2.1 Insuring against acts of states

Contemporary political risk insurance as a financial instrument can be traced back to the interwar and postwar period with the inception of the British Export Credit Guarantees Department (now known as UK Export Finance) in 1919 (Heppel, Reference Heppel, Moran and West2005, p. 141) and the establishment of a guarantee facility for US investors in Europe under the Marshall Plan to incentivise US private sector participation in the reconstruction effort (DeLeonardo, Reference Deleonardo2005, pp. 740–741; Perry, Reference Perry1996, p. 525). As a form of indemnity, PRI serves to compensate investors for financial losses sustained as a consequence of host government action or the politically motivated conduct of host populations. By reducing investors’ exposure to losses from such events, PRI also performs broader catalytic and leveraging functions, enabling investors to access capital on more competitive terms or, in the case of lenders, to provide relief from capital requirements (MIGA, 2010, p. 56, Box 3.3).

The majority of insurers today provide cover against four main categories of political events: (i) currency convertibility and financial transfer restrictions; (ii) expropriation, including nationalisations and so-called ‘creeping’ or regulatory expropriation; (iii) political violence, including war and civil unrest; and (iv) default on sovereign obligations, such as the non-payment of arbitral claims, breach of contract, and the so-called ‘non-honouring of sovereign financial obligations’ covering the failure of a government to meet a financial payment under a bond, loan or guarantee (DeLeonardo, Reference Deleonardo2005, pp. 746–751; Gordon, Reference Gordon2008, p. 98 and Table A.2.5). Eligible investments vary among insurers but they typically cover new cross-border equity investments, including shareholder loans and shareholder loan guarantees (see for example, MIGA, 2012a). Existing investments or acquisitions of existing projects or businesses may be eligible subject to certain conditions (such as modernisation or enhancement of proposed projects), as are non-equity investments, such as technical assistance and management contracts, capital market bond issues and licensing agreements (MIGA, 2012a).

Most industrialised countries have established publicly backed PRI schemes provided through specialist investment insurance entities, such as the US Overseas Private Investment Corporation (OPIC), or via export credit agencies (ECAs), such as UK Export Finance or Export Development Canada (EDC). In the recent decades, emerging market economies, such as China, Singapore and South Africa, have launched their own PRI schemes in tandem with their transformations in stature from capital importing to capital exporting states. While the legal status and governing constitutions of these national providers may vary,Footnote ¹ their motivations are broadly similar. Most national providers extend coverage to residents – nationals and/or foreign corporations with a domestic presence – investing in eligible markets abroad for the purposes of stimulating outward trade and foreign investment in those areas for domestic economic and foreign policy objectives (see Gordon, Reference Gordon2008, Table A.2.1). Some agencies, such as OPIC, also stipulate a wider altruistic mission of international development, mainly through the stimulation of private capital markets in developing countries and economies in transition.Footnote ²

Development objectives also underpin the operations of multilateral PRI providers, notably the World Bank's Multilateral Investment Guarantee Agency (MIGA), established in 1998. Multilateral providers, including MIGA and regional agencies such as the Asian Development Bank, the African Trade and Insurance Agency, and the Arab Investment and Export Credit Guarantee Corporation, view their operations as part of their broader constitutional missions and serve a wider constituency than bilateral providers. Unlike national providers, multilaterals offer coverage to businesses from all state members of the organisation seeking to invest in other Member States. For example, MIGA coverage extends to all nationals from MIGA Member States, including businesses that may not necessarily be incorporated in a particular Member State but are majority-owned by nationals of Member States (see Article 13 of the MIGA ConventionFootnote ³). In projects involving both OPIC or MIGA, relations between the agencies and the prospective host states vis-à-vis PRI arrangements are governed by international treaties, establishing the respective terms and conditions for insurers’ operations in the host state of the guaranteed investments, including dispute resolution and subrogation clauses (see MIGA Convention; Salacuse, Reference Salacuse2013, pp. 260–261).

The operations of public PRI providers are complemented by a small but growing market of private insurers. Consisting of a number of private insurance companies, including big names such as AIG, Swiss Re, Sovereign, and Zurich, as well as insurance syndicates based at the Lloyds insurance market in London, the private PRI market burgeoned as developing countries increasingly liberalised their investment regimes in the 1990s. Private PRI arrangements are governed by standard contractual insurance terms. Unhampered by the policy and regulatory constraints of public providers, private insurers have the capacity to offer more flexible coverage and speedier services to investors, but as they are motivated by the profitability of returns, and are highly sensitive to broader market conditions, premiums tend to be higher, terms or tenors of insurance shorter and coverage less comprehensive than official insurers (Heppel, Reference Heppel, Moran and West2005, pp. 143–144; Perry, Reference Perry1996, p. 536).

The efficacy of PRI as a tool of risk mitigation for foreign capital stems not only from its aforementioned compensatory role, but also from its broader disciplinary function. As will be discussed in Part III, PRI policies are embedded within a broader framework of supervision and surveillance that extend beyond the policies themselves. Like other forms of insurance, PRI weaves what Glenn terms ‘multiple webs of engagement’, building ‘communities of interest’ that extend beyond the parties to the insurance contract (Glenn, Reference Glenn2003, p. 304). PRI arrangements typically involve a series of ex-ante and ex-post assessment, supervisory and dispute settlement mechanisms that seek to influence the design of the investment project and manage the relationship between the foreign investor and the host government (see Section 3.2).

