The Safeguards for Human Rights and Livelihoods Need
Professional Support and Reinforcement
Internally displaced persons (IDPs) are increasingly a product not only of conflicts and natural disasters, but also of a growing number of private or public sector infrastructure projects building mines, plants, dams, roads, etc. The footprints of such projects collectively displace large numbers of people. The number and size of such projects are rapidly growing in developing countries, in particular due to the financial facilitations made available to private construction companies and banks through, inter alia, the Export Credit Agencies (ECAs) of the 34 Organisation for Economic Co-operation and Development (OECD) countries. Lately, some non-OECD countries as well (Brazil, China, India and South Africa among others) have expanded their ECAs’ role, which has further compounded the incidence of displacement as well.
Internally displaced persons (IDPs) are increasingly a product not only of conflicts and natural disasters, but also of a growing number of private or public sector infrastructure projects building mines, plants, dams, roads, etc. The footprints of such projects collectively displace large numbers of people. The number and size of such projects are rapidly growing in developing countries, in particular due to the financial facilitations made available to private constructing companies and banks through, inter alia, the Export Credit Agencies (ECAs) of the 34 OECD countries. Lately, some non-OECD countries as well (Brazil, China, India and South Africa among others) have expanded their ECAs’ role, which has compounded the incidence of displacement as well.
Altogether, financial insurance by ECAs has increasingly become a powerful engine driving international development. Today, the combined financial resources marshaled by ECAs are huge by any measure. The Berne Union, which includes the majority of the world’s ECAs, reports that its members insured the investment of almost USD 1.2 trillion in 2010 alone. This amount exceeds the total lending currently provided by formal aid assistance through institutions like the World Bank and the regional development banks in Asia, Africa and Latin America combined.
How does the risk insurance process work in practice?
The construction of many infrastructure projects in developing countries is performed by private companies, financed through loans from commercial banks. However, given the high risks to the timely repayment of these loans by the beneficiary countries or the risks of internal military conflicts, civil war, and other unanticipated events, it becomes indispensible that state Export Credit Agencies of developed countries step in. They do so by providing state insurance which takes the form of guarantees for repayment to the commercial lending banks in case of default by the recipient country. This crucial ECA helps unlock vast resources for accelerated development and plays a major worldwide role.
Risks that Demand Structured Counter-Risk Measures
Problems emerge, however, from the fact that while ECA guarantees now insure against some types of risks, they omit other essential risks. For instance, one entire category of risks not addressed is the risk that the projects themselves will negatively impact some populations. This risk, and the people who by no fault of their own incur them, are not insured by the ECAs’ financial guarantees.
Indeed, the internal displacement entailed by some ECA assisted projects inflicts on the affected populations a set of grave risks of impoverishment, documented by empirical scientific research worldwide. Because of such risks, one possible consequence of ECAs’ expanding activities– while unintended, yet nonetheless real and highly toxic– is the severe pauperization of those displaced, despite the quasi-symbolic compensation paid them. Regardless of the benefits of those projects (that usually accrue to other segments of the population) the impoverishment of those forcibly displaced is certainly the polar opposite of ECAs’ own development ambitions. This paradox of unintended consequences is something that demands a firmer response from ECAs, national governments, building corporations, banks, NGOs, and other development actors.
What could and should be done further to prevent or mitigate such counter-purpose risks and effects from occurring?
