Enforcing Mitigation in International EIAs
New York Law Journal
Along with jazz and baseball, the environmental impact statement (EIS) made a unique American contribution to global culture. Born in 1969 as part of the National Environmental Policy Act (NEPA), the EIS gave rise first to “little NEPAs” in more than half the U.S. states and, following the Earth Summit in Rio de Janeiro in June 1992, to widespread international adoption of “environmental impact assessment” (EIA) as the preferred way of analyzing the environmental impacts of discretionary governmental (and some private) actions.
EIA has now been incorporated into the laws of most developed and many developing countries, is a significant component of the European Union’s (EU) legal system, is an established part of the lending and grant-making practices of the World Bank, the International Finance Corporation (IFC), and other international financial institutions and is increasingly used by the world’s largest commercial banks as part of the “Equator Principles” code of environmentally responsible conduct.
While NEPA’s procedure provided the model for much of this global EIA expansion, NEPA itself has always suffered from a conspicuous gap in the EIS process, which is essentially a one-time balance sheet (or snapshot) of the expected environmental costs and benefits of a proposed action at the time of the EIS.
A NEPA EIS therefore assesses likely future conditions and, where necessary to avoid or mitigate adverse impacts, proposes a range of mitigation measures that are typically required by the lead agency (and committed to by the project sponsor) as a condition to approval or funding of the proposed action. However, as was repeatedly pointed out by speakers at a recent Environmental Law Institute conference on “NEPA at 40,” there is little, if any, independent monitoring or judicial enforcement of such mitigation commitments, with the result that many of such commitments remain only partially fulfilled while others are ignored or repudiated on the basis of changing economic or environmental conditions.
It is now apparent that the same challenge faces international EIAs, but with even greater urgency. World Bank and IFC EIAs assess a broader range of environmental and social impacts than most NEPA EISs (for example, cultural impacts on or relocation of indigenous communities), while EIAs in the EU often deal with transboundary impacts on neighboring countries sharing common resources. Failure to monitor or enforce mitigation commitments in those contexts can leave affected populations with few, if any, domestic or international remedies and can call into question both the bona fides of the approving agencies and the utility of the EIA process itself.
This column first examines the enforcement of EIA mitigation commitments by international financial institutions and the EU and then suggests three alternative approaches to improve both the monitoring and enforcement of those commitments and, by extension, the effectiveness of the EIA process.
World Bank and IFC Reviews
The World Bank Inspection Panel is one of the few mechanisms that seek to ensure compliance with EIA mitigation commitments after project approval. Approved projects are required to comply with World Bank policies, procedures and loan agreements, and any two people who believe they are adversely affected by a borrower’s failure to follow bank policies or loan agreement commitments can request an investigation by the bank’s inspection panel.
Upon satisfactory review of eligibility requirements, the three-member panel forwards the complaint to bank management, which has three weeks to respond. Based on the complaint and management’s response the panel decides whether to recommend an investigation to the bank’s board of directors. If an investigation is authorized, the panel sends its findings to management, which has another six weeks to recommend actions to the board. The board then determines what action to take to resolve the complaint, after which both the investigation and management recommendations are made public.
A recently completed investigation of a World Bank-financed land use project in Honduras demonstrates the process. A local NGO submitted a request on behalf of the Garífuna, an indigenous community, alleging a failure to account for indigenous rights in the implementation of the project. Bank management rehearsed the complications associated with the region’s history of unresolved land conflicts. The panel recommended an investigation, which was approved by the board. The panel investigation found that the local consultation excluded the Garífuna’s leading representatives and was inconsistent with bank policy on consultation, representation, and participation. The panel also found that the bank failed to adequately consider the effects of a property law, passed after approval of credit financing, that gave rights to nonindigenous occupants of community lands. After threatening suspension of future disbursements, management responded with an action plan to address noncompliance identified by the panel and adopted an internal monitoring process for future compliance. The board endorsed the action plan and required a one-year progress report on its implementation.
Despite its benefits, the inspection panel process is significantly limited. Non-local NGOs can request an investigation only with board approval, and all complaints must be submitted prior to 95 percent of loan disbursal. The bank’s board is free to reject the panel’s recommendations and alone determines whether an action plan satisfactorily resolves the concerns of affected communities.
In 2000, the IFC adopted a similar review process, which is administered by IFC’s Compliance Advisor/Ombudsman. The ombudsman responds to complaints from individuals or groups affected by an IFC project by attempting to reach agreements among all stakeholders. If that fails, the ombudsman forwards the complaint to IFC’s compliance office for review based on IFC policies and guidelines, including compliance with EIA mitigation commitments.