PRI providers routinely offer technical, advisory and mediation services to their clients as part of or ancillary to an insurance policy. MIGA, for example, provides both ex-ante investment project development and ex-post dispute settlement services for its guaranteed investments, the latter aimed at preventing an escalation of claims and facilitating the resolution ‘of potential investment disputes’ (MIGA, 2013b, p. 1). OPIC similarly offers advocacy services on a case-by-case basis to intervene in or resolve disputes between OPIC-guaranteed investors and host states (OPIC, 2013), as do large private insurers, such as Zurich, which claims to be not just their client's ‘insurer but also their advocate … to help avoid or mitigate losses caused by political events or payment defaults’ (Zurich, 2011, p. 1).

Thus, for the foreign investor, ‘[t]he risk mitigation benefits offered by PRI go beyond cash indemnification’ (Hamdani, Liebers and Zanjani, Reference Hamdani, Liebers and Zanjani2005, p. 3). PRI providers, particularly public insurers, exert considerable influence over the conduct of foreign governments, with many being ‘successful in preventing adverse events from occurring or in securing preferential treatment for investors when adverse events do occur’ (p. 3). Accordingly, PRI acts as a ‘covert regulator’ (Heimer, Reference Heimer, Baker and Simon2002, p. 119), establishing ‘norms of conduct’ that are enforced through different operational practices and policies, including the aforementioned access and underwriting criteria, contractual terms and pricing of products (Baker and Simon, Reference Baker, Simon, Baker and Simon2002, p. 13).

2.2 Governing through insurantial risk

The implications of PRI as a regulatory mechanism must be understood in the context of ‘the quiet but tremendously influential practices of power of the insurance industry’ (Lobo-Guerrero, Reference Lobo-Guerrero2010, p. 7), and how these practices not only influence the conduct of parties to an insurance contract but also impact on wider societal relations and regulatory and public policy. The power of the insurance industry stems not only from its sheer financial strengthFootnote ⁴ and the increasingly centrality of insurance to core functions of economy and society, but also from the significant performative and discursive effects of its operations. Through its products, processes and practices, the insurance industry projects and constitutes visions of societal relations that shape, categorise and manage the behaviour and livelihoods of those individuals and populations that are subject to its discipline.

Central to the financial and political power of the insurance industry is the anchoring of its policies and practices in a set of understandings about the nature of and responses to risk. These notions of risk are in turn embedded within a broader structure of institutions, actors, practices and knowledges that govern the conduct of society and, in our case, the global economy (Lupton, Reference Lupton2013, pp. 114–117; see also Dean, Reference Dean2010, pp. 206–207). Risk as a rationality of governance seeks to transform certain conditions of life into a calculable form that can be ordered and managed in specific ways (Lupton, 2013, pp. 114–117; Dean, Reference Dean2010, pp. 206–207). As Dean (Reference Dean2010) and Ewald (Reference Ewald, Burchell, Gordon and Miller1991) have argued, risk in the governmentality context is treated not as a ‘natural occurring entity’ but rather as a means ‘of thinking about and representing events’ so as to construct a reality that is rendered amenable for interventions in particular ways for ‘specific ends’ (Dean, Reference Dean2010, pp. 212–213; see also Ewald, Reference Ewald, Burchell, Gordon and Miller1991, pp. 202–204).

Risk problematises events in particular ways to allow for interventions in societies and other collectivities, such as developing countries, through a variety of technical means. In this sense, ‘the significance of risk does not lie with risk itself but with what risk gets attached to’ (Dean, Reference Dean and Lupton1999, p. 131). Risk is defined and rendered ‘thinkable’ through forms of knowledge – ‘statistics, sociology, epidemiology, management and accounting’ (Dean, Reference Dean2010, p. 206) – and identified through a series of ‘discovery’ techniques, including risk screening, case management, crime prevention and, in the context of this paper, insurance underwriting (p. 206). This identification of risk in a variety of settings is intimately associated with proposals for managing the identified risk. To describe something or someone as ‘at risk’ naturally leads to a discussion about how the entity that is ‘at risk’ can be managed so as not to disrupt the prevailing notions of social or economic order. The techniques by which the risk is managed is dependent on the underlying visions or imaginaries of risk – discourses or practices that have been rationalised over time to support a particular practice or regulatory framework for the achievement of specific aims and objectives (see Baker and Simon, Reference Baker, Simon, Baker and Simon2002, pp. 8–10; Dean, Reference Dean2010, pp. 206–207).

In an insurance rationality, risk transforms an unpredictable or uncertain event into a calculable probability that can be assigned an economic value if and when it occurs, so that what is insured against is not the loss or injury suffered as a consequence of the occurrence of the insured event but ‘a capital against whose loss the insurer offers a guarantee’ (Ewald, Reference Ewald, Burchell, Gordon and Miller1991, p. 204). Through their underwriting practices, insurers engage in ‘processes of valuation’, assessing the lives and activities of the entities to be insured in financial or economic terms, both in terms of ‘their future capacity to generate revenue’ as well as in terms of the ability of the protected assets ‘to connect and circulate’ as an economic good or service (Lobo-Guerrero, Reference Lobo-Guerrero2011, pp. 4–5). In the case of PRI, for example, it is not only the physical and infrastructural assets of the foreign investor that is being insured but also their future capital (‘loss of earnings’) and their capacity to circulate and connect with international economic flows (such as ‘access to future credit, trade flows, etc’). What is being protected through insurance, such as PRI, is not only the value of the physical or contractual asset but the productive value of that asset, that is, its ability to circulate on the world markets and underpin the circulation of other assets, such as investment capital.

