Opinion | AIIB must give local communities a voice in development projects

Opinion | AIIB must give local communities a voice in development projects

Opinion | AIIB must give local communities a voice in development projects

In its eight years of operation, the Asian Infrastructure Investment Bank (AIIB) has grown to be the second-largest multilateral development bank in terms of membership and has invested more than US$50 billion in more than 250 projects. While some might laud the size and scale of the AIIB, it’s impossible to determine whether its investments have hit their mark.
This is because the AIIB has made it exceptionally hard for communities negatively affected by its financing to raise environmental and social concerns. This raises the question of whether the AIIB is afraid to hear about the true impact of its investments.

After years of raising the alarm over the AIIB’s lack of accountability, there is some hope. The bank has agreed to review the effectiveness of its accountability mechanism, called the Project-affected People’s Mechanism (PPM). It’s a perfect opportunity to update the mechanism so that it is actually accessible to, and facilitates remedies for, affected communities, and begin to earn the trust of its most important stakeholders: frontline communities in Asia.

Despite the common perception of multilateral development banks as forces of good abiding by do-no-harm mandates, it is undeniable that such organisations do, in fact, cause harm. From my work at the Accountability Counsel, representing communities affected by international investments, it is clear that well-intentioned development projects can harm people and the planet.

Examples include: a hydropower-dam-associated project in Nepal that affects people’s livelihoods, health and safety; a mining expansion project in Mongolia that harms the environment and traditional herder communities in the South Gobi; and a biomass project in Liberia that led to the destruction of nearby natural forests and sexual violence against women.

Workers stand near a trench collecting seepage water at Rio Tinto’s copper mine in Oyu Tolgoi, Mongolia, on July 25, 2023. The mining project has been blamed for wells going dry in the area, harming the livelihoods of traditional nomadic herders. Photo: Accountability Counsel/Reuters
With more than 1,800 such complaints made against multilateral development banks, including the AIIB, it is all but certain that its financing is causing environmental and social harm. What matters is whether the AIIB is aware of and able to correct harm stemming from its projects. To achieve that, its accountability mechanism must be fit for purpose.
Independent accountability mechanisms (IAMs) were first developed in the 1990s in response to incidents of egregious harm associated with financing from multilateral development banks which otherwise claim immunity from lawsuits. These are internal, independent mechanisms for communities affected by projects to raise their grievances and seek redress.
What was novel in the 1990s is now common. Given the inherent financial and reputational risks associated with badly managed projects, they help these organisations ensure their investments meet their mark by hearing from and being accountable to the very people the banks claim to benefit.

Civil society organisations were therefore buoyed in 2016 when the AIIB became the first multilateral development bank to explicitly include an oversight mechanism in its founding documents. This culminated in the establishment of the PPM in 2018.

The Asian Infrastructure Investment Bank headquarters in Beijing. The world’s second-largest multilateral development bank faces accusations of a lack of transparency and unreasonably high expectations in its internal accountability policy. Photo: Reuters
However, in more than five years of existence, the PPM has not accepted a single complaint. Through a purposefully complex mix of eligibility and accessibility rules, the AIIB has made it nearly impossible for affected communities to actually access the mechanism. This seeming aversion to its own oversight mechanism suggests the AIIB is afraid of complaints.

The AIIB excluded nearly half of its portfolio from the PPM’s mandate when it decided that the mechanism could not review projects co-financed with other multilateral development banks. The AIIB considers this an innovation, one that prioritises efficiency and ease for potential complainants.

However, outsourcing accountability to a co-financier completely ignores that the AIIB also has a legal and institutional responsibility to provide a remedy for its impact, learn lessons and hold staff accountable. Moreover, the AIIB is alone in its approach as other independent accountability mechanisms opt to cooperate with the co-financier’s IAM in similar situations.

Even if a complainant can approach the PPM, they must first jump through unfair hoops. For example, it requires people to first make prior “good faith” efforts to resolve the complaint with borrowers in charge of implementing the project and bank management, the very actors who complainants perceive to have caused them harm.

Chinese-led bank: we found no evidence we are dominated by Communist Party

While some other multilateral development banks’ independent accountability mechanisms also put in place unfair requirements, the AIIB is the only one that requires going through two levels of internal grievance processes before being allowed to access an independent mechanism. Given the larger context in which projects are funded, this is often an insurmountable barrier.

These unreasonably high expectations were used to deny access to complainants who were affected by an AIIB-funded gas project in Bangladesh. They had been engaging with the AIIB, the borrower and the institution for three years.

The AIIB describes this minimalist approach to oversight as being efficient and in line with its broader “ lean, clean and green” strategy. The value of a lean institution lies in its ability to quickly and effectively respond to challenges faced by the world today, but when leanness means an absence of quality control or avoidance of responsibility, the cure can become worse than the disease.
When the Chinese government unveiled plans in 2015 to establish a new regional multilateral development bank, there were concerns about whether it would truly adhere to environmental and social rules for its investments. Unfortunately, without accountability to project-affected communities, no one – including the AIIB – can answer that question.

Radhika Goyal is a policy associate with Accountability Counsel, where she advocates for international financial institutions to be more accountable to the communities they impact

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