Developing the human rights responsibility of development banks
The picture is from Uganda, where serious human rights violations have been suspected in a project of the African Development Bank and the Nordic Development Fund. Photo: Sofi Lundin
Development banks play a major role in financing development projects in the global south. However, their operation has raised important questions, especially about human rights. In the report commissioned by KIOS, it was particularly highlighted that the implementation of the recommendations of the financial mechanisms should be monitored even more closely.
A Development bank is a so-called development finance institution, which was established by international consortia to finance and provide expert assistance for development projects. Most typically, coalitions include financing countries and countries where projects are financed. Development banks finance projects with loans at or below market prices, sometimes also with direct grants.
KIOS made a report in cooperation with the Hanken School of Economics, the aim of which was to map how human rights issues are taken into account in the operations of development banks and especially in accountability mechanisms. Since civil society usually plays a primary role in being able to bring human rights violations to banks’ complaint channels, KIOS’s partner organizations in the global south have been interviewed for the report. Since KIOS’s partners only operate in some countries, and their information may be limited, the report has also included a literature review and compared the results of the interviews with the already existing literature. The report particularly analyses the mechanisms of the World Bank, the African Development Bank, the European Investment Bank and the Asian Development Bank.
Each of these development banks has some form of grievance mechanism system. Each complaint mechanism also works on the same principle: the party whose rights have been negatively affected by the bank’s project brings the violation to the complaint channel, and the case is resolved. Although the channels are not watertight, they can be seen as providing an extremely necessary way to expose violations.
When KIOS partners working in corporate responsibility were interviewed, several of them mentioned the accessibility of responsibility mechanisms. For example, KIOS’s Ugandan partners spoke of the fact that because communities affected by a development bank project do not have the means or the skills to access the bank’s grievance mechanisms, there is a need to be able to reach out at the local level. In many such cases, communities turn to non-governmental organisations, as the complaint mechanisms may even be in a different country.
Another thing that the interviewees mentioned was that the recommendations made by the banks’ complaint mechanisms are not legally binding. In the most egregious cases, even the countries’ national courts have stated that the matter has already been dealt with through the financial institution’s complaint mechanism, and the court therefore does not need to deal with the matter. Another interviewee mentioned that complaints taken to judicial institutions may take time, as there is a fear of diplomatic conflict.
In some situations, the end result obtained from the complaint mechanisms can be satisfactory, but still the implementation is lacked. This often means admitting that human rights violations have occurred and recommending measures to improve the situation, but not monitoring the implementation of the measures. One interviewee suggested that the implementation of the financial mechanisms’ recommendations should be monitored more closely.
Many interviewees agreed that the time interval between the complaint and the official decision is generally too long. Complaints also often have to be made with such precision that they require careful familiarisation and documentation on the subject. For example, if a local community loses its livelihood or its home due to a development bank project, it takes an inordinate amount of time to process the case in the complaint mechanisms, considering that the community’s livelihood is not supported during the process.
In many cases, a sufficiently careful investigation is also not carried out in the project before starting it. It seems that development banks have also chosen partners who have previously committed human rights violations as implementers of the projects they finance. So, there is no guarantee that the same partners cannot commit similar acts in the future. According to the report, why this has happened can be due to several different factors: it may be that the selection of a partner lacks sufficient evaluation criteria. In addition, apparently, no serious sanctions are imposed on the partners implementing the projects, if they commit human rights violations.
How the situation could be fixed?
According to the report, the first and most acute measure to avoid human rights violations in development finance projects is better monitoring of the projects. Banks must also impose immediate measures on entities that commit human rights violations. The most effective way would be the immediate termination of funding, if human rights violations occur in the projects. A good way would also be to refuse future projects.
It is also typical for development projects that the local communities affected by the project rarely participate in the planning of the project, and they have not been consulted in the planning of the project. Consequently, local communities cannot be committed to the project, and so the projects lack community support. The report states that many obstacles that emerged later could have been avoided by consulting local communities.
A lack of implementation also emerged from the interviews and literature. In many projects, practices that protect human rights have not been implemented, because their compliance is not systematically monitored. Even when a complaint is filed and a human rights violation is proven to have occurred, there are no adequate mechanisms to ensure that corrective measures are taken.
The report also states that development banks should in the future ensure that they have enough capacity to handle potential complaints in a relatively short time. Getting in touch should be made easier than it is now. The report also mentioned the need to develop the human rights expertise of development finance institutions.
KIOS has made the report in cooperation with the Hanken School of Economics. Read the full report here (PDF file) Information that could be used to infer the organisation of the respondents has been removed from the report.