February 3, 2023

UK Parliament

International Development Committee

To whom it may concern:

Thank you for the opportunity to submit evidence for the International Development Committee’s Investment for Development inquiry. Accountability Counsel is an international legal non-profit organization that supports communities that have been affected by international development projects. Based on our experience, we are writing to provide recommendations for strengthening British International Investment (BII). We are specifically responding to this question in the terms of reference: “How effective are the governance structure and internal oversight mechanisms of BII (e.g., oversight over direct investments, fund investments, BII controlled companies)?”

Sustainable development is only possible when projects are implemented according to the highest standards of environmental, social, and human rights due diligence to ensure that projects do not have adverse effects on people and the environment. These standards include the requirement to consult with project-affected communities to get their Free, Prior, and Informed Consent throughout the project cycle. Even with the best due diligence, sometimes projects can negatively impact communities. When this happens, communities need to be able to raise concerns directly to the institutions financing development projects to receive accountability and remedy. Unremedied grievances can compound harm to vulnerable communities, undermine the sustainability of development projects, and cause reputational harm to the institutions financing these projects.

Independent accountability mechanisms (IAM) are crucial governance tools and are common features at most major multilateral development banks and several other development finance institutions, including the International Finance Corporation (IFC), U.S. International Development Finance Corporation (DFC), Proparco, Dutch Entrepreneurial Bank (FMO, and the German Investment Corporation (DEG). These mechanisms receive complaints directly from project-affected communities and address them through two main functions: dispute resolution and compliance review. Dispute resolution facilitates a mediation process between the complainants and project proponents to reach a mutually agreeable solution to the grievances, and compliance review conducts an investigation into whether an institution’s environmental and social standards were properly implemented during the course of a project. Additionally, IAMs typically have an advisory function that distills and conveys lessons from complaints to ensure that future projects avoid harm and are more sustainable.

BII, and its predecessor CDC, has faced allegations [1] of environmental and human rights harm stemming from its projects, and recently took an important step to strengthen its accountability by creating the Reporting and Complaints Mechanism. However, for this mechanism to be fully effective, it must operate according to the UN Guiding Principles on Business and Human Rights’ criteria for non-judicial grievance mechanisms. This means it must be legitimate, accessible, predictable, transparent, rights compatible, and a source of continuous learning.[2] Currently, the Reporting and Complaints Mechanism has some weaknesses that threaten to undermine its effectiveness. For example, regarding accessibility: unlike its U.S. counterpart, the DFC, BII does not appear to require clients to disclose the existence of the mechanism, which undermines communities’ ability to know that the mechanism even exists. Additionally, the Reporting and Complaints Mechanism restricts eligibility for complaints that have been investigated by a third party. This is contrary to the practice of most IAMs and undermines the mechanism’s ability to ensure compliance with BII’s environmental and social standards.

BII must ensure that the mechanism addresses areas where it falls short of the UNGP effectiveness criteria and best practices of existing mechanisms at other development finance institutions.[3] It isn’t clear that the mechanism was developed through a public consultation process, which is standard procedure for developing accountability mechanisms at international financial institutions. At the culmination of this inquiry, BII should launch a public consultation process to solicit recommendations on how the mechanism can best serve affected communities.

A positive element of the mechanism’s current design is that it explicitly discusses measures to provide remediation or redress. BII needs to take this a step further and develop a remedy framework that dedicates resources to ensuring the full remediation of harm. The IFC is currently in the process of developing such a framework,[4] and BII should follow suit. A remedy framework should build opportunities to provide remedy into the planning of every stage of the project and should implement financing mechanisms for remedy, including establishing a remedy fund.

Thank you again for the opportunity to provide this evidence for the inquiry. Accountability Counsel is available for further discussion on this matter.

Sincerely,

Stephanie Amoako

Senior Policy Associate

Accountability Counsel

stephanie@accountabilitycounsel.org