What tools do people around the world have to raise grievances if an impact investment in their community causes harm to their livelihoods, negative gender impacts, or environmental abuse? How would an impact investor know about the harm, prevent further harm, or remedy an abuse? Accountability Counsel is working to address these questions with concrete tools.
While development finance institutions like the World Bank have had social and environmental safeguard policies and community-driven accountability offices for decades, many impact investors – financing similar projects and even co-financing the same projects – are still in the process of developing the social and environmental standards that govern their investments. And so far, impact investors do not have an independent accountability office where communities harmed by their investments can be heard. We are working to change that for the benefit of communities in areas where investors operate, and investors who are seeking to use their resources for the benefit of people and the planet.
The rapidly growing impact investing industry is evolving quickly. There is attention being paid to the need to define impact, critically evaluate philanthropic trade-offs, and apply due diligence standards to evaluate social and environmental risk of these investments.
Ultimately, we imagine a world where there is an independent forum, serving networks of impact investors, where communities can file a grievance about harm resulting from an impact investment, have their voice heard, and their grievance addressed. Investors and the public could use information from this process to prevent harm, make better decisions, and ultimately improve the outcomes of investment for people and the planet. For larger investors, they require immediate ways to hear grievances from communities through accountability offices that are independent, fair, transparent, accessible and effective.
To date, our advocacy has resulted in accountability as a benchmark for good practice in the UNDP SDG Impact Standards, IFC is now reporting their own accountability office as part of their disclosures under the Operating Principles for Impact Management, and there is much more to come. We invite you to learn more about our strategy to influence impact investing and ESG standard and advocate for new mechanisms in the tabs connected to this page.
“From an investor perspective, the risk is that their money doesn’t meet its mark. For investments seeking to address issues like climate change, where every dollar counts, communities living near or working at investment sites are going to be the first to know if things go off course, and accountability mechanisms offer a channel for investors to hear from communities and address unintended impacts.” – Margaux Day, Accountability Counsel Policy Director
Identifying the Gap: Community Feedback for Greater Net Impact
Accountability Counsel’s experience supporting communities harmed by internationally financed projects that are also considered impact investments demonstrates that there is just as much need for an accountability system for renewable energy projects as there is for coal fired power plants. Take, for example, a biomass project in Liberia that sent family farmers into poverty, and contaminated water supplies amid sexual abuse and labor rights violations. Or another project in Mexico, where construction of a small hydroelectric facility began through illegal land acquisition, and endangered both a water supply and the safety of an adjacent dam curtain before the project was stopped. In both cases, investors genuinely thought they were benefiting their host communities. And yet their failure to take risks of social and environmental harm seriously ultimately led to catastrophic financial, human, and environmental outcomes. It is only because the now-defunct U.S. Overseas Private Investment Corporation (OPIC) financed these projects that communities were able to use their internal accountability office to raise their grievances.
Impact investments are no less susceptible to unintended adverse impacts outside of the renewable energy context. A prime example is that of a recent conservation project in Myanmar, financed in part by the United Nations Development Programme (UNDP), which sought to protect land from development but instead resulted in social and economic upheaval. Indigenous Karen communities expressed serious concerns with the top-down development approach, as opposed to a design process developed through the free, prior, and informed consent of Indigenous Peoples. Among many unanticipated impacts, the design of the conservation project disrupted the livelihoods of Indigenous communities, jeopardized existing ceasefire agreements in an area recovering from civil war, and violated the right of return for people who were forced from their land during the war.
While addressing negative impacts has not been on the radar for most impact investors, traditional DFIs––such as OPIC or the UNDP––have routinely applied policy and accountability frameworks to manage their social and environmental risks and to remedy harm that results from the projects they finance. When these institutions invest in a project, they bring environmental and human rights standards and community-driven accountability offices that local communities can use to raise grievances and have them addressed. We believe that a fit-for-purpose community feedback mechanism would provide impact investors with the ability to connect with those who are impacted by their investments and provide redress and solutions when harm occurs.
If traditional development institutions are not involved in a project financed by an impact investor, chances are that communities will have no direct course to raise concerns to the investor or receive remedy for harm. Likewise, most impact investors lack the mechanisms to receive information directly from impacted communities, prevent unintended environmental and social harm, or learn from missteps to improve overall outcomes and maximize net impact.
The Opportunity to Build Stronger Systems
There are three reasons why this is a good time to develop the movement for an accountability and learning system for impact investment. First, we believe the individuals behind impact investments––if given the chance––would want systems in place to ensure that any policies they have adopted to protect people and the environment are complied with, to better understand and evaluate their impact, and to have a way to address social or environmental harms associated with their investment when they do occur.