In response to this question and to related concerns, as well as to sharp criticism from civil society groups, the ECAs collectively adopted in 2003 a fundamental document known as the “Common Approaches” (CA). This document expresses ECAs’ collective adherence to the principles of sustainable development and to the set of World Bank-formulated social and environmental policies known as “the safeguard policies.” The Common Approaches are predicated on the idea that all ECAs would implement them; this is essential to avoid client-flight to the agency with the lowest level of protective norms. The CA call for coherence and consistency in social and environmental standards, binding implementation, greater transparency, public consultation, the adoption of human rights criteria and other major requirements. In essence, the Common Approaches have emerged as a means by which the governments of OECD democratic and developed countries seek to influence what private sector companies are doing. Especially, since the economic risks to IDPs families cannot be technically addressed in the same way as the loan repayment risks, the CA aim to introduce alternative safeguards and counter-risk measures that would protect the livelihoods of IDPs. In this respect, it is also significant–and an indication of convergent thinking on this matter–that in 2005 the UN established a Special Representative of the UN Secretary General for Business and Human Rights, an initiative particularly relevant to displacement and resettlement processes.
What if the General Policy is Improved yet Violations Remain at Project Level?
Over subsequent years, a number of additions to the 2003 Common Approaches were introduced. NGOs demanded consideration for the Guiding Principles on Internally Displaced Persons. And most recently, during 2010-2011 the CA document itself was submitted to public discussion and improved. The result is a new and stronger CA version, presented for approval at the October 2011 meeting of OECD countries and expected to be adopted (possibly with further adjustments) by the end of 2011.
Yet despite the constant efforts between 2003 and 2011 by individual ECAs to enforce the CA norms, many violations of the Common Approaches continued at the project level–for which the responsibility belongs to both the building corporations and host-country governments. The worst corporate-related abuses of human rights have taken place in areas affected by internal conflicts and the tensions of post-conflict situations. Many internally displaced people suffered the consequences. As John Ruggie, the Special Representative of the UN Secretary General on Human Rights and Transnational Corporations, recently stated to OECD/ECAs, without mincing words: “…Transgression instances included forced displacement of populations with no or inadequate compensation, or more generally, a lack of due process for land acquisition; labor rights abuses; denial of access to livelihoods; pollution.Companies have impacted just about all internationally recognized human rights in many ways, including by interfering in the exercise of classic civil and political rights like freedom of assembly”.
In other words, despite the commitment of the Export Credit Agencies to condition and gear their loan guarantees towards ensuring sustainable development, neither governments nor private companies have been held to account for violating the Common Approaches. Because of such violations, people displaced from these projects have suffered the most, as they were deprived of the protection inscribed in the CA and international guarantees. In response, affected populations increased their active resistance to brutal displacement divorced from resettlement and livelihood restoration. Construction companies, in their turn, have not received the requisite help from host governments for countering the kind of risks and losses that trigger both the political and physical opposition of affected populations. And a frequent facilitating factor of such transgressions appeared to be ECAs’ lack of capacity (and time) to effectively monitor consistency between their CA platform and project execution on the ground. Indeed, and paradoxically so, after insurance guarantees are agreed upon, there is no adequate ECA monitoring or supervision on whether projects actually implement the social and environmental safeguards that served as the premise and basis for granting credit insurance in the first place. The CA only notes that ECAs should–for projects with major social or environmental impacts–require ex post monitoring reports and related information. In other words, monitoring is required only after the fact, rather than in an ongoing fashion when there is a real chance to correct distortions and prevent further deteriorations of the CA standards.
In sum, credit guarantees for projects with large environmental and social impact are still being delivered based only on paper promises and reports, but without verification in the field. ECAs are hampered in this respect also by insufficient professional environmental and social expertise among their staff. However, in fairness to ECAs’ enormous agendas and efforts, it must also be recognized that given the extremely broad span of projects they insure it would be unrealistic to expect the ECAs’ staff, however enlarged, to do all the direct monitoring themselves. This is largely the task of each project and its public or private owners. Logically therefore, capacity for such monitoring must be included into the pattern of regular project governance, with information accruing both to the project and to ECAs.
