(Washington, DC) – A report made public on January 10, 2014, by a World Bank Group ombudsman reinforces the need for proper oversight of its investments around the world, Human Rights Watch said today. The review concerned an investment in a company that was at the center of a spate of violence and killings in Honduras.
The World Bank Group’s Compliance Advisor Ombudsman (CAO), the independent accountability mechanism for its private lending arm, the International Finance Corporation (IFC), concluded that staff did not adequately assess and respond to risks of violence and forced evictions in the investment, in violation of the organization’s own rules. The palm oil and food company involved, Corporacion Dinant, has already received US$15 million of a US$30 million IFC loan. The CAO is the World Bank Group’s independent accountability mechanism charged with investigating violations of IFC policy and reviewing complaints from affected communities and reports directly to the group’s president, Jim Kim.
“The IFC loaned millions of dollars to a project, even though it was known that its operations were already enmeshed in killings and other violence,” said Jessica Evans, senior international financial institutions researcher and advocate at Human Rights Watch. “As President Kim urges World Bank staff to take on riskier investments, the Dinant case should serve as a warning about the pitfalls of investing without proper oversight.”
The CAO found that IFC staff had underestimated risks related to security and land conflicts, and that they did not undertake adequate due diligence even though the situation around the project and the risks had been raised publicly. Nor did IFC project staff inform other IFC specialists on such environmental and social risks about the problems that they knew were occurring.
The investigation stemmed from allegations that Dinant conducted, facilitated, or supported forced evictions of farmers in Bajo Aguán, Honduras, and that violence against farmers on and around Dinant plantations in the Bajo Aguán, including multiple killings, occurred because of inappropriate use of private and public security forces under Dinant’s control or influence.
The CAO found that the IFC did not, as its policy requires, adequately oversee Dinant’s obligations to investigate credible allegations of abusive acts committed by the company’s security personnel or to sanction the use of force that goes beyond “preventative and defensive purposes in proportion to the nature and extent of the threat.”
The CAO also found gaps in project supervision at critical times, including the six months from February to August 2010, after Dinant had informed the IFC that five of its security guards had been killed in a clash with local farmers occupying disputed land. Nor did IFC staff comply with its own requirement to “exercise remedies where appropriate” in a situation in which a client does not or is not able to re-establish compliance with environmental and social policies.
The CAO concluded that the staff failure to comply with their own rules was largely due to how they interpreted the rules and their wide degree of discretion in applying them. Human Rights Watch has long expressed concern about the lax application of rules at the IFC. This case raises serious questions about how IFC ensures that its rules regarding environmental and social issues are applied, particularly in high risk contexts, Human Rights Watch said.
“IFC has important policies to protect human rights and the environment,” Evans said, “but the Dinant case shows that staff treat them as optional. That needs to change to avoid more tragic outcomes.”
In its 5-page response and action plan, the IFC states that it does not agree with some of the findings in the 72-page report, but does not outline which of the findings it accepts and which it does not. Rather, it outlines the actions that it and Dinant have undertaken, all which were considered by the CAO in its report.
While the IFC agreed to address several of the findings, it largely avoided the findings of IFC’s systemic failures. And the IFC’s action plan falls well short of what is required by the IFC’s own standards. Further, there is no indication that the action plan was developed in consultation with the communities affected by the investment or the organizations that represent them.
The IFC’s action plan acknowledges that an investigation of the allegations against the company is needed and that it will “assess the feasibility of remediation to affected parties.” But it leaves it to the Honduran authorities and Dinant to deal with this, even though both parties are alleged to have participated in the violence.
The IFC also said that Dinant will develop a more comprehensive vetting process for security personnel, improve its training for them, and create a grievance mechanism so that people in Bajo Aguan have a way to report potential problems about Dinant.
“Instead of the accurate, adequate, and objective assessment of the allegations its policies require, the IFC is leaving the job to the fox that raided the chicken coop in the first place,” Evans said. “Human lives and livelihoods are at stake here. The IFC should demand an external, expert investigation that could create a framework for Dinant to remedy any violations of its responsibility to respect human rights.”
The CAO found that the IFC deficiencies were in part due to its culture and incentives that measure results in financial terms, encouraging staff to “overlook, fail to articulate, or even conceal potential environmental, social, and conflict related risks,” regardless of IFC’s policies. The CAO urged the IFC to develop better approaches to project oversight in high-risk areas such as conflict zones or where companies use private security. The IFC response to this concern was vague and noncommittal, Human Rights Watch said.
The CAO has also opened a related investigation into the IFC’s lending to Honduras’ third largest bank, Ficohsa, because of potentially serious human rights impacts. The CAO’s initial report raises significant questions about whether Ficohsa had adequate environmental and social protections in place when it lent money to Dinant. In May 2011, the IFC made a US$70 million investment in Ficohsa, despite knowing Dinant’s role as the bank’s third-largest client and the deteriorating situation surrounding Dinant in Bajo Aguan.
“This investigation was an opportunity for the IFC to evaluate why its systems clearly failed and determine how to prevent future human rights problems,” Evans said. “But the IFC has instead once again asked the public to blindly trust the institution, even as the basis for such trust is shaken by the revelations in this report.”