Civil society leans on Europe to ensure accountability at AIIB

BERLIN — Now in its fourth year of operations, the Asian Infrastructure Investment Bank's approach to development work is coming into sharper focus — and not everyone likes what they see. As AIIB begins a transition from co-financing projects to funding its own standalone initiatives, the new kid on the multilateral financing block has implemented several key oversight, disclosure, and complaint-handling mechanisms, which it says reflect industry best practices, while also prioritizing efficiency and flexibility. "As we are trying to set things up, we are looking at what are the pain points, what has been done in the past, what can be improved on … We are trying to do change in a good way,” Laurel Ostfield, the bank's head of communications, told Devex. But in a study released in April by the Heinrich Böll Foundation and the NGO Urgewald — which share a focus on environmental protection — researchers claim the bank has prioritized efficiency over rigorous and independent monitoring. As AIIB moves forward with its own large-scale infrastructure projects, activists warn there could be severe consequences for marginalized groups and the environment, with little opportunity for redress. The hope now is to pressure European stakeholders — and particularly Germany, the largest shareholder among the eurozone members — to exert what influence they have to shore up environmental, social, human rights, and governance standards. Are new mechanisms up to scratch? AIIB launched in 2016 to fill a gap among multilateral development banks in financing sustainable infrastructure, Ostfield said, with an early emphasis on co-financing as the bank finessed its internal policies. It currently lists nearly 40 approved projects, many in collaboration with the World Bank and the Asian Development Bank. "It was created to have that singular focus," Ostfield said. "By really looking at doing one thing, you can create an efficiency in that, create expertise in that, over time be able to get those projects moving faster." She said the bank is increasingly prepared to do that alone, or by identifying projects and seeking out co-financiers. From the outset, the bank has been dogged by concerns that in its push for flexibility and efficiency, it would water down the environmental and social standards other multilateral banks have adopted, including a lack of clearly defined protections that the development community could evaluate and monitor. One of the few projects it has self-funded to date, a $250 million loan to Beijing Gas to shift communities around Beijing from coal to natural gas, has drawn concerns from observers about a perceived lack of transparency and a failure to list the more than 500 villages that will be affected by the transition. New mechanisms governing oversight and information disclosure have done little to allay civil society concerns about its approach. The project-affected people's mechanism, which was approved at the end of 2018 and became effective last month, covers AIIB's approach to public consultation on projects and disclosure of documentation on the environmental and social risks. Modeled on independent accountability mechanisms at other institutions, including the World Bank, it also spells out the grievance process affected communities can take. But observers describe a conflict of interest that calls its effectiveness into question. The project-affected people's mechanism sits in the complaints resolution, evaluation, and integrity unit, which is tasked with evaluating projects. It is also responsible for investigating complaints raised by affected communities — including over project elements that the unit might have signed off on during its evaluations, according to Korinna Horta, an environmental economist and author of the civil society report. "It cannot be an evaluator and handle complaints from the outside," she said. In contrast, the World Bank’s independent accountability mechanism, the inspection panel, is completely standalone and answerable to the board of directors. Its sole task is to investigate the World Bank’s policy compliance. Horta said other institutions have similar safeguards. Ostfield said the report mischaracterizes the evaluation function of the complaints resolution, evaluation, and integrity unit — which is an opportunity for that unit to learn from ongoing projects, rather than to work on the bank’s behalf to ensure its monitoring processes are working effectively. That oversight, she said, will be lodged in a different department, which AIIB’s board is still working to clarify. That is not civil society’s only concern. Horta also criticized the complaints submission process, which she described as significantly more onerous than under the World Bank's independent accountability mechanism. The project-affected people's mechanism involves a multistep process, which also excludes complaints that are the subject of legal proceedings in the borrowing country, unless the bank’s board allows the complaint to proceed. That means communities may not be able to access the bank’s complaints procedure if it decides to initiate a legal process in their country at the same time. Civil society groups also registered concerns about the new “Policy on Public Information,” which they described as a foundational document, particularly for affected communities, because it should spell out when they can access details about a possible project and begin considering its impact. In a press release, executive director of the oversight group Centre for Law and Democracy, Toby Mendel, applauded the policy's stated commitment to maximum disclosure, but said it was "undermined in practice by a vague and highly discretionary regime of exceptions, very few set procedures for the making and processing of requests and an unclear and very limited system of appeals." Ostfield said the decision not to have timebound requirements was intentional: "There should be adequate time between disclosure of documents and when the project gets approved. But we don't think we need to tie ourselves down, at least at this point, to specific timeframes." According to AIIB's quarterly report for the end of 2018, the average time between disclosure of a private-sector project summary and board approval of that project was 34 days. In comparison, the World Bank's private-sector branch, the International Finance Corporation, requires 60 days for high-risk projects and 30 days for those with lower risk. Path to change Perhaps most frustrating for civil society is the few routes to pressure AIIB to change its policies. Though the bank has 70 shareholders, China holds 26.6% of the voting shares. Because all major decisions require a vote from three-quarters of the shareholders, activists point out that nothing can happen against Beijing's will. And civil society has little capacity to influence Chinese policy. Furthermore, in some of the countries where AIIB is likely to invest, the ability of civil society to conduct oversight is limited by government restrictions and risks. Still, activists see European governments — such as Germany, the bank’s fourth-largest shareholder — who sit on the board and have at least paid lip service to the importance of social and environmental regulations in the past, as having a key role in pushing for stronger protections. Horta said politicians have been alarmed when presented with the findings of its study, although she is not sure that will translate into action. "They have other interests with China and they have to take those into account," she said. Katja Novak, a spokesperson for Germany’s ministry of finance, said the government was currently satisfied with the steps AIIB has taken to preserve social and environmental issues. “Over the past three years, Germany has worked persistently — in cooperation with other shareholders and in consultation with non-governmental organizations — to promote the adoption of relevant rules,” she wrote to Devex in an email. From AIIB's perspective, Ostfield said, the concerns are overblown. "A lot of this is speculation," she said. "The proof will be in the pudding of those projects: high-quality projects with impact on the economies and social development of our members.”