That review can include monitoring to determine whether the borrower has in fact complied with those commitments. In 2004, for example, residents of Himachel Pradesh, India, complained that an IFC project would deplete village water supplies. Although the ombudsman facilitated an agreement in 2005, in 2006 the village complained that the agreement had not been honored by the project sponsor. In a second agreement, the sponsor provided a new water infrastructure for the community and made monthly progress reports to the community detailing progress towards commitments made in a supplemental EIA. After six months of monitoring and reports, the case was closed in 2008.
Nevertheless, the IFC mitigation reviews are subject to many of the same limitations as the World Bank’s inspection panel. While IFC review can occur at any time prior to full disbursement of the loan, leverage to correct mitigation oversights sharply decreases as the loan is disbursed, and there is no remedy at all after loan disbursement.
The Equator Principles, a voluntary code to encourage environmentally and socially responsible investing by private banks in 25 countries, provide a benchmark for assessing and managing the social and environmental impacts of project financing. The principles require an independently reviewed EIA for major projects in developing countries, with an “action plan” to implement mitigation measures, corrective actions and monitoring of social and environmental impacts. The principles also require covenants assuring compliance with local environmental laws and a grievance mechanism for affected communities to communicate complaints.
Failure to comply with such covenants exposes borrowers to the risk of default, though failure to mitigate environmental impacts is unlikely to cause a lender to accelerate a loan. Moreover, the Equator Principles include a prominent disclaimer identifying them as internal policies that do not create any rights in any person. In their current form, the Equator Principles simply are not intended to, and do not, provide recourse for those affected by the failure to mitigate adverse impacts in the manner promised in an EIA.
Other international agreements also fail to provide effective enforcement of EIA commitments to mitigate adverse environmental impacts. The Convention on Environmental Impact Assessment in a Transboundary Context (the ESPOO Convention) requires signatories to notify other affected states if a project is likely to cause significant adverse transboundary impacts, and to provide those states with the opportunity to participate in the EIA. The convention provides for an inquiry commission if two nations disagree whether a project will result in significant transboundary effects.
However, the sponsor state is not bound by the conclusions of the commission, and the ESPOO Convention does not include compliance mechanisms. The sole project evaluated to date by the inquiry commission, the dredging of the Danube-Black Sea Navigation Route on the border of the Ukraine and Romania, was found likely to affect Romania and thus require compliance with transboundary EIA information-sharing by the two states, but only after the waterway had already been open for two years.
Within the EU, the progressive Directive on Integrated Pollution Prevention and Control (the IPPC Directive) provides the public and affected neighboring states with broad rights to comment on permitting applications and with access to permits and monitoring results. The directive also requires judicial review of substantive permitting decisions that are challenged by those with sufficient interest to confer standing. However, standing is determined by the domestic laws of each member state, most of which do not appear to welcome claims from members of the public suffering only “undifferentiated” harm.
In a recent decision, the European Court held that the World Wildlife Fund did not have standing to challenge an arbitrarily high fish catch limit, explaining that the organization did not have a claim that could be differentiated from that of the general public, notwithstanding the more liberal standing rules of the Convention on Access to Information, Public Participation in Decision-making and Access to Justice in Environmental Matters (the Aarhus Convention). Moreover, even the Aarhus Convention deals only with disclosure and access to administrative agencies and courts, and does not provide specific relief for failure to implement promised mitigation measures.
A mitigation remedy of last resort may perhaps be found in the European Court of Human Rights. The court, which has jurisdiction over 47 member states, enforces the Convention for the Protection of Human Rights and Fundamental Freedoms (Human Rights Convention). Article 8 of the Human Rights Convention guarantees, among other things, the right to respect for private and family life and home and forbids interference by public authority with the exercise of this right except as in accordance with law.
Article 8 was invoked in the case of López Ostra v. Spain. A privately owned waste treatment plant was constructed approximately 12 meters from the applicant’s house. Initial startup of the plant malfunctioned and the applicant was evacuated. When the initial problems were resolved, the applicant returned home to noises and smells that eventually forced her to move. She then sued for unlawful interference with enjoyment of her home.
The Human Rights court found that Spain, which had subsidized construction of the privately owned facility, had violated Ms. Ostra’s right to respect for her home in violation of Article 8, and awarded her reparations. In dicta the Court observed, “severe environmental pollution may affect an individual’s well-being and prevent them from enjoying their homes in such a way as to affect their private and family life adversely, without, however, seriously endangering their health.”
