in multiplying funds available to address the growing need for solutions, we can now point to the first remedial action framework and concrete driver for ways of addressing harm and providing remedy.
Other institutions are now following suit. The IDB Group has indicated for several years that internal discussions on Remedy and Responsible Exit were already underway. Most recently, IDB Invest has prepared a draft approach to Responsible Exit based on the IFC/MIGA model and has been engaging with civil society and project-affected communities to receive feedback, while also moving on internal discussions for a remedy framework.
In the days following the approval of the IFC/MIGA Remedial Action Framework, CSOs had the opportunity to meet with IFC. The conversations had an immediate change in tone. This was a different conversation with other approaches for new projects, new contracts, thinking through how to make this framework a reality, with a sense of pride.
This was not lost on anyone. It revealed the legitimacy of having a framework and accompanying Responsible Exit Approach set to paper, as approved by the boards of these institutions. It showed its significance, its weight as a standard to follow, as a directive to take, and as a way forward for an institution that has finally recognized that development can sometimes have negative impacts, and that those impacts can lead to harm for communities. But now there is a way to address these harms and provide remedy, the commitment to do so has been set, and many are ready to make this happen, as challenging as it will undoubtedly be.
