In 2008, the International Finance Corporation (IFC), the private-lending arm of the World Bank Group, provided the financing necessary to enable the construction of the Tata Mundra coal-fired power plant in Gujarat, India. IFC decided to finance the project despite knowing it was “high risk”: that is, it was “expected to have significant adverse social and/or environmental impacts that are diverse, irreversible, or unprecedented.” IFC specifically identified “improper mitigation or insufficient community engagement” as potentially triggering “unacceptable environmental impacts.” Despite this, the IFC provided a critical $450 million loan without taking steps to ensure sufficient safeguards were put in place.
Today, fishing and farming families suffer from the very harms the IFC predicted. Construction of the plant has destroyed the local freshwater supply that residents and farmers depend upon. The plant has destroyed the local marine environment, ruining the fish stocks upon which the communities rely; air pollutants have reached levels dangerous to human health, with increasing instances of respiratory illnesses, especially in children. For more than a decade, the communities have demanded accountability, remedy, and a means of sustaining their livelihoods in the wake of the destruction caused by the project. At every turn, they have been denied.
The communities sought redress in their own country only to find a system set up to favor powerful companies over ordinary people. The communities sought redress through the IFC’s internal accountability mechanism. In 2013, IFC’s accountability mechanism concluded that the IFC had violated its own policies and standards at every stage of the project and recommended remedial action. IFC’s management rejected those recommendations and simply refused to take any action.
The communities then filed a first-of-its-kind lawsuit – Budha Ismail Jam, et al. v. IFC – in Washington, D.C, in 2015 to hold IFC accountable for its role in causing harm. During the court proceedings, the IFC did not deny its role in harming the communities. Instead, it argued it was above the law and that the communities should not be allowed to have their claims heard in any court at all. The IFC even argued that the mere existence of its accountability mechanism – the same one that had already validated the communities’ concerns and explicitly called for IFC to take remedial action with no results – was sufficient grounds to deny the communities any alternative avenue for redress. While the U.S. Supreme Court rejected its assertion of “absolute immunity” in 2019, lower courts, unfortunately, found the IFC was nonetheless immune from the suit on other grounds.
Meanwhile, the communities suffer, and they still wait for relief.
In 2008, the International Finance Corporation (IFC), the private-lending arm of the World Bank Group, provided the financing necessary to enable the construction of the Tata Mundra coal-fired power plant in Gujarat, India. IFC decided to finance the project despite knowing it was “high risk.” The community now faces the devastating consequences of this funding project. Hear their stories and how they’re asking for remedy today.
The IFC is a multilateral development bank – a part of the World Bank Group – meant to promote sustainable development and end poverty while doing “no harm” to people and the environment. In this case, it has failed. This project has been a financial and environmental disaster and has left the very people it is chartered to help worse off than before. The IFC has the economic, legal, and political means to provide relief, remedy harm, and in doing so, improve the development outcomes of the project and make a meaningful difference in people’s lives. It simply chooses not to.
In response to an external review of IFC accountability, prompted in part by the communities’ lawsuit, IFC recently released a draft paper for consultation on a proposed “Approach to Remedial Action.” What began as a promising reform opportunity has become an effort to disclaim responsibility to take any meaningful action to remedy harm. Among other serious problems with IFC’s proposed approach, it expressly denies these communities any access to remedial action – yet again. The document stakes out extreme arguments to insulate IFC from accountability, and its recommendations would expressly exclude these communities and others already harmed by IFC projects from consideration for remedial action or other support.
IFC’s credibility as an environmentally and socially responsible standard setter for the private sector is on the line. IFC has the opportunity to use this moment to become a powerful force for transformative change, fill the remedy gap in project finance, and serve as a leader in building the capacity and expertise of clients while ensuring its projects result in optimal development outcomes by leaving no community behind.
On its current trajectory, however, IFC is retreating from its mandate and its mission and risks falling well behind industry expectations. That’s in no one’s interest – not the communities it leaves worse off or the IFC, whose credibility and mission depend on it not harming the communities that host its projects. And if, as IFC seems to think, it owes nothing to those it harms, this raises questions about whether the IFC is really just a private sector company wearing the “cloak of immunity” that it enjoys from having status as a multilateral development bank. Ultimately, we must ask: Is it time to start talking about downgrading IFC’s status as an international institution?
IFC must chart a new path, which must start with remedying past harm and include a different vision for its role in development finance and how it can make the most difference.
IFC still has time to get this right. That starts by doing right by the communities living in the shadow of the Tata Mundra power plant.
