Do No Harm: Accountability for impact investing

By Natalie Bridgeman Fields, Q&A with Luciana Herman

Impact Investment can be hard to get right and easy to get wrong. How can they avoid the unintended consequences for their investments?

Impact investors seek social change and sustainability. Yet for investments in areas with weak rule of law, local conflicts can undermine both financial and impact returns and unintended consequences can harm the very people and environments that investors are trying to help. What tools do investors have to understand the local context and address conflicts? New and emerging tools are needed. Accountability Counsel (linked here), a global legal advocacy nonprofit, partnered with Stanford Law School’s Law and Policy Lab to investigate these tools and develop guidelines for adoption. This interview with Accountability Counsel founder and Executive Director Natalie Bridgeman Fields (bio linked here) describes the tools needed for effective philanthropy.

This interview grounds a Policy Lab discussion forum featuring findings from the Accountability for the Unintended Consequences of Impact Investing Practicum (linked here). Those findings will be further developed for a white paper issued ahead of a symposium for philanthropists in fall 2018.

Q. How does the work of Accountability Counsel differ from that of other public interest nonprofits operating in developing countries?

Accountability Counsel amplifies the voices of communities around the world to protect their human rights and environment. As advocates for people harmed by internationally financed projects, we employ community driven and policy level strategies to access justice.

We are unusual as a public interest legal organization in that we don’t litigate. Instead, our model focuses on the 66 accountability offices tied to institutions that finance and operate projects like dams, mines, and agribusiness projects that cause harm. We support our client communities through the dispute resolution and compliance investigation functions of these accountability offices, while also working at the policy level.

Our advocacy aims to ensure that accountability offices are transparent, independent, fair and effective, and that new offices are created to fill gaps. Two of the gaps we are working on at the moment relate to accountability for Chinese overseas investment and impact investing.

Our research, including a database of over 24,000 data points, exposes patterns in accountability data. The database will go live in late 2018. We also host a global network of advocates, conduct trainings and offer resource guides for communities seeking justice and their local partners around the world.

Q. Philanthropy is intended to benefit organizations and communities, yet, as you argue in “Accountability: The Golden Opportunity in Impact Investing” (linked here), many projects result in unintended negative consequences. Could you discuss one or two examples related to the work of Accountability Counsel?

In 2013, we were confronted with a striking example of this when communities harmed by an OPIC-financed biomass project in Liberia approached us for support. The project’s owners, the McCall MacBain Foundation and Pamoja Capital, sold the project as an impact investment. As rubber trees were felled, and the project failed, it sent family farmers into poverty. The Liberians on family-run rubber plantations who lost everything were the targeted beneficiaries of this project. So too were average Liberians who were promised improved energy access, only to see the project collapse and the company leave. The trees felled for the failed biomass plant removed access to cheap sources of rubber wood for charcoal, causing this “green energy” project to drive charcoalers into the natural forest, resulting in deforestation. In yet another unintended consequence, chemically-treated wood chips from rubber trees were dumped back onto family farms, where they contaminated the drinking water. Family members attribute the death of at least one child to the company’s contamination. Communities still lack access to clean water. We also documented labor rights violations and sexual exploitation caused by the project, including women and girls being extorted for sex to get access to twigs and branches they needed to burn into charcoal to keep their families alive.

In that case, we carefully documented the harm, how it violated OPIC’s due diligence policies, and shared the findings with OPIC and Congress. It led to an OPIC investigation as well as U.S. congressional oversight and a formal review of OPIC’s policy framework. At a policy level, our impact was an OPIC recommitment to its own Office of Accountability (which it had threatened to weaken) and a revised OPIC Environmental and Social Policy Statement that incorporated much of our public comment.   

Q. How did you first become aware of some of the unintended negative consequences associated with philanthropy in at-risk communities?

There is a long, documented history of the harm that public and private development finance has done in communities where people have become worse off as a result of ‘poverty alleviation’ meant to improve their lives. In these cases, the projects are often large scale, complex, in areas where local communities do not have access to basic project information, and don’t speak the language of the project’s designers. In many of the countries, speaking out about harm from a project can land you in prison, or worse. Thus, it was not surprising to see philanthropic organizations (as a segment of the impact investing community) facing the same project risks when they began co-financing these types of investments, particularly in renewables and agriculture. Particularly as many foundation endowments are shifted into impact assets, if that capital has social and environmental goals, ensuring that investors are aware of the potential harm those assets can cause is important. When dealing with land, labor, natural resources, and workers – especially for those not proximate to the local environment, these investments are hard to get right and easy to get wrong. Our Liberia case was my first personal experience with philanthropic investment in a project that caused severe harm.  