The determination of what constitutes an insurable asset, entity or event is not static but one that is dependent on ‘shifting cultural conceptions of risk, security and responsibility’ (Baker and Simon, Reference Baker, Simon, Baker and Simon2002, p. 27). Accordingly, insurance visions – ‘ideas about and images of’ insurance and how insurance should or can be deployed in any given social, political or economic context – are instrumental in the development of insurance technologies (techniques for identifying and dealing with insurable risk), insurance institutions (organisations that provide insurance) and insurance forms (insurance products, such as PRI) (Baker and Simon, Reference Baker, Simon, Baker and Simon2002, pp. 8–9; Ewald, Reference Ewald, Burchell, Gordon and Miller1991, pp. 198–199). As a ‘social and cultural product’ (Baker and Simon, Reference Baker, Simon, Baker and Simon2002, p. 27), insurance practices not only reflect prevailing ideas about societal relations and economic transactions, they also shape or constitute them, normalising or delegitimising norms of behaviour through their representational power (Baker and Simon, Reference Baker, Simon, Baker and Simon2002, p. 27; Glenn, Reference Glenn2003, p. 299). As Glenn observes, ‘[b]y defining what is insurable and what is not, insurers structure the boundaries of which activities can be pursued and in what manner’ (Glenn, Reference Glenn2003, p. 299).

As ‘covert’ regulators, insurance companies determine the terms of access of individuals and other entities to a myriad of services, privileges and immunities (Heimer, Reference Heimer, Baker and Simon2002, p. 119). Insurance, in this sense, not only structures the behaviour of the policyholder or prospective policyholder, but also extends its regulatory authority over the social or economic sector that is the subject of the insurance policy. By acting as gatekeepers to economic activity – such as, in this case, transnational investment – and managing the outcomes of that economic activity through surveillance techniques, insurers can and do displace other social and institutional arrangements that manage relations between economic actors, including forms of informal risk management that underlie an economic or commercial contractual relationship (see Heimer, Reference Heimer, Baker and Simon2002, pp. 117–129).

3.1 Framing of political risks

Considered in the context of discourses of risk and governmentality, the normative and regulatory implications of PRI become clear. First, PRI, like other forms of insurance, possesses what Lobo-Guerrero (Reference Lobo-Guerrero2010, p. 4) has described as ‘the unrivalled potential to mobilise discourses of “truth” and impose their way of understanding and manage uncertainty at all levels of business around the globe’ through the construction of the aforementioned insurantial visions or imaginaries. Discourses that underpin PRI are influential as they frame understandings about, inter alia, the role of foreign investment, the entitlement and rights of the foreign investors and the responsibilities of the host state, and the threshold of acceptable behaviour of communities in the localities of such investment. This places expectations of behaviour on the part of host states, subjecting functions of government to a threshold of acceptable conduct below which such conduct would trigger financial compensation for the investor.

Narratives of risk are routinely utilised by the PRI industry to problematise state conduct, including acts responsive to the democratic polity and state responsibility to protect, and to transform such behaviour into problematic events requiring the specific intervention and mediation from external actors. In MIGA's brief on ‘Supporting Mining Investments’, used to solicit business for PRI in mining investments, a list of what the agency considers risky events in the mining sector includes ‘civil disturbances and conflict’, ‘weak macroeconomic environments’ and ‘inadequate legal and regulatory framework’ (MIGA, 2013c, p. 1). For political risk insurers, the susceptibility of a host state and/or investment project to these events heightens the probability for unwarranted state intervention in investment projects or in the economy as a whole, including expropriation, restrictions on financial transfers and default on sovereign obligations.

The narratives of PRI thus posit a binary distinction between the positive influence of foreign investment and the negative and/or uncertain political terrain in which such investment operates, rendering the domestic governance of host states a legitimate site for intervention to be rectified through a combination of asset securitisation, technical surveillance and expert mediation. Forming part of the contemporary ‘architecture of investment climate surveillance’, PRI narratives exert disciplinary power over host states by constraining ‘non-orthodox’ policy and operational choices available to host states in their interactions with the foreign investor and with affected local communities (Haarstad, Reference Haarstad2012, pp. 80–81; see further discussion in Section 3.2). These discourses both reflect and reinforce the neoliberal rationality underpinning the contemporary global economy. The emergence and entrenchment of the Washington Consensus as a conceptual and operational premise for international economic relations in the past three decades has led to the constitution of an international regulatory framework that has, at its core, the delimiting of government authority over the private sphere of economic activity and the isolation of the economy from political power (Gill, Reference Gill1995, pp. 399–400; Schneiderman, Reference Schneiderman2008, pp. 2–4).

In the arena of international investment, this rationality is manifested in what Schneiderman has termed the ‘political economy of certainty’, in which the liberalisation of international capital flows has been accompanied by increasingly stringent restraints on the exercise of sovereign power, including restrictions on the ability of host states to interfere with the entry, exit and operations of foreign investors (Schneiderman, Reference Schneiderman2008, pp. 205–206). Political risk today is defined as ‘the probability of disruption of [multinational enterprises] by political forces or events’, with political risk in the host countries of foreign investment perceived as ‘largely determined by uncertainty over the actions of governments and political institutions [as well as] of minority groups, such as separatist movements’ (MIGA, 2009, p. 28). Political risk in this sense arises not only from overtly adverse acts of governmental interference with the property of the foreign investor, but also from how the government uses its authority to balance the aforementioned competing interests between foreign investors and local communities.

