A World Bank Group compliance investigation into an investment in Indian tea plantations reinforces the need for human rights risk analysis and oversight of the bank’s investments. The investigation report, released on November 7, 2016, concerned an investment by the bank’s private sector lending arm, the International Finance Corporation (IFC), in India’s tea plantations. India’s tea sector has raised numerous issues related to living and working conditions, freedom of association, and access to health and education.

“A World Bank investigation has found that the IFC invested millions in Indian tea plantations without taking into account serious labor and other human rights abuses in the sector,” said Jessica Evans, senior international financial institutions researcher at Human Rights Watch. “The IFC failed to identify and address basic risks, including the grossly inadequate living conditions for workers and child labor.”

Worker on APPL tea plantation in Assam, India

© 2015 Komala Ramachandra

The Compliance Advisor Ombudsman (CAO), the independent accountability mechanism for the IFC, concluded that the IFC failed to identify and address labor, social, and environmental issues, including potential violations of Indian and international law. The CAO is charged with investigating violations of IFC policy and reviewing complaints from affected communities.
 
This report follows a December 2013 CAO investigation finding that IFC deficiencies have been 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 policies.
 
In November 2006, the IFC approved an investment of US$7.87 million to allow Tata Global Beverages to transfer ownership of its tea plantations to a new company, Amalgamated Plantations Private Limited (APPL). The IFC was to receive a 19.9 percent equity stake in APPL, while Tata Global Beverages retained a 49.6 percent share. The IFC investment also supported a program for APPL employees to purchase shares in the new company.
 
Citing studies that show widespread malnutrition on tea plantations and that wages paid to workers were not enough to cover basic nutritional requirements, the CAO found that the IFC has not met its own standard to create jobs that provide a “way out of poverty” and “protect and promote the health” of workers. The CAO also cites numerous groups that raised concerns about freedom of association on the plantations, including the rights of workers to form unions. In response, the IFC, rather than substantively addressing these objections, contends that it is in legal compliance with its policies and will seek “a fresh legal opinion.”
 
A World Bank investigation has found that the IFC invested millions in Indian tea plantations without taking into account serious labor and other human rights abuses in the sector.

Jessica Evans

Senior International Financial Institutions Researcher

The IFC’s investment supported a problematic employee share-purchase program, the CAO found, highlighting the company’s misrepresentation of risks associated with buying stock, the financial impact on low-paid workers of purchasing stock by incurring debt, and allegations of pressure placed on workers to participate in the program. The CAO said that the IFC supported issuing more shares, reducing the value of workers’ shares and diluting their stake in APPL, without consulting worker-shareholders. While the IFC has proposed financial literacy programs, among other steps, it is silent on the concerns raised about the impact of its investment on the value of workers’ shares.

The IFC should engage with APPL, the government, nongovernmental groups, and relevant experts to undertake a transparent and consultative assessment of the development and social impact of compensation levels, trade union representation, and the employee share purchase program. The IFC should disclose aggregate health, literacy, and education statistics, and any existing plans to address these issues. The IFC should also assure jobs on the plantations meet its own standard of paying workers “a decent and fair wage” and respect freedom of association.

The CAO recognizes that the IFC investment had significant potential development impact for APPL’s 30,000 employees and the 155,000 people who rely on the tea plantations for work, food, housing, water, health care, and education. But the CAO said that the IFC staff failed to identify social and environmental shortcomings and risk factors, and therefore could not undertake the necessary action to bring the investment into compliance with its own standards. One of the potential causes was the IFC assignment of only environmental specialists to assess environmental and social impacts, but no social, labor, or human rights specialists.

The IFC has acknowledged some of the findings, while contesting and failing to address others. The CAO expressed concerns that an action plan to respond to the findings was not developed in consultation with workers. “The IFC has cast aside its commitment to consult with affected communities and workers both in the development of its India tea investment and in its plan to respond to past mistakes,” Evans said.

The CAO found that the IFC relied too heavily on the Tata Group’s reputation and intention to meet external certification standards instead of conducting an independent environmental and social review, as its own policies require. As a result, it did not give due consideration to systemic and widespread violations of labor protections on tea plantations. In its response to the report, the IFC relied heavily on a Tata Global Beverages-commissioned investigation carried out by a third-party organization, whose findings have not been released to the public or to the CAO.

The IFC should not rely on confidential reports to demonstrate its policy and legal compliance. The IFC should disclose the report to allow for external scrutiny. In general, the IFC should disclose audit reports to affected communities and workers, allowing for consultation and verification of audit procedures and outcomes.

The CAO found that the IFC should have considered whether the investment would have had an impact on the workers under its indigenous peoples policy. The forebears of many of APPL’s workers belonged to indigenous, or Adivasi, groups from central India, who were brought as forced or bonded labor to work on tea plantations. They retain their own language and maintain a culture distinct from the general population, identify as Adivasi, and have a longstanding campaign to gain official recognition.

The IFC challenged this finding, stating that workers are not indigenous because they are not native to the area and do not have a historical dependence on the land. But the CAO said that under the IFC’s own guidance, the IFC should have engaged experts to determine whether the indigenous peoples policy applies. The IFC should undertake such an expert analysis, in consultation with workers and nongovernmental groups.

In its response to the India tea investigation, the IFC announced it would create new procedural requirements to screen for contextual and country risks in its projects. These reforms are long overdue, having been promised in response to the CAO’s December 2013 report. In addition to addressing systemic failures in the future, the IFC should undertake a wholesale review of the social impact of its investments and work with its clients to fully remedy all adverse impact and enhance development outcomes.

The IFC board, which is made up of its member governments, should ensure that the IFC responds in full to the findings. When monitoring the IFC’s response, the board should make available the resources necessary to ensure a positive development impact that protects workers’ rights. In addition, the CAO should use its power to instigate its own investigation to examine system-wide whether the IFC is identifying and addressing the full range of human rights risks in its due diligence and supervision practices.

“The IFC has been sluggish in responding to its endemic failures and done little to remedy the impact of its past mistakes at the community level,” Evans said. “The IFC’s board should send the action plan back to the staff and require it to consult with workers and the groups that filed the complaints to make sure that all the violations are addressed and appropriate responses are developed.”