CAO Releases New Advisory Note: Responsible Exit – Insights from CAO Cases

CAO is pleased to announce our Advisory Note: “Responsible Exit: Insights from CAO Cases.”

Responsible Exit: Insights from CAO Cases

The Advisory Note “Responsible Exit: Insights from CAO Cases” is part of CAO’s series of publications on remedy and responsible exit and aims to inform the International Finance Corporation’s (IFC) evolving approach to responsible exit. Exiting investments responsibly is key to good environmental and social performance, and the topic is generating growing interest among development finance institutions, impact investors, investment banks, and other investors.

Development Finance Institutions, such as IFC, have a commitment through their mandate and policies to support development activities with sustained positive impact while managing E&S risks. This Advisory Note focuses on IFC's approach to responsible exits, analyzing its current methods through the lens of complaints and cases managed by CAO over a decade – from fiscal years 2013 to 2022. It emphasizes the importance of responsible exits in the investment life cycle, where IFC aims to avoid harm, mitigate risks, and remediate any harm caused during the investment.

The analysis highlights shortcomings in IFC's current approach and identifies challenges that restricted IFC’s ability to adhere to its commitments in its Sustainability Policy. This Note also finds that exits during active CAO cases are common, and explores the associated significant implications for IFC’s management of risk, for CAO accountability processes, and ultimately for providing remedy to project-affected people.

Additionally, the publication explores the challenges to responsible exit in IFC projects. Common issues include exits during active CAO cases, limiting IFC's ability to ensure clients meet E&S obligations, and adverse E&S impacts occurring in both lower and higher-risk projects. Aspects contributing to high exit prevalence during CAO cases include: case-handling timelines compared with investment timelines with delayed complaints due to community information gaps; exits from debt investments often happen earlier than planned, posing significant implications for risk management and accountability processes; cases with exits that are often associated with risks of threats and reprisals, emphasizing the vulnerability of project-affected people; and shortcomings in IFC processes, such as not requiring clients to address outstanding E&S issues before ending their contractual relationship, which acts as barriers to effective and responsible exit.

The Advisory Note provides detailed recommendations for IFC. It emphasizes the importance of adopting a responsible exit approach, especially as IFC enters a new phase marked by the Evolution Process within the World Bank Group. Finally, it serves as a useful resource for other development finance institutions and organizations as they build upon ongoing work to mitigate risk, reduce harm, and contribute to lasting positive impacts on people and the environment.

For more information about CAO’s advisory work on remedy and responsible exit, consult our related publications.