This February, in a landmark decision, the US Supreme Court ruled that financial institutions like the World Bank’s International Finance Corporation (IFC) are not immune from the law of land, and can be held accountable for their decisions across the world.
This was the first time ever a case challenging the immunity of an international organisation via the International Organisations Immunities Act, 1945, reached the highest court of any country.
Among the petitioners of this case were fish workers and farmers from Mundra village in Gujarat, who claimed, first in 2015, to have been affected by the construction of the $4 billion IFC-financed coal-fired Tata Power’s Mundra power plant.
IFC had loaned $450 million for the plant’s construction in 2008. The loan agreement provided IFC supervisory authority over the project, including an environmental and social action plan, which the petitioners claimed IFC had failed to provide.
This, they claimed, has resulted in environmental damage from the plant that has, in turn, harmed Mundra’s residence, economy and surroundings. The other financiers of this project include Asian Development Bank, Korean Exim Bank and BNP Paribas.
On February 27, the US Supreme Court overturned the earlier verdicts of the district court of Columbia and the circuit court of appeals, and disagreed with the arguments of the World Bank that waiving its absolute immunity will open floodgates of litigation against international organisations, and will make it more difficult and expensive to fulfil their mission. This was not part of a ‘people vs development’ narrative.
It was about ensuring that shortcuts are not resorted to and penalised to shunt people in the name of development. There are five key takeaways from this seminal case.
The decision has opened another door to project-impacted communities around the globe to hold lenders accountable. Investments in every sector have, without considering the negative impacts on people or environment, or mitigation plans, reached an unprecedented peak in the past years.
Investments in ‘smart cities’, industrial corridors, ‘bullet trains’ and infrastructural initiatives like the Sagarmala project to promote India’s ports and shipping, are a few one can cite in the Indian context.
To ensure that concerns around pressing issues like climate change is not just lip service, this decision will be an incentive for financial institutions to be more responsible in their lending and not carry out ‘business as usual’.
As in many other cases in the past, the Mundra case, and the process that led to this judgment underlines the need and effectiveness of international partnerships among like-minded organisations and people.
In many countries where the public sector was the champion of developmental activities, and where the government financed these projects, questions about project lenders were rarely raised.
In a changed world, where privatisation and private capital are the norm, communities and economies fighting the negative impacts of projects will have to extend their attention to the lenders of these projects as well. The judgment confirms that such an attempt can, indeed, be fruitful.
This judgment upholds the rights of peoples against erring or callous organisations. When governments across the world seem to be shrinking the space for individual and collective rights, as well as the space in which to express dissent against such actions, this verdict is a warning to such forces, financed by powerful institutions and lobbies.
The judgment may not overturn the institution overnight. But such small victories have, in the past, empowered people at different stages without hindering development. The establishment of the World Bank’s independent accountability mechanism, the Inspection Panel, in 1995, changed the way multilateral development banks functioned at that time. Adopting different safeguard policies emboldened people to expose the violations of these institutions.
This judgment is also a significant step in the same direction, towards empowering people and making international financial institutions accountable.
The article, first published in the Economic Times, can be accessed here.