Second, we have the required evidence of why accountability frameworks are needed (see, e.g., Mexico, Liberia, and Myanmar) and the experience to design and help implement accountability offices and community feedback mechanisms that are likely to work effectively and efficiently for impact investments.
When failure happens—as it can, even when an investor does engage in earnest due diligence—then the people harmed need a forum to raise grievances. Thankfully, accountability offices, such as the Compliance Advisor Ombudsman (CAO), exist for just this purpose. Reporting to the president or board of institutional investors such as the International Finance Corporation (IFC) and dozens of others, these offices receive and evaluate complaints about social and environmental harm. They provide compliance reviews to determine compliance with due diligence and project monitoring rules and issue public findings, and also dispute resolution services, sometimes hiring mediators to address conflicts at the local level.
If run effectively, when compared with courts, accountability offices and community feedback mechanisms can offer a cheaper, faster, and even fairer forum for all parties to address disputes. They also serve institutional investors by providing valuable third-party input on governance—for example, by reviewing an investor’s policies for soundness and its activities for compliance—and by assessing impact by weighing an investor’s positive impact against any harm caused.
Third, the potential for positive impact if an accountability framework for impact investing is implemented is staggering. The converse is true of the status quo. If impact investing scales further without governance and accountability structures in place to prevent abuse and address harm, the consequences to local communities are dire. They will be certain to include the land grabs, contamination of water, labor rights abuses, and displacement of indigenous people that are typical of investments where there is weak rule of law and use of land and labor.
Benefits of creating a robust accountability framework with a community feedback mechanism, if achieved, could spread beyond impact investing and could extend to all of global finance, including back to development finance, where existing frameworks could be improved based on leadership from the impact investing community.
Seeding the Movement for Accountability in Impact Investing
Drawing on our years of work in partnership with communities around the world harmed by international investment, and our policy work advocating for creation of accountability frameworks, we are bringing impact investors a vision of what a system could look like in policy and practice. We are seeing natural leaders of this work emerge in the impact investing community to make this vision a reality.
We launched this conversation about the golden opportunity in impact investing in our 2016 blog in the Stanford Social Innovation Review (SSIR). We worked with Stanford Law School in 2018 on a Law and Policy Lab focused on accountability for unintended consequences of impact investing and how impact investors can develop community feedback mechanisms to address these consequences in a proactive and community-oriented manner.
Building on our work at Stanford, in December 2018, Accountability Counsel participated in an in-person consultation on the International Finance Corporation’s (IFC) draft Investing for Impact: Operating Principles for Impact Management (the Principles). The Principles are a set of voluntary guidelines for impact investors, touching on impact strategy, assessment, and monitoring. Accountability Counsel and several partners made a joint submission to the IFC, advocating for revisions to the Principles that would commit signatory investors to implement a systematic approach to avoid and remedy negative impacts, consult and receive grievances from local communities impacted by their investments, and adhere to high transparency standards. The IFC published the final version of the Principles in March 2019.
Accountability Counsel was able to explore what incorporating community feedback would look like in practice during our Deep Dive session on “Community Feedback for Net Impact” at the 2019 Sorenson Winter Innovation Summit and our session “Case for Accountability: Considering Potential Harm for Smarter Investing & Stronger Impact” at the 2019 Confluence Philanthropy Annual Gathering. In March 2019, Accountability Counsel, along with researcher and advocate Joanna Levitt Cea, gave a presentation as part of a series of webinars hosted by Transform Finance. The presentation demonstrated how impact investors can learn from the experiences of development finance institutions (DFIs) and use community feedback to identify environmental or social risks and redress negative impacts on local communities.