A more recent case, Ta_kin and others v. Turkey, challenged the operation of a cyanide leach gold mine. An EIA had revealed substantial risks to the community, and a reviewing court reversed the decision to permit the mine. Without a subsequent EIA, government officials directed the mine to begin operations on an experimental basis.
The court found that exposing the residents to the risks enumerated in the EIA interfered with their right to enjoy their home as guaranteed by Article 8. The court quoted the above passage from López Ostra and then continued, “[t]he same is true where the dangerous effects of an activity to which the individuals concerned are likely to be exposed have been determined as part of an environmental impact assessment procedure in such a way as to establish a sufficiently close link with private and family life for the purposes of Article 8 of the Convention. If this were not the case, the positive obligation of the State to take reasonable and appropriate measures to secure the applicant’s rights under paragraph 1 of Article 8 would be set at naught.”
Where a sponsor fails to perform mitigation proposed in an EIA, the Ta_kin decision might provide a remedy for a person directly affected by that failure. However, standing in such cases is limited to victims who have first exhausted domestic remedies, and the court appears not to have heard an EIA case in the four years since the Ta_kin decision.
As indicated above, enforcement of EIA mitigation continues to frustrate the international community. While the World Bank and IFC have adopted systems that can sometimes ensure mitigation during construction, all review stops after completion of loan disbursement and, in any case, enforcement is within the sole discretion of the lending organizations.
The Equator Principles purport to require financing covenants that ensure compliance with local environmental laws and the EIA’s action plan. However, enforcement of such covenants is within the discretion of each lending institution, which has a strong incentive not to default a borrower over mitigation intended to protect third parties or natural resources.
The ESPOO Convention and the IPPC Directive are useful information-sharing tools that lack their own enforcement, while the Aarhus Convention’s public participation goals have been limited by the EU’s standing requirements. The European Court of Human Rights may in some cases provide a remedy for EIA non-compliance, but its process is at best time-consuming and cumbersome.
There are, however, three alternative procedures that, if implemented, could go far to address this problem. They all begin with a common element - an escrow or deposit fund (or letter of credit) in an amount equal to the estimated cost of mitigation measures that would be required of the borrower to assure compliance with its EIA commitments. In many cases, this fund would simply be added to the principal of the loan and funded by the lender. This would effectively internalize the environmental costs (or, more properly, the avoided environmental costs) of the proposed project.
Once the mitigation fund was established, the World Bank procedures could be amended to incorporate post-disbursement grievances into its current inspection panel process, which should also provide that panel findings of non-compliance with promised mitigation measures are sufficient to release escrow funds to cure that violation, without further board action. Similar changes could be made to IFC procedures.
An alternative remedy, more appropriate for Equator Principle lenders, is mandatory arbitration to determine whether a borrower has failed to carry out its mitigation commitments. Such a system has been applied in Chapter 11 of the North American Free Trade Agreement (NAFTA), which provides that investors aggrieved by a breach of Chapter 11’s investment guarantees may seek damages in arbitration directly against the offending NAFTA nation. Such arbitration provides for a neutral forum insulated from political pressures on the host country’s administrative and judicial systems.
A third alternative would provide for domestic judicial remedies (including attorneys’ fees), for a failure to honor EIA mitigation commitments. Those affected by the failure to mitigate as promised in the EIA would be entitled to seek judicial relief in their nation’s domestic courts (or in specialized administrative tribunals) with power to compel specific performance of those obligations (or levy on the escrow fund for that purpose). Any changes to domestic law required to permit such claims could also be made a condition to initial loan disbursement.
is co-director of the environmental practice group at Carter Ledyard & Milburn. Michael Plumb, an associate of the firm, assisted in the preparation of this article.
Reprinted with permission from the April 24, 2009 edition of The New York Law Journal © 2009 ALM Properties, Inc. All rights reserved. Further duplication without permission is prohibited.
 See Honduras: Land Administration Project, World Bank Inspection Panel Annual Report, 2008, p. 50-56.
 Equator Principles, Principle 4.
 Equator Principles, Principle 6.
 ESPOO Inquiry Commission Report on the Likely Significant Adverse Transboundary Impacts of the Danube-Black Sea Navigation Route at the Border of Romania and the Ukraine, July 2006.
 WWF-UK Ltd. v. European Commission, Case T-91/07, June 2, 2008.
 Case of López Ostra v. Spain, Application No. 16798/90, Judgment, Dec. 9, 1994.
 Case of Ta_kin and others v. Turkey, Application No. 46117/99, Nov. 10, 2004, Final Mar. 30, 2005.
Stephen L. Kass