It was attending the Social Capital Markets (SOCAP) conferences that really opened my eyes to the need for greater support and tools for impact investors to understand and address their exposure to this type of project and impact risk. While attending the conference over a several year period, I asked dozens of impact investors: do you evaluate and mitigate the risk of social or environmental harm that your investments might cause? By and large, they all said “no.” More troubling, they weren’t familiar with the harm we’ve seen in the development finance context, and didn’t know where to start the conversation. Talking more about due diligence standards that are available and working to develop innovative accountability tools seemed like an obvious next step to help impact investors understand the potential unintended negative consequences of their investments and better achieve their social and environmental goals. Our new policy initiative at Accountability Counsel to fill this “accountability gap” began in 2016, starting with thought leadership to spark the conversation. We seek to take the best elements of the accountability frameworks built around development finance, help impact investors to innovate and improve upon them, and launch collective, state of the art tools for avoiding harm and addressing it responsibly when it does occur.

Q. When did you first learn of the Law and Policy Lab as a vehicle to study public policy? How did you develop the practicum project in tandem with Paul Brest?

In 2017, I set up a meeting with Professor Paul Brest to get his feedback on our idea of fostering a conversation around accountability frameworks for impact investing.  After a discussion about how this fits into our policy work and where we want to take it, he suggested we do a Law and Policy Lab on the topic, and off we went. It’s been an organic process of creating the projects and curriculum. I’ve done as much learning from Paul as I’ve done teaching alongside him. It’s been a rewarding partnership.

Q. What kind of policy research do your students undertake? What are the skills they are learning? How do those skills complement students’ legal doctrinal studies to make them more effective lawyers and policy makers?

In the first quarter of the Lab, students conducted research in three groups: mapping out who the impact investing community is, understanding the business reasons why impact investors may want accountability frameworks, and developing an options paper for what accountability frameworks could look like as this initiative moves forward.

Students learned how to critically evaluate written descriptions of impact investment case studies to peel back where risk of harm may lie, and studied cases of investments gone wrong to discuss how that harm could have been prevented. We also had the benefit of hearing directly from impact investors, journalists, and advocates who visited our class to engage with our students.

As a lawyer that hires other lawyers regularly, these students are learning one of the key skills I look for. The ability to read a fact pattern, understand where the holes and gaps are, start to fit it into a broader theoretical framework, and ask hard questions. My goal was to help the students see beyond the surface of facts that are presented, to critically analyze and understand opportunities for leverage and change, and strategize about how to achieve that change. These are both law and policy skills that our team at Accountability Counsel uses every day and that I hope our students are taking away from course.

Q. What are some of your initial findings? What is the next phase of your research?

We now have a much better sense of the impact investing field, particularly regarding governance and complementary efforts to provide tools to help investors better measure and manage their impact.

This second quarter of the Lab, we are focused on making the public case to the impact investing community about why getting ahead of the risk of harm from investment is both do-able and critical.

We identified in our individual conversations and first quarter projects a great deal of education that we still need to do for investors to understand why accountability is relevant to them and is worth their time and resources to pursue. In that vein, we are preparing a series of pieces that we will author and co-author around case studies of harmful investments, the risks to investors if harm occurs, how accountability tools can address these issues, and why evaluating harm is a key piece of impact measurement. These pieces will be valuable in building momentum around this initiative – especially because so few investors are aware that such accountability tools exist, and could be adapted to their own field.

Q. Why is your research important to improving philanthropy? Where do you see it being utilized — only with big philanthropic organizations or with the nonprofits they benefit?

As the field of impact investing rapidly scales, we are seeing an increasing variety in the types of investors who are involved. Each of the players in the impact investing word can benefit from this research. Foundations, asset managers, individual philanthropic and/or impact investors, pension funds and university endowments will all benefit from the information in the database we are launching. It will allow people to search a sector, region, country, or specific industry (in any or multiple combinations) to see where complaints have been brought, about what situations specifically, and the results of the complaint process. But without the research of the Lab, impact investors may not be aware that there is a need to better address harm, and that there are tools available.

The nonprofit and for-profit enterprises that are the recipients of the investment also have a great deal to gain. Investors that can ask salient questions during due diligence about risk of unintended social and environmental harm from the operations will lead to better designed and operated projects that better achieve their financial and impact goals.

Q. How will this work directly benefit Accountability Counsel?

Accountability Counsel works to democratize access to justice so that rights are respected, regardless of the funding source that led to the harmful impact. To achieve this goal, filling gaps through the creation of new accountability offices where they don’t exist is a primary aim of our policy team. Our initiative to address the accountability gap in impact investing is deeply integrated with our existing work. As we began discussing the opportunity to develop an accountability framework for impact investing, we quickly realized that we needed support to better understand the field and impact investors’ unique needs as they seek to create social change through investment. The Policy Lab research is enabling us to identify and convene the key investors and thought leaders needed to move this idea forward.