Advocating for Good Governance of Impact Measurement, Management and Reporting Standards
Developments over the past couple of years have advanced the conversation around baseline expectations for governance underpinning impact goals and performance. Since 2019, Accountability Counsel has advocated successfully for requirements within various impact measurement, management and reporting standards regimes to include reporting on the use, availability, and outcomes of grievance redress processes. Standards regimes are now increasingly recognizing that effective grievance mechanisms are essential to ascertain and address unintended adverse impacts to community stakeholders, and to understand net impact. Our advocacy resulted in expectations for grievance mechanisms under the following regimes:
- UNDP SDG Impact Standards for Private Equity Funds, Enterprises, and Bond Issuers, which in turn have influenced the OECD-UNDP Impact Standards for Financing Sustainable Development
- Global Reporting Initiative (GRI) Universal Standards and Sectoral Guidance, which now require qualitative reporting on the availability, use, and effectiveness of grievance redress mechanisms as according to the UN Guiding Principles on Business and Human Rights
- The European Parliament Resolution on Corporate Due Diligence and Corporate Accountability, which has an Annex that instructs on the need for qualitative grievance redress reporting as a component of human rights due diligence
Community engagement and feedback is also reflected in the World Economic Forum/International Business Council Stakeholder Capitalism Metrics, the Global Impact Investing Network (GIIN) Impact Reporting and Investment Standards (IRIS+), as well as the IFC Operating Principles for Impact Management, which reference the UN Guiding Principles — including those requiring effective grievance mechanisms — as a good industry practice. Our team is continuing to advocate for detailed requirements for grievance mechanisms under those standards and principles, as well as within emerging human rights and environmental due diligence legislations and ESG disclosure rules.
Advising on Improving Effective Grievance Redress Mechanisms for Managing Impact
Accountability Counsel is advocating directly to impact investors, especially those who seek partnership with Development Finance Institutions on sustainable development projects, such as certain Green Climate Fund (GCF) Accredited Entities. As a condition to accreditation, GCF Accredited Entities must develop institutional level grievance redress mechanisms aligned with the effectiveness criteria of the UN Guiding Principles on Business and Human Rights. This year, the GCF Board began considering the first applications for re-accreditation, and Accountability Counsel relayed assessments and recommendations concerning the accessibility and transparency of applicants’ respective grievance redress mechanisms to ensure that they are fit to address potentially adverse impacts of green infrastructure investments.
Accountability Counsel also is in conversation with auditing firms that verify reporting on environmental, social, and human rights impacts. We urge auditors to fully assess the availability, use, and effectiveness of institutional grievance mechanisms as one way to ground-truth reported impacts.
Please contact us to learn more.
Documents & Media by Release Date
Aug 2022 – Accountability Counsel comments on the Draft European Sustainability Reporting Standards, commending the inclusion of accountability mechanisms and recommending that accountability-related disclosures apply to all environmental and social impact, not merely some.
Jul 2022 – Accountability Counsel and Inclusive Development International comment on the International Sustainability Standards Board’s Exposure Draft on General Requirements for Disclosure of Sustainability-related Financial Information, seeking inclusion of disclosures on accountability mechanisms and stakeholder engagement.
Jul 2022 – Accountability Counsel comments on the IFC’s draft Biodiversity Finance Reference Guide, calling on the guidance to require investors and project implementers to establish accountability mechanisms and to center the voices of affected communities in impact reporting.
April 2022 – BlueMark publishes Raising the Bar: Aligning on the Key Elements of Impact Performance Reporting. BlueMark interviewed Accountability Counsel’s Policy Director as a part of its research process.
Dec 2021 – Accountability Comments submits recommendations on a draft discussion document and prototype set of metrics by Impact Management Project, Impact Frontiers, and the Pre-distribution Initiative to help investors measure and manage their positive and negative investor contributions.
Nov 2021 – Accountability Counsel comments on the draft Complaint Mechanism policy of the Internationale Klimaschutzinitiative (IKI), a finance instrument developed by the German Ministry of the Environment to accelerate climate investment.
Oct 2021 – Global Reporting Initiative releases updated Universal Standards and oil and gas sector-specific standards, which detail requirements for reporting on the design, use, and effectiveness of grievance redress mechanisms for impact management and human rights due diligence.
Jul 2021 – UNDP releases SDG Impact Standards for Enterprises, including requirements for effective grievance mechanisms as an indicator of good governance.
Jul 2021 – Accountability Counsel letter to the Global Impact Investing Network recommending that its IRIS+ impact measurement and management system include community-accessible grievance redress mechanisms to help investors better measure net impact and calibrate to the governance and accountability requirements of the UN Sustainable Development Goals.
Jun 2021 – Accountability Counsel letter to the U.S. Securities and Exchange Commission urging disclosures related to community-accessible grievance redress mechanism governing ESG commitments. Accountability Counsel also joined 58 organizations and three leading securities academics in a letter calling for the adoption of ESG disclosure requirements, and endorsed a Principles for Responsible Investment letter supporting standardized and mandatory climate and ESG disclosures.
May 2021 – OECD-UNDP releases Impact Standards for Financing Sustainable Development, incorporating requirements to establish effective grievance mechanisms to ascertain and address risks and adverse development impacts.