Risk, for the PRI industry, emanates from the action (or inaction) of the host state or from communities residing in the locality of the investment project that pose a hazard for the foreign investor. It does not, anomalously, as Moody points out, refer to acts of the foreign investor or foreign investment that may have adverse consequences for the host state or its communities (Moody, Reference Moody2005, pp. 6–7). Accordingly, the form of security that PRI affords is security for assets and projected profits of foreign capital against ‘acts of (ill) governance’ (p. 6) of host states or local communities, even where such acts of governance, notably on the part of host governments, are undertaken in accordance with domestic law and in pursuit of public interests. Insurers, in the main, are less concerned, for example, with why governments intervene in an investment project than with how such intervention affects the financial viability of the project in question. Moreover, insurers are largely unconcerned with the effect of an insured project on local community relations, including the potential for exacerbating local conflicts and where foreign investor collusion with state security measures may result in adverse outcomes for local communities.

The World Bank's Compliance Advisor / Ombudsman (CAO), has, for example, revealingly acknowledged that MIGA's standard due diligence framework serves to analyse the likelihood of future claims for insurable losses on the part of an investor, not to evaluate the potential of adverse impacts to the local community (CAO, 2005, pp. i–ii. 7–8). Concluding its audit into MIGA's support for the Dikulushi copper and silver mine in the Democratic Republic of Congo (DRC),Footnote ⁵ the CAO admitted that while MIGA's underwriting and risk management procedures explicitly considered conflict and security issues (the subject of the complaint against MIGA), their focus was ‘only on the risk of war and civil disturbance to the assets or activities of the project’ and not aimed at addressing ‘whether the project may either influence the dynamics of conflict or whether security provision for a project could indirectly lead to adverse impacts on the local community’ (pp. i–ii, 7–8, emphasis added). The potential for community impact, added the CAO, was to be captured elsewhere, such as under the agency's environmental and social review procedures and not under its core business procedures (pp. i–ii, 7–8; see discussion in Section 3.3).

Narratives of risk and the disciplinary outcomes of their framing by political risk insurers have a particularly significant impact on projects in the natural resources sector, as the aforementioned Dikulushi mine project illustrates. Frequently located in politically contentious geographical terrains and frontier environments with what has been termed ‘weak governance zones’ (see MIGA, 2007, p. 1), natural resources projects, particularly those in the extractive industries, are notoriously susceptible to violence and conflict, including tensions over territorial rights and rights to revenue extraction. Additionally, such projects are often beset by environmental concerns which can and do heighten the percolating conflicts that are also exacerbated by fragile legal and political systems, including inadequate mechanisms for conflict resolution and fiscal management in many such localesFootnote ⁶ (MIGA, 2007, p. 1; Webb, Reference Webb2012, p. 395). In these environments, the aforementioned framing of risks and responsibilities by the PRI industry can constrain state behaviour towards the insured project or investment sector and determine how a state responds to issues of governance, including management of state–community relations, arising from the project or related economic sector.

PRI narratives commonly castigate state intervention in natural resources sectors, including regulatory changes or contract renegotiations that seek to rebalance revenue rights and access to strategic or essential domestic resources. In recent years, a key concern for foreign investment that has been highlighted by the PRI industry has been one of ‘resource nationalism’, precipitated ostensibly by the increase in commodity prices prior to the global financial crisis or percolating nationalist tensions within resource-rich states (Ernst and Young, 2013, pp. 23–24; MIGA, 2014, pp. 19–20; 2009, pp. 30–31). According to MIGA, ‘resource nationalism continues to gain prominence as governments around the world seek a greater share of returns in the extractive industries’ (MIGA, 2014, pp. 19–20). MIGA, citing a report by Ernst and Young, attributes recent regulatory changes in the mining sector in emerging economies as ‘an effort to protect mineral wealth and create benefits for local populations’ at the same time that it argues that such changes, including restriction of exports and increasing taxes or royalties, alongside instances of contract renegotiation, pose significant risks to foreign investment (MIGA, 2014, pp. 19–20; see also Ernst and Young, 2013, pp. 23–25).

PRI narratives can similarly constrain how states respond to local concerns over investment projects in natural resources sectors, problematising both host state inaction over local conflict, political mobilisations or physical violence that threaten investor assets as well as governmental efforts to mitigate the social and environmental dislocations associated with natural resources projects. Investors in extractive industries, for example, are cautioned about political risks that are said to arise from community mobilisation around environmental, labour and other human rights concerns relating to an investment project, impacting on what has been termed companies’ ‘social licence to operate’ (Ernst and Young, 2013, p. 27). These risks are said to include not only ‘increased legislation and protracted government approval processes’ but also the rise of judicial activism in host states, encouraged by the rise of dedicated specialist tribunals, such as environmental tribunals, that seek to ‘apply a less technical interpretation of compliance with environmental standards’ in favour of local communities and non-governmental organisations (p. 28).

Political risk narratives are influential because, like other insurantial discourses, they not only create a framework of expected behaviour on the part of the insured entity and related actors – in this case, the host state and local communities – but they also legitimise interventions where such behaviours deviate from the norm. These narratives, as discussed in the following section, play a significant role in influencing the regulatory framework of PRI arrangements. The penalty for deviation is the exclusion of either the insured entity – the foreign investor – or the other related actors from access to external resources, including crucially for developing countries, access to foreign capital. In the case of PRI, their association with the broader architecture of climate surveillance can determine who benefits from investment projects and who bears the risk of project failure, as well as who undertakes responsibilities for the dislocations that accompany such projects.

