COMPLIANCE, FY2017

26

COMPLIANCE CASES

in

16

COUNTRIES

STATUS AT THE END OF THE FISCAL YEAR

4

ONGOING

APPRAISALS

10

ONGOING

INVESTIGATIONS

9

INVESTIGATIONS IN

MONITORING

3

CASES CLOSED

In its compliance role, CAO independently verifies project due diligence and policy compliance to ensure that IFC and MIGA project outcomes are aligned with their environmental and social commitments. This process helps enhance legitimacy and public trust in both institutions.

CAO managed a total of 26 compliance cases this year, of which just under half were in monitoring or closed by the end of the fiscal year. CAO completed eight appraisals and published three new investigations regarding IFC investments in the Angostura mine, owned by Eco Oro, in Colombia, Tata Tea estates in India, and Lomé Container port in Togo. CAO continues to focus on financial intermediaries (FIs), and has published a monitoring report of IFC’s actions since 2013 to improve the environmental and social (E&S) performance of projects financed through banks and investment funds. CAO is also monitoring ongoing actions by IFC to address findings related to investments in Dinant palm oil plantations in Honduras and the Tata Ultra Mega power plant in India. CAO closed two cases in monitoring related to IFC investments in Avianca airlines in Colombia and the Quellaveco mine in Peru. More broadly, labor issues related to freedom of association, working conditions, and worker health and safety are increasingly prevalent in CAO’s compliance work (see box 3).

Appraisals

This year, CAO completed appraisals for eight cases. Of these, two appraisals related to the Bujagali hydropower project in Uganda, one of which was closed and the other, regarding compensation for project impacts to crops, proceeded to investigation. Three appraisals led to investigations of IFC investments in a cement plant in Egypt; a consumer goods manufacturer in Kenya; and a financial intermediary with a hydropower investment in Guatemala.

Three other appraisals were merged into ongoing monitoring activities related to projects in Honduras: two regarding IFC investments in Dinant palm oil plantations, and one regarding Banco Ficohsa, an IFC financial intermediary client.

Investigations

Case Highlight

Togo

Villages east of the Port of Lomé, Togo (CAO).

The investigation was initiated in response to a complaint from an organization representing coastal settlers who raised concerns regarding the project’s impacts on erosion of the seashore in their communities.

Investigation of IFC Investment in Lomé Container Terminal

CAO released an investigation report of IFC’s investment in the Lomé Container Terminal (LCT), within the Port of Lomé, Togo. Lomé is one of the few deep-water ports in West and Central Africa and the terminal is Togo’s largest-ever private investment project.

The investigation was initiated in response to a 2015 complaint from an organization representing coastal settlers who raised concerns regarding the project’s impacts on erosion of the seashore in their communities, and that they were not consulted or informed about the project.

CAO’s investigation acknowledged that the project is not solely or primarily responsible for coastal erosion in the area to the east of the port, but found that further environmental and social assessment was required to provide assurance of compliance with IFC’s standards.

IFC’s response to the investigation included updating its Environmental, Health and Safety Guideline for Ports, Harbors and Terminals, adding a new section on coastal erosion, and offering to participate in a multistakeholder dialogue to discuss erosion impacts off the coast of Togo.

IFC also committed to consulting with fishing and coastal communities in relation to research that the client is supporting on coastal erosion. CAO will be monitoring actions taken over the next year.

The investigation was initiated in response to a complaint from an organization representing coastal settlers who raised concerns regarding the project’s impacts on erosion of the seashore in their communities.

Case Highlight

India

Workers on an APPL tea plantation in northeast India (CAO).

CAO identified shortcomings in IFC’s assessment and supervision of living and working conditions on the tea estates, reported use of banned pesticides, information disclosure, and response to security incidents.