Along this line, some remarkably positive experiences ought to be highlighted as well, however insular. A recent case was the Ilisu Dam in Turkey, the largest dam to be started in Europe in the last decade. To support it, three major European ECAs (from Germany-Euler Hermes, Switzerland-SERV, and Austria-OeKB) devised sound tools for assessing the consistency of execution with CA norms and the export credit agreement. Insurance was issued for no less than half a billion USD, one third of the Ilisu Dam’s estimated cost, and the three ECAs decided in this case to translate the Common Approaches into explicit monitoring Terms of Reference (ToRs) on displacement and resettlement, the environment, and the protection of cultural heritage. Turkey’s government agreed with the ToRs, committing itself to their time-bound implementation. The ECAs and Turkey jointly appointed Committees of Experts (CoEs) consisting of independent professionals and scholars of widely recognized competence to monitor project progress in line with the ToRs and the Common Approaches. The agreement was concluded but the CoEs were allowed by Turkey to go to the field only one year later, at the end of 2008.
The outcome was sobering for all concerned. All three CoEs reported that the agreements reached with the ECAs on safeguards were not implemented. In fact, they were not even known to the staff of the Turkish agencies tasked to implement the project. The Experts’ reports triggered ECAs’ concern, and were followed by repeat joint field-visits by CoEs and ECAs. Substantial support and advice were given to project authorities as to how to improve policy, correct the violations of the agreement and improve performance. Unfortunately, the response from project authorities was unsatisfactory. Default warnings were issued by ECAs, in line with the credit agreement. Nonetheless, corrections were not made in time. Starting construction despite the lack of preparedness on the ground threatened to cause precisely the kind of displacement, catastrophic impoverishment, damage to cultural heritage sites and the further tarnishing of ECAs’ reputation that the ToRs aimed to prevent. Civil society groups– in both European countries and Turkey itself–critiqued the project’s defective set-up, sub-standard preparation for execution, and Turkey’s irresponsible under-compensation and under-financing of resettlement (contrary to current international norms) on equity, cultural, and environmental grounds. Additional advisory efforts were mobilized by the ECAs in support of improving Turkey’s policy and preparations for project start. But even up to the deadline project authorities failed to genuinely implement the advice received and did not bring the project into compliance with the agreement.
Under these conditions, the three ECAs took the undesired but necessary decision to cancel the insurance agreement for the Ilisu project. The ECAs had done in this case virtually everything in their power to implement the CA. But they declined to support–financially and morally– the unpreparedness that was morphing into a disastrous displacement and impoverishment of some 60,000 people and as a massive loss of important cultural heritage. They also had to preempt grave reputational loss to their own standing as agencies promoting sound development. In the end, this meant warning country authorities about the predictable consequences and calling off their support of the project.
This significant experience in one of the ECAs’ biggest projects led to valuable insights into how the Common Approaches can and must be improved and monitored further, beginning with the preparation stage before the final agreement is reached. The essence of llisu’s lessons was that the ECAs need to not only adopt policy declarations on sustainability, but–in cases with internal displacement and severe impacts on human rights– they also need to create a reliable mechanism for verification on the ground and for advice and professional monitoring during implementation, through competent CoEs.
Appropriate Next Steps: Addressing Human Rights
Fast-forward now to the revised version of the Common Approaches, adopted at the October 2011 OECD meeting. The new version of the CA document benefited from public discussions leading up to its approval. It marks a significant improvement over the previous version, but it also displays lingering weaknesses and loopholes that threaten to undermine its “traction power” at the operational level.
It is not the purpose of this commentary to discuss these gaps one by one. Yet two general and important issues need to be mentioned.
First, it appears that the lessons of Ilisu are still to be translated into explicit operational steps, enabling the ECAs to create both better in-house and in-the-field independent capacity for effectively monitoring how the sustainability and safeguard criteria are not only written into the projects’ terms, but also applied on the ground during the preparation and execution phases of projects. As a start, the ECAs could first simply do a review and stock-taking exercise to identify the projects that involved relevant social impacts and distill their own best practices into standards and operational procedures for going forward. This would help pinpoint their own methods to help overcome the obvious existing weaknesses in implementing and monitoring the Common Approaches.