3.2 Framework of supervision

The constraints exerted over host state and, to a limited extent, investor behaviour by the disciplinary narratives of risk are supported by the wider architecture of surveillance and governance that accompanies a PRI arrangement. A key characteristic of PRI is its enmeshment within a broader set of supervisory arrangements that seek to influence the design of the investment project and manage not only the relationships between the foreign investor and the host government but also between the foreign investor, host states and local communities affected by investment projects. First, the implication of host states as third parties in PRI arrangements – through requirements for host country approval and contractual subrogation clauses – and access criteria that can often include detailed scrutiny of the social, political and economic environment where the insured project is located, subject host states and their relations with foreign investors to an external regime of surveillance and supervision. The very nature of PRI arrangements, involving guarantees against governmental action or politically motivated events, means that the underwriting processes and loss mitigation strategies of PRI insurers go beyond standard risk analysis and due diligence and involve more intimate ex-ante evaluation and ex-post monitoring of the political and administrative climate of host countries.

Aside from individual project risk analysis that assesses the economic and financial viability of the investment to be insured, PRI assessment criteria typically include a general political risk analysis covering the host country and host region (Gordon, Reference Gordon2008, pp. 99–100). MIGA's Operational Regulations, for example, stipulate that MIGA's underwriting authority should take into account factors relevant to both the investment project and the host country, and ‘satisfy itself as to the investment conditions in the Host Country, including the availability of fair and equitable treatment and legal protection for the investment’ (MIGA, 2012b, section III, paragraphs 3.12 and 3.15). MIGA's assessors will also consider the ‘relationship between factors relating to the Investment Project and factors relating to the Host Country’ (paragraph 3.19). In determining the risk profile for expropriation cover, for example, MIGA will examine not only the project's relationship to the host state's overall economy – such as size and sector type relative to the economy – but also its exposure to host state regulation, including price controls, performance requirements, the tax regime, environmental regulation and labour legislation as well as the host state's ‘[r]ecord of interventions in foreign investments’ and any ‘[d]issident elements inclined toward expropriatory action’ (MIGA, 2012b, Annex A, section II).

Risk assessments often take into account analyses from a range of official or commercial country risk ratings, including the OECD's country risk ratings and World Bank indicators, such as the flagship Doing Business Footnote ⁷ rankings and investment climate reports,Footnote ⁸ as well as evaluations by commercial credit ratings agencies, such as Moody's or Standard and Poor's. A number of OECD-based insurers also rely on the OECD Arrangement on Officially Supported Export Credits (OECD Arrangement), a framework for mutually agreed principles for export credits which also ‘creates, inter alia, an international co-operation process for country risk analysis’ that includes considerations of political risk factorsFootnote ⁹ (Gordon, Reference Gordon2008, p. 100; see also OECD, 2014b, paragraphs 25–26). As part of the broader international ‘architecture of investment climate surveillance’ discussed in the previous section, country risk ratings typically embed the orthodox narratives of investment climate risk, profiling countries according to, among others, countries’ commitment to liberal, investor-centric investment regimes, and undertakings to restrict or eliminate state interference in the economy. The Bank's Investing Across Borders indicators, for example, ranks a government's investment competitiveness by measuring, inter alia, the number of statutory restrictions on foreign equity ownership in the country; ease of access to land and strong property rights; and quality of a country's commercial arbitration structures and adherence to international arbitral conventions (WBG, 2010, p. 12, Box 2.1).

Reliance of PRI insurers on such indicators as the basis of their risk analyses can and do limit a state's adoption of ‘policies that diverge from the interests of international investors’ for fear of adverse consequences on inward capital flows, even where such policies serve to protect and benefit domestic constituents (Haarstad, Reference Haarstad2012, pp. 80–81). The disciplinary effect of these rankings on host states is strengthened by the intersections between PRI assessment criteria and international investment law, notably the existence of an international investment agreement (IIA) between the host state and the home country of the prospective policyholder and, in some cases, the outcomes of investment arbitration, including host state compliance with arbitral awards. The presence of an investment treaty between the home country of the investor and the host state can constitute a prerequisite for access to PRI or, in many cases, is considered evidence of a host state's general commitment to the legal protection of foreign investmentsFootnote ¹⁰ (Gordon, Reference Gordon2008, p. 100; Konrad, Reference Konrad, Verheyen and Quintrell2013, pp. 30–31; Poulsen, Reference Poulsen2010, p. 15; PricewaterhouseCoopers, 2006, pp. 2–3). For example, in determining pricing for expropriation cover, MIGA's underwriters would take into account not only contractual agreements between the policyholders and host states on international arbitration (MIGA, 2012b, Annex A, section 4(vi)) but also the existence of an ‘investment protection agreement’ between the policyholder's home country and the host state (Annex A, section II, D(3)) and the track record of the host state in ‘honoring arbitral awards’ (Annex A, section II F(5)).

Some bilateral insurers, such as agencies from Belgium, Germany and the Netherlands, also consider, if not precondition their support on,Footnote ¹¹ the existence of an investment treaty between the home country of the foreign investor and the host state in the country risk assessments (Gordon, Reference Gordon2008, p. 100; Poulsen, Reference Poulsen2010, p. 15; PricewaterhouseCoopers, 2006, pp. 2–3). It is therefore unsurprising that host states’ violations of treaty obligations, including not honouring arbitral awards, or withdrawal from IIAs or consent to international arbitration, would have negative ramifications for insurers’ risk ratings (Poulsen, Reference Poulsen2010, pp. 18–19). It has also been argued that the proliferation of bilateral investment treaties and other IIAs in recent years have encouraged the growth of private PRI providers, with such treaties acting both as signalling devices, demonstrating the credibility of host state commitments to foreign investors, and as risk-sharing devices, transferring a portion, if not all, of the risk borne by the insurer to the host state, including via the process of subrogation (Bekker and Ogawa, Reference Bekker and Ogawa2013, pp. 338–339; DeLeonardo, Reference Deleonardo2005, pp. 758–759).

