European Bank Threatens Step Backwards on Accountability

By Nezir Sinani, from Bank Information Center Europe.

Originally published by Huffington Post US.

Do you know which international financial institution (IFI) lends the most money? If you guessed the World Bank, you are wrong. You’ll find the answer in Luxembourg —- it’s the European Investment Bank (EIB). All of the existing IFIs have an independent accountability mechanism (IAM) that receives complaints from people who have been harmed by IFI-financed activities. Even new institutions, like the Green Climate Fund and the Asia Infrastructure Investment Bank, are currently in the process of creating their own IAMs. You might think that because the EIB is an institution of the European Union—a paragon of democratic principles—it would have the best IAM of them all. Again, you’d be wrong.

In recent years, a set of reports has assessed the functioning of the EIB’s accountability mechanism, coming to a critical conclusion: the Complaints Mechanism (CM) is struggling to hold the EIB accountable, prevent harms and deliver remedy to project-affected communities because of procedural and structural weaknesses. More specifically, the CM’s independence is jeopardized, its recommendations are not binding and it is marginalised within the EIB. While promising on paper, CSOs have acknowledged that, in practice, the CM has to be reformed to overcome the above-mentioned obstacles and fully play its role of ensuring accountability and preventing and remedying harm.

Petr Hlobil, CEE Bankwatch Network & Anne-Sophie Simpere. Mopani Copper Mine’s smelter, Zambia, one of the most controversial projects ever financed by the EIB. After issues with a complaint to the CM in 2014, the case escalated to the EU Ombudsman.

The draft new policy and procedures for CM have been put out for public consultation by the EIB. Unfortunately, far from addressing the key flaws identified by prior studies, the draft would further gut the independence of the CM. 25 civil society organizations are now asking the EIB to go back to the drawing board and come back with a better draft.

In order to be considered independent, a mechanism must be allowed to make its own decisions, free from interference by the very people whose actions are under investigation. Under the draft EIB Procedures, after receiving a complaint, the CM would have to ask bank staff whether they think the complaint should be admitted. If the bank staff disagree with the CM’s opinion, the decision is taken out of the CM’s hands and given to someone else. Perhaps more egregiously, the CM cannot even make a decision to proceed with an investigation to determine whether the project complies with the bank’s environmental and social standards, unless the EIB’s Management – the entity that is ultimately responsible for the actions under review – agrees. That is like a judge asking a defendant for his or her consent to try them.

Jules Bosco, Salohi, USAID, Wikimedia Commons / Public Domain. The Malagasy people working, Madagascar. The EIB-financed Ambatovy mine had a disastrous impact on the lives of the surrounding communities. Complaints were submitted to the CM in 2012 and the case got blocked by the bank management. The EU Ombudsman picked it up in 2017 as a potential case of maladministration.

One way to ensure the independence of the CM, according to the CSOs, is to have it report directly to the Board of Directors. The board is made up of government representatives of the EU member states. Currently, the board doesn’t know anything about the complaints until they read the CM’s annual report, which, under the draft Procedures, would have to first be approved by EIB’s Management. CSOs argue that it is the Board’s duty to ensure that it is fulfilling its obligations to its shareholders and stakeholders. The CM is a critical tool for the Board to meet that duty, especially at a time when the EIB is ramping up its operations inside and outside of Europe.

Such few examples of the nature and amplitude of the changes to the CM draft Policy make it clear that the current draft cannot be adopted. The CM would have no credibility or legitimacy among its stakeholders. Rather, CSOs urge that the EIB undertake a second round of public consultation on a significantly revised and re-envisioned independent complaints mechanism.

Accountability mechanisms of IFIs work closely together and continuously strive to harmonize their policies and procedures. Thus it is all the more important that the EIB avoids introducing a weakened complaints mechanism, not to set a regrettable precedent and not to risk triggering a race to the bottom among IFIs. A higher bar for its accountability is the least to expect from the world’s largest multilateral bank.

Co-published with Xavier Sol and Adriana Paradiso of Counter Balance and Kris Genovese of SOMO

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