Let’s talk: Dispute resolution’s role in remedy

By Rabi Thapa

When things go wrong in projects supported by a development finance organization, there’s often more than one way to put them right. A new advisory note by the Office of the Compliance Advisor Ombudsman (CAO) explores how the process of dispute resolution can support remedy – quickly, effectively, and in a way that directly benefits complainants.

The note by the CAO – the independent accountability mechanism for the International Finance Corporation and the Multilateral Investment Guarantee Agency (IFC/MIGA) – begins by defining remedy as constituting more than material outcomes such as financial compensation.

It says that remedy should also help “restore the dignity of complainants and increase levels of trust between the project-affected people and the concerned companies.” This notion of “making whole” those who have been harmed by clients of development finance institutions is crucial to the entire process of accountability, not to mention the success of projects, according to the note, titled “Insights on Remedy: The Role of Dispute Resolution in Remedy.”

Dispute resolution can increase trust

The advisory note, released in February, found that the process of dispute resolution can make a clear contribution to remedy. The note is the first of a series of papers meant to inform the development of IFC/MIGA’s remedial action framework, currently undergoing public consultation.

“We asked communities, ‘How much do you trust the company?’, before and after our dispute resolution process, and saw a massive increase in trust levels,” said Julia Gallu, lead author of the report and Head of Advisory at the CAO (see graphic below). “The aspect of remedy that’s to do with respect and restoration of dignity and engagement is so important – it’s not enough for experts sitting in Washington, D.C., to say ‘Ok, we’ve looked at the harm and here’s our table of remedies,’ without engaging with the community.”

There is a strong argument, therefore, for potential harm to be addressed at an earlier stage – before trust levels have broken down, and while development finance institutions are actively involved in the project and able to exert leverage on their clients.

Using leverage to bring parties to the table

A challenge identified by the advisory note are the perceptions of private sector clients who are unwilling to take part in dispute resolution. In such cases, the advisory note suggests, “IFC and MIGA can do more to clearly communicate the responsibility to provide remedy and help their clients understand the business case and benefits of dispute resolution in this context.”

The idea here is that IFC/MIGA can help their clients understand that dispute resolution is a good process for the client to work with the communities and enhance their environmental and social performance in a way that builds relationships and takes into account the community’s preferences.

In addition, another potential roadblock, according to the CAO, is that “access to trusted expertise and related funding can be a challenge to achieving remedy through dispute resolution.” Here, too, a private sector client’s decision to engage in dispute resolution may depend on its capacity to deploy technical and financial resources. Trusted expertise is often needed, for example, for new, independent environmental and social assessments. One option is that IFC/MIGA could help support clients with this technical capacity, according to CAO.

However, larger issues such as land acquisition and resettlement are often beyond the control of the private sector client. The advisory note finds that government involvement is requested by both complainants and clients most frequently in relation to land issues, including both physical and economic displacement.

Furthermore, of the 14 CAO cases that were settled or partially settled in the past decade (out of 30 cases that were concluded), nine (64 percent) had some form of government engagement. Accordingly, the advisory note calls on the World Bank as well as IFC/MIGA to help “bring government actors to the table.” Other actors such as civil society organizations and trade unions, whose involvement can improve the chances of success, should also be engaged.

Taking responsibility for sustainable remedy

While it has been established that the structures set up between communities and clients can have lasting value beyond involvement of the accountability mechanism and the financial institution, these structures usually require ongoing support to be sustainable. The advisory note suggests that IFC/MIGA consider supporting dispute resolution outcomes as part of ongoing supervision.

According to the CAO, the goal of the advisory note is to explore potential opportunities for IFC and MIGA to do more to support remedy via CAO processes. More broadly, according to the CAO, the objective of the note is to encourage them to plan for the possibility of remedy in advance and implement remedy tools as an integral part of environmental and social risk management and mitigation.

David Fairman of the Consensus Building Institute agreed with these goals: “The particular value of the CAO note is to remind everyone that remedy is not this incredibly high bar that we almost never get to. It is absolutely possible in the context of these projects and their impacts to find remedy. And there are things that could be done to make it more accessible, more consistent, more robust as an approach that uses dispute resolution as a bridge.”

He concluded with a look to the future. “As development finance institutions go more and more into frontier, post-conflict contexts, trying to generate private investment, the risks of harm are going to get higher and the need for effective work with the client upfront on both environmental and social risk mitigation and stakeholder engagement is going to rise,” he said. “So the need for more effective grievance mechanisms such as dispute resolution is going to rise.”

Published in March 2023

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