ADB to develop Accountability Mechanism Framework to manage social risks

A study by ADB’s Independent Evaluation Department in 2014 reviewed more than 60 projects that were approved and implemented through financial intermediaries from 2007 to 2012.

The Office of the Compliance Review Panel (CRP) of the Asian Development Bank’s (ADB) Accountability Mechanism is helping to develop an Accountability Mechanism Framework for financial intermediaries to manage environmental and social risks, as well as safeguards compliance and accountability.

“As more and more lending from ADB and other multilateral development banks is routed through financial intermediaries, there is an urgent need for the intermediaries to ensure proper environmental and social safeguards and accountability on projects that they are financing, and toward the people who are adversely impacted by these investments,” said CRP Chair Mr. Dingding Tang.

The proposed Accountability Mechanism Framework requires financial intermediaries to provide an independent and effective forum for people who are adversely affected directly or likely to be affected by investments financed by the financial intermediary so that they can voice their concerns and seek solutions to their concerns or grievances. It would also request a compliance review of any alleged noncompliance by the financial intermediary of its stated commitment and policies to manage environmental and social risks and impacts from investments financed by it.

A study by ADB’s Independent Evaluation Department in 2014 reviewed more than 60 projects that were approved and implemented through financial intermediaries from 2007 to 2012. The study raised the need for: (i) adequate due diligence procedures related to screening and categorization; analysis of environmental and social risks; and institutional capacity, monitoring, and reporting; (ii) higher quality environmental and social reports, and improved disclosure of reports from private sector financial intermediaries; and (iii) improved implementation capacity of financial intermediaries.

The costs of unresolved conflicts or disputes between companies and communities, workers, or other stakeholders can be significant. Studies have shown that several companies fail to factor in the costs of conflicts related to environmental and social risks. These costs can be categorized as stranded assets or investments that become obsolete, or higher investment costs due to regulatory, environmental, and market constraints, loss of productivity, reputational risks, increase in redress and insurance-related costs, and reduced market capitalization.

To better design a framework and ensure that it will be workable for financial intermediaries from Asia and the Pacific, a 1.5-day regional workshop opened today. The event features about 250 participants, including from 30 state-owned banks and other financial intermediaries; 20 large public sector entities from the People’s Republic of China (PRC), which also provide funds for projects; and the independent accountability mechanism of international financial institutions such as the World Bank, International Finance Corporation, Asian Infrastructure Investment Bank (AIIB), New Development Bank (NDB), Inter-American Development Bank, African Development Bank, Green Climate Fund, and the United Nations Environment Programme (UNEP). Other participants are drawn from international and regional civil society organizations and research institutes such as the Energy Foundation China, Environmental Defense Fund, World Resources Institute, World Wildlife Fund, Bank Information Center, Accountability Counsel, Oxfam, Greenpeace, Oxford University, and NGO Forum on ADB.

The regional workshop is funded by the ADB People’s Republic of China Poverty Reduction and Regional Cooperation Fund (PRC Fund) and organized in partnership with the Policy Research Bureau of the China Banking and Insurance Regulatory Commission  and supported by other government agencies in the PRC—namely, the International Cooperation Department of the Ministry of Finance, the International Environmental Cooperation Center of the Ministry of Ecology and Environment, the China Banking Association, Shanghai Municipal Bureau of Ecology and Environment. Other partners include UNEP, Energy Foundation China, Environmental Defense Fund, AIIB, and NDB.