Professor David Hunter Launches Proposal for Remedy Fund for IFC/MIGA Affected Communities
At a panel discussion titled “The Role of Financiers in Enabling Remediation for Project Affected Communities” held during the World Bank Civil Society Forum on October 16, 2019, AUWCL Professor David Hunter proposed the creation of a “Community Benefit-Sharing & Development Impact Fund.”
In general, IFC and MIGA depend on macro-economic factors—e.g., increases in employment, royalty revenues, or leveraged investments—as the criteria for their development benefits. This often means that local communities take on disproportionate risks for projects where the benefits are largely enjoyed by others. This problem was highlighted in the recent U.S. Supreme Court case of Jam v. IFC, where the IFC was stripped of absolute immunity for damages to local communities. This shows that the IFC and MIGA need to put the local affected community more at the center of their development mission, both to differentiate themselves from commercial banks and to reduce the disproportionate burdens borne by these communities. As the IFC and MIGA increase their investments in failed and conflict states with low governance capacity, the risks to local communities of failed projects also increases.
IFC and MIGA need to take additional steps to ensure affected communities are part of the development process and benefit from it. This will include a separate focus on the costs, benefits and risks visited on local communities in addition to the macro-economic analyses of the project. As part of managing the risks to the communities, Professor Hunter proposes that the IFC and MIGA create and fund a “Community Benefit-Sharing & Development Fund.” The fund would provide support to local community initiatives in areas that have or are likely to bear a disproportionate amount of risks for projects that deliver benefits elsewhere or to the national economy.
According to Professor Hunter, it is too soon to discuss details, as the overall concept of a remedy fund is still being “socialized” within the World Bank. He sees support growing and is preparing a more detailed proposal for future discussions with Bank management and member governments. He envisions a Trust Fund directly accessible to affected communities and governed by a multi-stakeholder board. A set of operating procedures would be developed to ensure transparency, public accountability, accessibility, and multi-stakeholder representation in decision-making.
The Fund could be launched with an initial contribution from IFC and MIGA. Additional future revenue could come from the following sources: (1) annual contributions equal to 1% of the net revenues of IFC and MIGA operations in the previous fiscal year; (2) annual contributions by IFC/MIGA clients equal to 2% of the loan or guarantee of projects deemed to have potential environmental and social risks (Category A and B projects) as part of a contingency/insurance plan for specific projects; (3) a percentage of the proceeds from the sale of IFC’s equity holdings; and/or (4) periodic contributions made by IFC/MIGA, their Member Governments, their project sponsors or other business entities, private foundations, civil society organizations, or individuals.