As more aid money is channelled through development finance institutions (DFIs) that support private sector projects, public scrutiny of these institutions has increased.
Affected people have taken growing numbers of disputes to the DFIs’ complaint mechanisms. In a recent landmark judgment, the United States Supreme Court found that the International Finance Corporation – the World Bank’s private sector arm – is not protected by sovereign immunity when sued over the alleged impacts of its commercial lending.
Now more than ever, DFIs should very carefully scrutinise proposed projects and ensure environmental and social (ES) issues are properly addressed throughout project implementation.
Why land rights matter
Land underpins the livelihoods, culture and identity of millions of people worldwide. It is intimately related to human rights such as the right to food, housing and culture.
At the same time, land disputes are a major source of conflict in large-scale development projects, and several DFI-financed projects have attracted adverse campaigning over their alleged land rights impacts.
International guidelines call on governments to ensure land rights are respected when they promote investments overseas, including through their DFIs, and there is growing jurisprudence on the human rights obligations states have when they promote business activities overseas.
But ultimately much hinges on the operational systems the DFIs use to identify issues and develop responses.
A new report explores how major European and North American bilateral DFIs address land rights issues in their due diligence and investment processes. It identifies important advances but also areas for further improvement.
Are the policies up to scratch?
The DFIs’ ES systems tend to rely on the Performance Standards of the International Finance Corporation. These are widely considered “best practice” in private sector investments. But they do not fully align with international instruments on land governance, such as the UN Tenure Guidelines.
The Tenure Guidelines, for example, emphasise rights language throughout, and promote positive outcomes for land rights holders to a greater extent than the Performance Standards.
Some such differences reflect the different nature of the two instruments. But they also raise questions as to whether prevailing ES standards fully reflect the latest thinking and policy consensus on land rights.
Land rights in DFI operational systems
In practice, the DFIs that participated in the review have developed sophisticated ES systems that cover land rights issues, and they host growing teams of ES staff.
Advances have been made despite the challenging contexts in which DFIs have been operating: ES teams must deal with several difficult issues, besides land rights, and DFIs are often pushed by their governments to finance private sector projects in ever more complex contexts.
But the report also identified blind spots – for example, on the extent to which affected land rights holders and organisations supporting them can meaningfully contribute their views before investment decisions.
Existing metrics do not allow careful scrutiny of any partnerships clients may have established with land rights holders. And while complaint mechanisms associated with some multilateral DFIs are increasingly used, experience among some bilateral DFIs remains embryonic, if now rapidly evolving.
Such blind spots mean land rights issues may not be identified in a timely way, effectively addressed or redressed when harms occur.
Improving DFI policies and practices
There is a need for governments to systematically strengthen land governance within their jurisdiction, irrespective of whether investors or DFIs are involved. But there is also a compelling case for DFIs to further improve their investment policies and practices.
If not properly addressed, land rights issues can expose people affected by DFI-financed activities to severe negative impacts and human rights violations. They can also expose DFIs and their clients to reputational and operational risks.
As DFIs work in somewhat different ways, opportunities for improvement vary – but in general terms, they include issues such as:
- Increasing opportunities for public input into, and scrutiny of, DFI due diligence processes, including by the people who stand to be most directly affected by the proposed projects.
- Aligning due diligence with the fuller spectrum of land rights issues covered in the Tenure Guidelines.
- Developing approaches to assess and improve any partnerships clients establish with land rights holders.
- Creating arrangements to finance independent technical, legal and other support for affected people in their relations with DFI clients.
- Reviewing the contracts project developers may have signed with the host government or other parties to strengthen language that protects land rights.
- Increasing the transparency of investments by disclosing project contracts, including financing instruments.
- Taking systematic action to protect land rights defenders, including by assessing and monitoring risks and developing rapid response systems.
- Supporting independent third-party compliance monitoring and more effective and accessible grievance mechanisms.
Next week, hundreds of land rights specialists will attend the World Bank’s annual land and poverty conference. Besides its convening power, the World Bank is at the centre of the international DFI architecture. Will this year’s conference mark a tipping point on progressing the development finance and land rights agenda?