Apr 2021 – UNDP releases SDG Impact Standards for Bond Issuers, including requirements for effective grievance mechanisms as an indicator of good governance.
Apr 2021 – Accountability Counsel Policy Director Margaux Day weighs in on the importance of accountability mechanisms for impact investing in an IFC Impact article.
Mar 2021 – The European Parliament releases a resolution containing recommendations for a corporate due diligence and accountability framework that includes an Annex instructing on the need to qualitatively report on the effectiveness of institutional grievance redress mechanisms.
Feb 2021 – Accountability Counsel letter to the World Benchmarking Alliance, recommending that its Financial Systems Transformation framework include benchmarks that capture the availability and effectiveness of investor-level accountability mechanisms.
Feb 2021 – Public letter to the European Commission urging, among other things, that proposed EU human rights due diligence legislation guarantee those affected by corporate-related abuses outside the EU are able to access justice and remedy through effective grievance mechanisms.
Feb 2021 – Accountability Counsel letter to the Sustainability Accounting Standards Board (SASB), recommending the development of metrics on effective grievance mechanisms to assess financial materiality within its Human Capital and Social Capital frameworks.
Feb 2021 – Accountability Counsel letter to the European Commissioner for Justice, Didier Reynders, which commends progress towards legislation mandating investor due diligence for environmental and social impacts, and recommends that the legislation include, as a baseline due diligence requirement, institutionalizing individual or shared grievance redress mechanisms to ascertain risks and respond to harm.
Jan 2021 – Accountability Counsel letter to the Global Impact Investing Network (GIIN) on its draft Methodology for Standardizing and Comparing Impact Performance, in which we urge including requirements and metrics on effective investor-level grievance mechanisms to bridge investor-investee information gaps and assess net impact.
Dec 2020 – Accountability Counsel letter to UNDP SDG Impact Team, in support of draft language requiring effective grievance and reparation mechanisms for stakeholders affected by enterprises seeking to further the UN Sustainable Development Goals.
Nov 2020 – Accountability Counsel comments on European Bank for Reconstruction and Development (EBRD) survey soliciting input on aligning its Environmental and Social Governance disclosures with Global Reporting Initiative (GRI) Standards. The GRI Standards are intended to help organizations publicly disclose their “most significant impacts” and how they are managed.
Oct 2020 – UNDP releases SDG Impact Standards for Private Equity Funds, including requirements for effective grievance mechanisms as an indicator of good governance.
Oct 2020 – Accountability Counsel comments on draft revisions to the GRI Oil and Gas Sector Standards.
Sep 2020 – Accountability Counsel comments on draft revisions to the GRI Universal Standards. The GRI Standards are intended to help organizations publicly disclose their “most significant impacts” and management of impacts.
Sep 2020 – Public letter from over 200 organizations to call for the principles of a human rights-based and community-led development to be included and prioritized both in the agenda and in the outcomes of the Finance in Common Summit, a high-level gathering of all Public Development Banks.
Jul 2020 – ImpactAlpha, by David Bank “Will impact investors welcome the arrival of mechanisms to redress community grievances?”
Jun 2020 – Accountability Counsel letter to UNDP SDG Impact Team, commending the draft requirement for effective stakeholder grievance mechanisms to demonstrate good governance under the SDG Impact Standards.
Jun 2020 – Draft UNDP SDG Impact Standards include a recommendation that certified entities adopt or create effective grievance mechanisms.
May 2020 – Accountability Counsel letter to UNDP SDG Impact Team, urging an accountability framework to underpin SDG Impact Standards.
Mar 2019 – The IFC released the final version of the Impact Investing: Operating Principles for Impact Management.
May 2019 – Accountability Mechanisms: Benefits and Best Practices for Impact Investors, by Accountability Counsel.
Apr 2019 – ImpactAlpha, by Kindra Mohr, “Developing community feedback tools to help investors manage positive – and negative – impact”
Dec 2018 – Joint Submission to the IFC on the drafting of its Investing for Impact: Operating Principles for Impact Management.
Jul 2018 – New York Times Opinion, by Rachel Cernansky, “It Takes Consultation to Help a Village”
May 2018 – Stanford Law & Policy Lab Blog, Q&A with Natalie Bridgeman Fields, “Do no harm: accountability for impact investing”
Apr 2018 – Devex Article, by Sophie Edwards, “Impact investors must set up ‘accountability tools,’ experts say”
Nov 2016 – Stanford Social Innovation Review Blog, by Natalie Bridgeman Fields, “Accountability: The Golden Opportunity in Impact Investing”