Investment treaties generally include provisions recognising subrogation clauses in investment guarantee contracts which allow the insurer (or home state) to assume the claims of the policyholder once the compensation has been paid out and enforce them against the host state (Konrad, Reference Konrad, Verheyen and Quintrell2013, pp. 31–32; Poulsen, Reference Poulsen2010, p. 15). Subrogation rights are mostly limited to home states or public insurers of the home state, but some treaties provide for subrogation of rights to any provider ‘who provides insurance under a “system established by law” which can be argued to include private insurers’Footnote ¹² (Konrad, Reference Konrad, Verheyen and Quintrell2013, p. 32). Guarantees issued by MIGA can also be subrogated to the agency in the event of compensation paid to the policyholder (Article 18(a) of the MIGA Convention). In the case of OPIC, the agency itself signs a separate investment incentive agreement with host states that provide for subrogation rights alongside other clauses, including provisions for international arbitration of disputesFootnote ¹³ (Perry, Reference Perry1996, p. 554; Salacuse, Reference Salacuse2013, pp. 260–261).

Subrogation clauses go to the heart of the aforementioned tension over the balance of risk in a foreign investment project, and can exert a powerful constraint over the exercise of governmental authority. Subrogation means that financial and other losses from a project not only shift from the insured to the insurer but that these losses are ultimately borne by the host state, even where such interventions by the host state may have been targeted at preventing or mitigating such losses in the first place. Aimed at reducing the moral hazard on the part of wrongdoer under conventional insurance law, when applied to political risk, subrogation clauses can disincentivise regulatory change or administrative intervention in an investment project by penalising such acts, even when they are carried out for public purpose. Political risk coverage with subrogation rights can conversely create moral hazards of its own, first, by making it easier for investors to exit financially unviable projects, and second, by compensating for the initial lack of due diligence and subsequent monitoring of prospective projects by the insurers (Wells, Reference Wells, Moran and West2005, p. 96). Accordingly, Kazimova has argued that PRI providers are increasingly being ‘shielded by subrogation rights’ (Kazimova, Reference Kazimova, Leader and Ong2011, pp. 260–261).

Several high-profile cases have illustrated the problems associated with PRI cover in the energy sector. In the late 1990s, Indonesia had to settle a number of claims paid out by public insurers, notably OPIC and MIGA, to energy companies, including MidAmerican (formerly CalEnergy) and Enron, resulting from the Indonesian government's suspension of geothermal power projects in the wake of the Asian financial crisis (MIGA, 2001; Schuman, Reference Schuman2001). The Indonesian government had argued that the power contracts, signed by the previous Suharto regime, were overpriced and that the government could no longer afford to purchase power from these suppliers after the crisis, while also challenging the suspect circumstances under which the initial contracts were signed outside an open tendering process (Schuman, Reference Schuman2001). Nonetheless, the government eventually agreed to pay OPIC US$260 million and MIGA US$15 million as reimbursement for the insurance claims paid out by these agencies to MidAmerican and EnronFootnote ¹⁴ (MIGA, 2001; Schuman, Reference Schuman2001). At the time, MIGA's General Counsel, Luis Dodero, stated that while the agency understood ‘the circumstances that led to the project's suspension, international law dictates that the cancellation be compensated’ (MIGA, 2001).

Meanwhile, in 2004, OPIC instituted international arbitration proceedings against the Indian government to recoup the US$110 million expropriation compensation paid out to General Electric and Bechtel, two of the three investors in the controversial Dabhol power plant project under the terms of its Investment Incentive Agreement with India (Salacuse, Reference Salacuse2013, p. 293; Hansen, O'Sullivan and Anderson, 2005, p. 3). This was the first time in its history that the US agency invoked its arbitration clause in its agreements, but the case was eventually settled out of court (Salacuse, Reference Salacuse2013, p. 293; Hansen et al., Reference Hansen, O'sullivan and Anderson2005, p. 3).

In all the aforementioned cases, allegations of corruption characterised the initial energy contracts between the investors and the host states, but these charges were never fully investigated either by the insurers or the arbitration tribunal (in the case of Dabhol) (Salacuse, Reference Salacuse2013, p. 293; Hansen et al., Reference Hansen, O'sullivan and Anderson2005, p. 3; Wells, Reference Wells, Moran and West2005, pp. 96–98). At the same time, PRI payouts to the investors enabled them to exit what had become financially and politically unfeasible projects, leaving the insurers to recoup losses from the host governments (Salacuse, Reference Salacuse2013, p. 293; Hansen et al., Reference Hansen, O'sullivan and Anderson2005, p. 3; Wells, Reference Wells, Moran and West2005, pp. 96–98).

