Grievance Mechanisms and the Equator Principles

Principle 6 of the Equator Principles (EP) requires that, for all Category A and B projects, the borrower must create a “grievance mechanism” as part of the Environmental and Social Management System (ESMS). A grievance mechanism must be designed to receive and facilitate resolution of concerns about the project’s environmental and social performance.

This article will discuss the Grievance Mechanism requirement in the EP, including as set out in the IFC Performance Standards on Environmental and Social Sustainability (IFC Performance Standards).

Community Focused Project Level Grievance Mechanisms

Generally speaking, the IFC Performance Standards require that any project that is likely to generate adverse environmental and social impacts on Affected Communities have in place a project level grievance mechanism. Such a mechanism should be made readily accessible to the Affected Communities and allow for the receiving, addressing, recording and documenting of complaints and communications from external stakeholders.

In the case of large projects with potentially complex issues, Performance Standard 1 requires that a robust grievance mechanism should be established and maintained from the beginning of the assessment process onwards. A grievance mechanism is a locally based, formalized way for a company to accept, assess and resolve community complaints related to company activities. It provides a way to reduce project risk by offering communities an effective avenue for expressing concern and promotes a mutually constructive relationship.

A grievance mechanism draws upon conflict resolution resources inside the Client’s organization, as well as traditional, customary and private systems of alternative dispute resolution in Affected Communities, such as mediation, conciliation and arbitration. In developing grievance mechanisms, Clients must understand cultural customs and traditions that may influence or impede their ability to express their grievances, including differences in the roles and responsibilities of subgroups (especially women) and cultural sensitivities and taboos.

Cultural characteristics may affect the appropriateness of direct versus indirect negotiation, attitudes toward competition, authority, social rank or the appropriateness of local customary grievance resolution processes.

The qualitative aspects of a grievance mechanism necessary for its effectiveness include that:

• Communities raising an issue receive acknowledgement of the concern;
• The company makes efforts to modify its conduct where appropriate;
• The company’s response is honest and forthright; and 
• Some remedial action is taken where appropriate.

In applying these principles, it is imperative that grievances are not handled in an arbitrary or ad hoc manner. Grievances should also not be dealt with in a rigid manner that simply reinforces or exacerbates power imbalances.

A well functioning grievance mechanism provides predictable, transparent and credible processes resulting in outcomes that are seen as fair, effective and lasting, builds trust, and enables systematic identification of emerging issues and trends, facilitating corrective action and pre-emptive engagement.

Worker Grievance Mechanisms

A grievance mechanism is also expressly required by Performance Standard 2 for workers and workers’ organizations to raise workplace concerns. In a workplace context, a grievance mechanism must address complaints and communications from internal stakeholders, namely workers.

The establishment of such a mechanism ensures matters of worker concern are brought to management’s attention and addressed expeditiously. The mechanism should be made available to direct workers as well as contracted workers. Such a mechanism must be developed with an awareness of judicial and administrative mechanisms available in the country for resolution of workplace disputes and should not impede access to these judicial mechanisms.

Employers are required first and foremost by Performance Standard 2 to comply with all legal requirements regarding grievance mechanisms and the resolution of workplace disputes. Where grievance mechanisms are already provided through a collective bargaining agreement that meets the requirements of PS 2, such mechanisms can be used to satisfy the requirements of Performance Standard 2.

If workers are not covered by a CBA, Clients must create other grievance mechanisms for unrepresented workers or discuss with any unions the feasibility of extending grievance procedures under the CBA to non-union personnel.

To ensure its functionality, workers must be informed of the mechanism at the time of hire and informed of how to access the mechanism. This mechanism should be designed in a way that is appropriate for them, easy to understand and adapted to the communications challenge they may face (e.g., language, literacy levels, level of access to technology).

A clear policy and procedure for expressing workplace concerns should be established by all companies and communicated to all workers in a clear and understandable manner, with training on how the grievance mechanism will operate. Workers’ representatives should be part of the process of implementation.

Grievance Mechanisms as Part of the World Bank Approach to Sustainable Development

The IFC and Multilateral Investment Guarantee Agency (MIGA), the private sector components of the World Bank, have policy commitments that relate to grievance mechanisms including their Policy and Performance Standards on Social and Environmental Sustainability and Guidance Notes. Both institutions are held accountable to the Compliance Advisor/Ombudsman (CAO), which is the independent recourse mechanism available to project-affected people. If a grievance cannot be resolved, the complainant may refer to an external party such as the court system, traditional systems of justice or the CAO. Similar principles are applied in the context of Principle 6 of the EP which is derived from the World Bank approach.

Legal Implications of Grievance Mechanisms

Any concern or complaint arising from a legitimate stakeholder will foretell of possible legal risks to the borrower and EP Financial Institution.  Grievance mechanisms are a form of alternative dispute resolution (ADR) that must be seen to co-exist with judicial avenues available to complainants.  This relationship is made clear in the IFC Performance Standards, which requires for example that grievance mechnisms must not operate in such a way as to foreclose access to judicial remedies for grievors.

As such, it is critical that legal counsel be involved in evaluating and responding to grievances, possibly including in giving privileged and confidential advice on the matters raised in the grievance. Privileged advice, provided by legal counsel, will not be subject to disclosure in the event of litigation.

That being said, the role of legal advisors should be a constructive one to the grievance mechanism process promoting the goals of transparency and openness and conflict resolution necessary to maintain strong stakeholder and community relations for the project.