Labor and Working Conditions Related to IFC Investments in Assam Tea Estates

CAO released an investigation report in November 2016 regarding labor and working conditions in the tea sector in India. IFC invested in Amalgamated Plantations Private Limited (APPL), owned by Tata Tea, which is the second largest tea producer in India. More than 30,000 employees and over 150,000 people live on its 25 tea estates in Assam and West Bengal. IFC’s equity investment sought to support an employee-owned plantation model, whereby tea workers were offered the opportunity to purchase shares in the company. In 2012, the International Union of Food Workers (IUF) raised concerns about conditions on the tea estates and two security incidents. In 2013, three NGOs also filed a complaint to CAO on behalf of tea workers working and living on the tea plantations.

CAO’s investigation found shortcomings in IFC’s review of key project risks before the investment was made, including the company’s responsibility to provide a range of basic services such as housing, access to water, education, and medical care. CAO also identified shortcomings in IFC’s assessment and supervision of living and working conditions on the tea estates, reported use of banned pesticides, information disclosure, and response to security incidents.

IFC has agreed to accelerate priority actions in the next two years with its client and Tata Global Beverages, and in consultation with workers, to repair and build new houses for workers, provide piped water to each household, upgrade hospitals, and provide mobile toilets for women in the plantation areas, among other commitments. CAO will be monitoring actions IFC takes over the next year.

CAO identified shortcomings in IFC’s assessment and supervision of living and working conditions on the tea estates, reported use of banned pesticides, information disclosure, and response to security incidents.

Case Highlight

Colombia

Investigation of IFC Investment in a Gold and Silver Mine in an Environmentally Sensitive Area

In 2012, civil society groups in Colombia, with support from international NGOs, filed a complaint regarding the Angostura gold and silver exploration project in the Santurbán Páramo, an environmentally sensitive alpine area. IFC made an early equity investment in the exploration and development phase of the mine project, which is owned by Eco Oro, a junior mining company.

CAO released a compliance investigation of the case this year. It found that IFC’s review of the project did not focus on the environmental and social risks beyond the exploration phase. Thus, the potential of the company to comply with IFC’s environmental and social policies as it was developing the mine was uncertain and potentially challenging. CAO also found shortcomings in IFC’s supervision of biodiversity studies and security issues.

In its response to CAO’s investigation, IFC emphasized that it had developed new procedural guidance for staff describing IFC’s environmental and social approach for phased development investments like Eco Oro. In December 2016, IFC announced that it had decided to divest from Eco Oro.

Box 3.

Labor: An Emerging Driver of Compliance Cases

The number of CAO cases concerning compliance with IFC labor requirements is increasing, with eight investigations this year focused on labor issues.

Several requirements in IFC’s Performance Standard on Labor and Working Conditions (PS2) are based on core international labor standards, which protect the fundamental rights of workers. IFC should work with clients to implement these requirements when the standards go beyond usual business practices in the countries and sectors where they operate. CAO is seeing an increase in cases concerning compliance with IFC labor requirements.

This year, CAO handled eight investigations involving labor issues related to IFC projects in the tea sector; as well as in the paper, cement, and consumer goods manufacturing; hydropower; and aviation sectors. These cases raised concerns about freedom of association, working conditions, terms of employment, occupational health and safety, employee grievance mechanisms, and unpaid wages, among others.

IFC has taken a number of measures to support better implementation of PS2 in recent years. These include capacity building and training of environmental and social specialists on assessing and managing labor-related risks; developing internal and external guidance on managing labor issues; and relying on the support of independent labor experts.

Given IFC’s focus on creating quality jobs as part of its development mission, the ability of IFC staff to identify and address risks in the client-worker relationship will remain an important issue.

(Above) Photo: Mai Ky/World Bank.

Key issues in Labor Complaints

71%
Freedom of Association

71%
Terms of Employment

57%
Occupational Health and Safety

Note: Data sample is from eight active compliance cases in FY17 relating to 6 IFC projects.