Additionally, in all the cases above, the insurers drew considerably on their political and financial leverage over host states in obtaining a settlement of subrogated claims (Salacuse, Reference Salacuse2013, p. 293; Hansen et al., Reference Hansen, O'sullivan and Anderson2005, p. 3; Wells, Reference Wells, Moran and West2005, pp. 96–98). This leverage is pivotal to the efficacy of PRI as a risk mitigation tool, and correspondingly as a mechanism of governance over host states. For example, in explaining the Indonesian government's decision to reimburse OPIC in 2001, Rizal Ramli, Indonesia's Minister of Economic Affairs, cited the strategic importance of the US to Indonesia as a factor in its ‘difficult decision’ (Schuman, Reference Schuman2001). Reimbursing MIGA's claims also meant that Indonesia resumed its relationship with the agency that had suspended its business with the country during negotiations (MIGA, 2001).

Regardless of whether a claim is eventually made, paid out or subrogated, insurers, particularly public providers, play a significant role in shielding investors from potential losses arising from host state action. As previously discussed, major insurers, such as the OECD bilateral agencies and MIGA, have long relied on their geopolitical and economic power over host governments to advocate on behalf of their clients, creating what is known as the ‘halo effect’ of association with such agencies (Hamdani et al., Reference Hamdani, Liebers and Zanjani2005, p. 3; see Section 2.1). Private insurers also capitalise on political and government connections to mitigate clients’ losses. For example, Zurich claims to rely on its ‘long-standing relationships’ with ECAs and multilateral development banks and ‘ongoing dialogue with host country officials’ to assist clients in risk mitigation efforts (Zurich, 2011, p. 1).

The involvement of a powerful home state, such as the US, or multilateral agency, is often touted by public insurers as an important deterrent to host state disruption of investment projects. MIGA, for instance, uses the full force of its influence as an international organisation to access ‘officials at the highest levels of government’ in host states, and uses its ‘its status as a member of the World Bank Group’ (WBG) to ‘significantly strengthen MIGA's ability to resolve potential disputes’ and to deter ‘some government actions that otherwise could disrupt guaranteed investments’ (MIGA, 2013c, p. 1). The agency claims that such ‘proactive facilitation efforts’ have been central to the resolving ‘nearly 100 project-related disputes’ since its inception (p. 1). For the WBG, MIGA functions ‘not only as a political risk insurer’, and its role in the mediation of investment disputes stems from its ‘broad mandate to remove obstacles to FDI flows to developing member countries’ (IEG, 2013, p. 27). In this manner, the agency takes advantage of ‘its special relationship with governments’ and the ‘deterrence effect arising from its mandate’ which ‘is valued greatly by investors, who understand that host counties have more at stake than just individual projects – potentially the much larger and more important relationship with the WBG could be at risk’ (p. 27).

These practices of PRI providers can and do impact adversely on a host state's regulatory authority. Not only do they bring geopolitical and financial leverage to bear to influence investment trajectories in host countries, the lack of clarity and transparency over what constitutes a covered event for the purposes of compensation claims can also narrow the scope for government action in the economy. Crucially, the determination of what is classed as state interference in covered investments is not dependent on the reasons behind such intervention, and host states often find it difficult, if not impossible, to challenge the decision of insurers to compensate investorsFootnote ¹⁵ (Kazimova, Reference Kazimova, Leader and Ong2011, pp. 262–263; Wells, Reference Wells, Moran and West2005, p. 97). In particular, insurers are often secretive about the terms of their insurance contract with the investor and are reluctant to disclose the outcome of their claims determinations and arbitral awards arising from disputes with policyholders (Kazimova, Reference Kazimova, Leader and Ong2011, pp. 262–263; Wells, Reference Wells, Moran and West2005, p. 97). Wells, for example, notes that OPIC refused to provide the Indonesian government with copies of its insurance contract with MidAmerican when OPIC pursued subrogated claims against Indonesia over the suspended geothermal power projectFootnote ¹⁶ (Wells, Reference Wells, Moran and West2005, pp. 97 and 102, endnote 113).

The uncertainty generated by these closed-door practices of insurers further constrains host state action and domestic policy-making vis-à-vis foreign investors. This regulatory chill is not dissimilar to concerns expressed over the effects of the broader international framework of investment law and arbitration where the broad scope and increasingly expansive arbitral interpretations of investment treaty protections have been argued to limit the space for host states to intervene not only in individual projects but also in specific economic sectors or the economy itself as a whole.

Given the potential regulatory ramifications of PRI, concerns have recently been expressed over the impact of precedent-setting PRI cover for projects related to international climate change mitigation, including renewable energy, carbon trading and carbon offset projects. Ostensibly aimed at promoting private sector investment in mitigation efforts, these new products are designed to insure against ‘political and regulatory stability risk[s]’ associated with mitigation initiatives that may jeopardise the viability and/or profitability of such projects, including changes in legislation and public policy vis-à-vis subsidies for low-carbon initiatives (Surminski, Reference Surminski, Dupuy and Vinuales2013, pp. 245–250). Given the shifting nature of climate change and the impetus for retaining regulatory and policy authority in this arena, critics are concerned that the extension of PRI to novel mitigation projects, such as forest sequestration projects in Cambodia and Nicaragua, will perversely block regulatory reform where necessary, including those necessary for meeting international mitigation targets and ensuring the financial and environmental sustainability of the said projects.

