Opinion: A critical look at the IFC's new incentives framework

12 January, 2018

Original source:  Devex

To help staff make better decisions, the International Finance Corporation is introducing a new incentives framework, which will reward achievements in development outcomes. The new framework may be a welcome step, but the World Bank Group, which includes the IFC, has said incentives will reward staff on their ability to mobilize private sector funding. It’s critical that the IFC include in their rewards scheme recognition of staff that respect human rights. This means incentivizing staff to conduct robust due diligence, meaningfully consult with communities, and productively engage with the IFC’s accountability office, the Compliance Advisor Ombudsman, as it responds to complaints from communities affected by IFC investments.

During the World Bank’s annual meetings, Hans Peter Lankes, vice president of economics and private sector development at the IFC, laid out a new approach to measuring development impact, called “Anticipated Impact Measurement and Monitoring.” The new framework, which was launched as a pilot in July, is intended to inform the IFC of the development impact of its projects and improve decisions early on in project design. As a part of improving project design decisions, AIMM will reward staff, likely through bonuses or professional growth opportunities, for projects that result in “positive development impact.”

Lifting up positive development impact is a step in the right direction, but AIMM leads to a few questions — how will the IFC define impact? And, how can incentives help ensure positive impacts and avoid negative impacts for local communities living around project sites, as well as incorporate learning into project design?

According to Lankes, AIMM will establish a minimum performance floor over which staff must score in order to be “rewarded.” How the IFC sets this bar will ultimately determine the success of AIMM in ensuring that the IFC’s investments are contributing to the World Bank Group’s mission of ending extreme poverty and boosting shared prosperity.

So far, the IFC’s definition of “positive development impact” emphasizes realizing anticipated achievements of a specific project, including its contribution to the creation of markets.  A complete measurement of development impact must include consideration of the critical human rights impacts on local communities, such as displacement, environmental devastation, and heightened inequality. Accountability Counsel’s work with herder communities affected by the IFC-backed Oyu Tolgoi mine in Mongolia exemplifies how local people often bear a heavy cost for development projects designed with national markets in mind. While the $13.2 billion investment is intended to spur gross domestic product growth in the country, the large-scale mining venture has endangered water resources and disrupted livelihoods for the traditional nomadic herding communities that live there.

Moreover, a measurement of development cannot be complete without considering whether staff proactively interact with the CAO to address harms to communities. The CAO aims to improve social and environmental outcomes on the ground by responding to complaints from project-affected communities. Communities can request the CAO resolve their complaints through collaborative efforts or through an investigation into whether the IFC's policies have been complied with. Unfortunately, in recent years, IFC staff have tended to disagree with or disregard the CAO's findings of non-compliance.

However, as demonstrated by the IFC's equity investment in tea plantations in Assam, India, which are majority owned by the Tata Group, working with the CAO — or not — can directly affect projects' impact. In that project, local groups filed a complaint to the CAO on behalf of the indigenous Adivasi tea workers about substandard housing and sanitation conditions, inadequate compensation, restricted freedom of association, and issues with the project's worker shareholder program. The CAO’s investigation vindicated the worker’s concerns. Unfortunately, the IFC disagreed with many of the CAO's findings, and a project that was intended to benefit plantation workers continues to perpetuate harms.

Because the new AIMM framework will anticipate impacts, it will also have the potential to catch harmful projects before they become problems for communities. The framework will only capture these problem projects, however, if the IFC defines impact to include robust due diligence, community consultation, and constructive engagement with the CAO complaint process, and rewards staff for engaging in those activities.

Incentives must be structured to encourage all IFC staff, from investment officers to sectoral experts, to respect human rights in the IFC’s investments. Rather than giving a bonus to an employee who has only focused on creating a commercially viable project, the World Bank and IFC should celebrate staff who devote their time to due diligence, and who invest honest effort in consulting with project-affected communities.

Further, staff should be encouraged to work collaboratively with the CAO, by rewarding those who constructively respond to CAO complaints filed about their projects, report to management about implementation of corrective measures in response to complaints, and take proactive steps to learn from CAO cases to make future projects better. The new AIMM framework presents a real opportunity to get it right. In order to truly improve project impacts and ensure positive outcomes for its investments, the IFC and the new framework must prioritize human rights at its core.

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