Monitoring Outcomes

Financial Intermediaries

Investments in financial intermediaries (FIs) comprise 53 percent of IFC’s long-term commitments, according to IFC’s 2017 Annual Report. As highlighted in CAO’s FI monitoring report this year, these investments expose IFC to potentially significant environmental and social risks in sub-projects financed through IFC-supported banks and investment funds.

FI-related complaints to CAO have increased in recent years. CAO is conducting investigations related to two hydropower plants (Real LRIF and CIFI) in Guatemala financed by IFC-supported investment funds, and monitoring investigations of two IFC FI investments in Honduras and India, respectively. Other cases in dispute resolution relate to agribusiness projects funded through IFC FIs. CAO is also assessing a new complaint from Guinea regarding a gold mining project connected to an IFC client bank.

Monitoring report: Since 2013, CAO has been monitoring IFC actions to address CAO’s sectoral audit of IFC FI investments. CAO released a monitoring report in March 2017, based on a sample of 38 active FI investments committed since 2012. The report confirms that IFC has improved the quality and intensity of its review and supervision of FI investments since 2013. However, the report emphasizes that IFC does not, in general, have a basis to assess FI clients’ compliance with its environmental and social requirements. This is of particular concern in relation to FI clients that are supporting projects with higher risks, and for projects in which IFC does not have assurance that its standards are being implemented. IFC has piloted several tools to enhance environmental and social due diligence and supervision of FI clients. CAO welcomes these pilots and notes opportunities for IFC to adopt them more widely with other FI clients exposed to higher risk activities.

Need for better disclosure: While progress has been made in IFC’s disclosure of projects financed by private equity funds, there is no requirement for disclosure of sub-project information in most of IFC’s FI portfolio. FIs that voluntarily subscribe to the Equator Principles have disclosed over 900 sub-projects since 2014. CAO welcomes IFC’s recent commitment to encourage its FI clients to disclose sub-projects. Disclosure of information is an important element to ensure that people affected by FI business activities have ready access to grievance mechanisms.

Monitoring IFC Palm oil investment in Honduras

CAO continues to monitor IFC’s actions to address its 2014 audit findings related to IFC investments in Dinant in Honduras. The case was triggered by concerns of violent land conflict in and around Dinant palm oil plantations. CAO issued a monitoring report this year and conducted a monitoring visit to Honduras, meeting with representatives of the government, the IFC client (Corporación Dinant), and communities. In June 2017, CAO incorporated two additional complaints from communities regarding the project into the ongoing monitoring process.

Dinant palm oil plantations in Honduras (CAO).

IFC Power Plant Investment in India

In February 2017, CAO released a monitoring report in relation to its 2013 audit of IFC’s investment in Coastal Gujarat Power Limited (CGPL) for a 4,000MW “ultra-mega” power plant in Mundra, in the state of Gujarat, India. The monitoring report emphasizes an outstanding need for a rapid, participatory, and remedial approach to assessing and addressing project impacts raised by the complainants. CAO continues to monitor IFC’s response to the audit.

Tata Ultra Mega power plant in Gujarat, India (CAO).

Investigations Closed After Monitoring

Peru | In March 2017, CAO released a second compliance monitoring report regarding IFC’s investment in Quellaveco, a large-scale copper mining concession located in Peru. CAO’s report concluded that, overall, IFC’s response had not substantially addressed CAO’s 2014 investigation findings, but closed the case considering the time passed since IFC’s divestment from the project, and IFC’s decision not to engage in a project-level response. Learn More

Colombia | In May 2017, CAO released a monitoring report regarding IFC’s investment in Avianca airlines in Colombia. Overall, CAO found that IFC’s response to its 2015 compliance investigation had only partially addressed the compliance findings. CAO closed the case considering the time that had passed since the client’s repayment of the IFC loan, and IFC’s decision not to engage in a project-level response. Learn More

Systemic findings from CAO’s investigation, which featured labor and working conditions as central issues, will be addressed through CAO’s ongoing compliance and advisory work.

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