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Last week, the United States Supreme Court heard oral arguments in Jam et al v. International Finance Corporation. At stake: the extent to which international organizations including the IFC enjoy immunity from prosecution in US courts. The specific details of the suit and its impact are complex, but one lesson is clear: if recourse to the courts is not available for people who lose out from development projects, that makes the internal complaints and redress systems of international organizations even more important to ensure just outcomes. And in the case of Jam et al., it does appear that the internal systems have failed badly.

The plaintiffs in the case are a group of fisherman from the Indian state of Gujarat who claim that their livelihoods have been destroyed by the environmental dead zone created around the Tata Mundra coal-fired power plant. IFC is an investor in this plant. The plaintiffs argue that warming waters, coal ash, and groundwater contamination have resulted in the loss of livelihoods in fishing and farming.

The case

In 2008, IFC provided a $450 million A-loan to Coastal Gujarat Power Limited (CGPL), a state-owned company that is operating, a 4000MW coal-fired power plant in Mundra, in the state of Gujarat, India. The plant utilizes supercritical technology and sources coal from Indonesia and elsewhere.

In June 2011, a complaint was filed with the IFC’s Compliance Advisor Ombudsman (CAO), an independent body which provides oversight of IFC’s projects. The complainants—who represented fishing communities in the neighborhood of the plant-- argued that warming waters, coal ash, and groundwater contamination had killed fish and destroyed natural habitats including mangroves. The power plant had blocked access to fishing and drying sites, which resulted in the forced displacement of fishermen, and a loss of livelihoods in fishing and farming. The complainants argued that the environmental impact of the project was not adequately assessed or monitored. Local residents may have also suffered from poor health due to plant emissions.

Findings of the IFC’s Compliance Advisor Ombudsman (CAO)

The CAO’s compliance audit, conducted in 2012, validated several aspects of the complaint. Among other things, the CAO audit states:

  • The complainants, who are from a religious minority and occupy a socially marginal position given their migrant traditions, were not adequately considered at the time the project’s environmental and social risks and impacts were considered.

  • IFC has contributed to this situation to the extent that its review of CGPL’s environmental and social assessments was not commensurate with project risk as required by its Sustainability Policy.

  • A lack of effective consultation with fishing communities early in the project cycle process resulted in missed opportunities to assess, avoid and reduce adverse potential adverse impacts of the project. 

  • IFC failed to ensure that its client correctly applied the requirements of the World Bank Group Thermal Power Guidelines (1998), to an airshed that should be classified as degraded.

  • Projections that the thermal plume from CGPL’s outfall channel would extend a distance of kilometers into the shallow waters of the gulf and surrounding estuaries suggested inadequate mixing/cooling, with significant risks of ecological impact.

  • Cumulative nonlethal (but potentially harmful) effects of submarine noise, light, heat, and other aquatic disturbance from the project on the local marine environment were not adequately considered in marine impact assessment process.

  • IFC was not in a position to demonstrate either that its client’s monitoring is commensurate to risk…or that its supervision allowed it to meet the stated purposes of supervision.

IFC responded to these statements in November 2013 with an action plan that indicated it would take steps to address the problem. Four year later, the CAO sounded the alarm again, stating that IFC had failed to respond adequately to concerns raised earlier. In the meantime, the fishermen, with the help of Earth Rights International and others, took the IFC to court in the United States.

Immunity from legal action

Before the details of the case can be addressed, however, US judges have debated the question of whether it is legitimate for courts to hear the case at all. Lower courts have taken the position that under US law, the IFC enjoys immunity from commercial suits under the International Organizations Immunities Act of 1945. The plaintiffs argue that the IFC and other organizations only benefit from a reduced form of immunity currently enjoyed by sovereign nations, as specified in the Foreign Sovereign Immunities Act of 1978. That is the issue being decided by the Supreme Court.

Much of the conversation around the case has focused on what will happen if the IFC (and the World Bank Group as a whole) loses immunity, even if on a limited basis. Will they be able to carry out their activities? Will individuals be held liable for decisions made in the workplace? Will this case open the floodgates for cases in other areas such as hiring or procurement? Will other organizations be sued?  With reduced immunity from prosecution, will IFC and other multilateral organizations face higher transactions costs that impede their operations, especially in poor countries? These questions are important. But in my view, they are not the most important questions about the case.

The real issue is accountability

The IFC and the World Bank Group have a responsibility to do no harm. It is unacceptable to make statements about the positive development impacts of Bank Group projects and then hide behind legal immunity when things go horribly wrong. And precisely because the IFC enjoys immunity from prosecution, it must hold itself to a far higher standard than what we saw in the Tata Mundra case. It must be accountable to the people in poor countries who are the intended beneficiaries of its investments. As an international organization, IFC should have done--and should now do--better. 

Going forward, IFC has at least three options:

  1. Address the claims of the victims in the Tata Mundra case and in other cases, once these are confirmed by the Compliance Advisor Ombudsman. One solution is to set aside funds for this purpose, as proposed by a former senior counsel of the World Bank.

  2. Act promptly in response to the findings of the Ombudsman and set up mechanisms that enable a swift and effective response. This may include changes to the reporting structure of the Ombudsman that will empower IFC’s management and board to take action.

  3. Publish the actions taken in response to the Ombudsman’s findings so that the victims, the general public, and IFC’s shareholders are properly informed as to what steps have been taken to address the damage that has been done.

Disclaimer

CGD blog posts reflect the views of the authors drawing on prior research and experience in their areas of expertise. CGD does not take institutional positions.