Remarkably, one of the major innovations and highly constructive elements included in the revised 2011 version of the Common Approaches is an explicit reference to the human rights context of supported projects. Development agencies and practitioners are now increasingly expected to include human rights protections in the policy templates for development projects; for the first time, the Common Approaches do respond to this call.
In this light, the assessment exercise we propose on consistency, accountability and best practices in monitoring could also be designed as an opportunity and tangible practical step towards including the protection of human rights into ECAs’ concerns. The potential benefits from this novel element of the CA are indeed vast. The gains will not only be in terms of human rights proper, but also in terms of sheer economic benefits from doing business free of the social tensions always triggered when human rights are disregarded.
Until now, the ECAs have bent over backwards to ensure the flow of financing and to proclaim better standards in their Common Approaches, but they have not helped the countries themselves to get the expert knowledge necessary to competently understand and apply these standards. Such knowledge is still missing in numerous developing countries: for example, surprising as this may be, the majority of developing countries have not yet formulated their own domestic policy on development-inducedresettlement to guide in practice the involuntary resettlement entailed by development. The international development aid community, however, has found means to provide knowledge support in such limit situations by incorporating into the very fabric of major projects the provision of expertise for advising recipient countries and for monitoring the consistency of project practice with the adopted standards.
The mechanisms most frequently used (e.g., by the World Bank, ADB, and other agencies) are panels of experts (PoEs), whose periodic visits and assistance can easily become part of the project’s fabric itself. The private sector banks that extend the actual loans guaranteed to them by the ECAs also have a deep vested interest in the implementation of the Common Approaches. But it isn’t even clear if the ECAs require consistency and accountability on their side as well, as it is fully possible to do under the Equator Principles adopted by the world’s largest private transnational banks. However, the newly adopted version of the Common Approaches does not yet have an article recommending the creation of such a monitoring capability or of flexible functional alternatives to it.
It would be both efficient and relatively simple for all concerned– the ECAs, the lending banks, the client corporations and the benefiting country governments – to rely upon and substantially gain from such competent and independent specialists, once such panels become a normal procedure rather than an exceptional and happenstance one. Such small panels of experts (PoEs) could be tasked with a combination of advisory, monitoring and reporting functions. They could serve in a practical manner to aid countries that do not yet possess such expertise and independently inform ECAs on the quality of the implementation of the Common Approaches provisions. The composition of such panels must surely vary by project size and sector, and their specific tasks should be supported and included as a project cost, since the project owners will primarily benefit economically and socially from the panel’s expert advice. Findings and recommendations of these specialist groups should be reviewed jointly by ECAs, the companies benefiting from loan guarantees and the project owners themselves in the host country. The operational procedures for such panels could probably be specified in an Annex to the Common Approaches so as to build into them both uniformity and the needed flexible adaptation to project specificity.
Broadening the ECAs Family under the Common Approaches
A second important issue on which the new CA version brings new elements (but not yet fully clear provisions) is the need to promote a level playing field for officially supported export credit guarantees by both OECD countries’ ECAs, and non-OECD countries’ ECAs, such as those of China (Sinosure), Brazil (SBCE), and other developing countries whose resources now allow capital export for international development. The application of international safeguard standards by ECAs of non-OECD members is of great importance for both international development and their own efficiency, as well as for their countries’ reputation in promoting sustainability standards universally. Yet the ECAs of non-OECD countries are today still lagging far behind in promoting such safeguard standards in the countries where they operate.
The non-OECD ECAs invoke various rationales, like the lack of statutory authority in benefiting countries, or claim that they are just commercial entities and thus have no role in relation to social safeguards or human rights. Such arguments have no standing in the real world. They only compromise the political reputation and standing as development actors of those agencies. It is true that the ECA itself cannot alone succeed in implementing these improved approaches, but their political, moral and corporate responsibility as state agencies is to demand that the private corporations they insure and enable to work do so accountably. These companies obtain profitable contracts by receiving official credit guarantees on condition that they abide by the same reasonable safeguard and sustainability standards as other ECAs. In the case of China’s ECA, for instance, there is still a vast distance between the high standards for overcoming the ills of displacement applied in China itself, and the weak or absent policy standards in comparable projects executed with Chinese insurance in African or other countries lacking adequate standards and capacity.
The failures in the social and environmental performance of such projects breed social and environmental disasters, as well as political instability, which can easily feed and ignite conflicts. The credit agencies of either OECD or non-OECD countries cannot be relieved of their responsibility when such disasters occur in the wake of projects they insure. Feedback from such projects indicates that the populations that are badly harmed tend to become more hostile to the hand they see inflicting harm on them, which is often the foreign company executing the project. Their anger is less often turned toward the more distant responsible actor, which is the government of the respective country itself, which owns the project built by the foreign companies. The non-OECD ECAs could also productively rely on professional independent panels in many projects, which would ease and support the non-OECD ECAs’ own work by providing the monitoring, advice, and knowledge that the foreign technical construction companies cannot supply themselves within alien cultural contexts.
In sum, the measure for success in applying sound Common Approaches and social and environmental safeguards is not given by financial dimensions alone, or by wishful provisions inserted only in project papers and seldom practiced. A tougher real-life measure is the size of the damage that unsustainable approaches in development can inflict both on people’s livelihoods, human rights and on the sustainability of the affected countries’ economies as well.
This is the most important reason why further improving both the content and the effective application on-the-ground of the Common Approaches is indispensable.
 See, for example, among many other documents, the Jakarta Declaration, 2000, by 347 NGOs from 45 countries. http://www.eca-watch.org/goals/jakartadec_endorselist.html, http://www.eca-watch.org/ECA/race_bottom_take2.pdf
 Ruggie, John. “Engaging Export Credit Agencies in Respecting Human Rights,” OECD Meeting, June 23, 2010.
 See, for instance, comments made as part of the public discussion of the latest CA version: ECA-Watch, “Comments submitted to OECD on the Revised Recommendations on Common Approaches…”, November 8, 2011.
 The “Equator Principles” (EPs) are a credit risk management framework comparable to the Common Approaches that were adopted in 2004 by another segment of the international financial architecture: this segment consists of the major transnational and national banks involved in direct project finance. The Equator Principles are used by their adherent institutions for identifying, assessing and managing social and environmental risks in transactions for extending the actual finance credits to states and/or construction corporations directly. Project finance is predominantly used to directly fund the development and construction of major infrastructure and industrial projects. The Equator Principles were initially issued and adopted by 10 leading mega-banks. Between 2004-2011 the number of co-signatory banks has increased to 72 banks, including among them many of the largest banks of Australia, Britain, Brazil, Canada, Egypt, France, Germany, Japan, Netherland, Nigeria, Scandinavian countries, South Africa, United States and other countries. (As of 12/01/11)
The EPs are adopted voluntarily by these financial institutions and are applied when total project capital costs exceed US$10 million. The EPs are primarily intended to provide a minimum standard for due diligence to support responsible risk decision-making. The content and norms of the Equator Principles are based on the International Finance Corporation (IFC) Performance Standards on social and environmental sustainability and on the World Bank Group Environmental, Health, and Safety Guidelines (EHS Guidelines or “safeguard policies”). They are intended to serve as a common baseline and framework for the implementation by each adopting institution of its own internal social and environmental policies, procedures and standards related to its project financing activities. These mega-banking institutions have in turn taken actions themselves to promote the Equator Principles and norms through the loans they extend for financing development projects by state and non-state clients. The Equator Principles Financial Institutions (EPFIs) committed formally to not provide loans to projects where the borrowing client will not–or is unable to–comply with their respective social and environmental policies and procedures through which the EPs are carried out and monitored.