For example, the first of its kind, the former project involves OPIC providing US$900,000 worth of PRI cover to US-based Terra Global Capital in a project aimed at sequestering 64,318 hectares of forest in the Oddar Meanchey Province of Cambodia to ‘generate a 30-year revenue flow that will be used for conserving [the forest] by selling forest carbon credits in an international carbon market under the still-evolving [Reduced Emissions from Deforestation and Forest Degradation] REDD scheme’ (Pacific Environment, FERN and Focus on the Global South, 2013, pp. 1–2). Campaigners fear that the scope of the PRI cover, in particular coverage against possible implementation of ‘nesting regulations’ – additional regulations that may have to be imposed by countries and provinces in compliance with the requirements of carbon markets – may ironically prevent access to future carbon markets by constraining Cambodia's adoption of regulatory measures necessary to ‘meet international climate change regulatory obligations and to access compliance markets’ (Pacific Environment et al., 2013, pp. 6–8; OPIC, 2012). In this case, not only does the financial viability of the REDD project ‘rests largely on carbon markets which are not reliable’, but the OPIC cover perversely disincentivises regulatory action by the host state to access such markets, thus creating a real risk of project failure for which local communities are not insured against (Pacific Environment et al., 2013, p. 10).

3.3 PRI and community safeguards

Political risk insurance can create fundamental asymmetries between the rights of foreign investors, the interests of community stakeholders, and the regulatory and administrative authority of the host state. What the discussion above has illustrated is that it is the host communities where the investment is located which ultimately bear the greatest risk in an investment project covered by political risk insurance. Located at the sharp end of infrastructure, energy or extractive industries projects typically insured by PRI, the interests of local communities are often marginalised, if not problematised, in PRI narratives and in its operations. As neither parties to nor beneficiaries of PRI contracts, local communities can end up bearing the social, economic and environmental dislocations of an investment project without either input into the design and implementation of the project or recourse to compensation if the project fails.

In response to criticisms of their operations over the years, most public insurers have now incorporated varying forms of environmental, social protection and corporate governance standards into their assessments of prospective projects, and instituted mechanisms for monitoring investor compliance with such standards in insured projects. Gordon's study of investment guarantees and PRI found that all but one of the fifteen OECD providers at the time of survey included in their assessment criteria ‘various combinations of environmental, local community impacts, labor rights and anti-bribery considerations’, with most referring to ‘major international instruments’ in these areas where they exist, including the OECD's Guidelines for Multinational Enterprises and the Recommendation on Common Approaches on Environment and Officially Supported Export Credits (Gordon, Reference Gordon2008,p. 100).

MIGA's Policy on Environmental and Social Sustainability requires that environmental and social due diligence is integrated into its overall project review, and the outcome of this environmental and social assessment ‘will determine the scope of the environmental and social conditions of MIGA guarantees’ (MIGA, 2013d, p. ii). Proposed projects assessed ‘to have moderate to high levels of environmental and/or social risk’, or ‘the potential for adverse environmental and/or social impacts’ are to be implemented in accordance with the agency's Performance Standards on Environmental and Social Sustainability, aimed at monitoring the environmental and social performance throughout the life-cycle of MIGA-supported projectsFootnote ¹⁷ (pp. i–ii). Where projects are deemed ‘likely to generate potential significant adverse impacts on communities’, MIGA expects its clients to engage in a consultative process – and obtain ‘free, prior and informed consent’ where indigenous peoples are impacted – as well as to ‘establish a grievance mechanism to receive and facilitate resolution of Affected Communities’ concerns and grievances about the client's environmental and social performance’ (2013d, pp. v–vii; 2013e, p. 9, paragraphs 35–41). Where gaps are identified and remedial measures proposed beyond the client's internal management practice, these are recorded as supplemental actions in an Environmental and Social Action Plan and made ‘necessary conditions of MIGA's guarantee’ (MIGA, 2013d, p. v). Additional assessments of governance risks and requirements for disclosure of information, including transparency in revenue payments and contractual agreements, are applied to projects in the extractive industries (pp. ix–x).

The World Bank's standards and procedures have been adopted by other agencies, most notably OPIC, whose environmental and social safeguards largely reflect MIGA's policies and practices. In fact, OPIC adopts the Performance Standards of MIGA's sister institution, the International Finance Corporation (IFC) (upon which the MIGA's standards are based), as the basis of its own environmental and social procedures (OPIC, 2010, p. 2). Like MIGA, OPIC screens and categorises prospective projects in accordance with their actual and projected environmental and social risks over the project's life-cycle, and conducts an environmental and social review to, inter alia, identify and mitigate risks and determine if the project can be implemented in accordance with the Performance Standards (pp. 3–5, 7–10). OPIC is further governed by statutory provisions of the US Foreign Assistance Act 1961 that require it to take into account the impact of projects on human rights, including recognition of ‘internationally recognized workers rights’ (pp. 3–5, 7–10). Based on the outcome of its review, OPIC ‘develops appropriate undertakings (covenants) of the Applicant which are included in the OPIC Agreement’ (p. 22).

Despite these pre-contractual screenings and undertakings, however, monitoring of contractual compliance across public insurers remains patchy. Gordon's aforementioned survey of public bilateral PRI providers and MIGA showed that only half of the agencies had a specific mechanism to monitor client compliance with contractual obligations, with only three insurers – Canada's Export Finance and Insurance Corporation, OPIC and MIGA – making provisions for on-site inspections of projects (Gordon, Reference Gordon2008, pp. 101, 121–122). Insurers rely heavily on self-reporting mechanisms, placing the onus on clients to furnish compliance with requisite contractual obligations, including with any environmental and social requirements (pp. 101, 121–122).

A limited number of insurers, mostly multilaterals and a few bilateral agencies,Footnote ¹⁸ have established a public complaints or ombudsman facility which allows affected communities to raise grievances against supported projects (Gordon, Reference Gordon2008, pp. 101, 121–122). These complaints facilities are usually in-house offices operating independently from the management and direction of the insurers’ main operational structure (pp. 101, 121–122). At the WBG, the CAO, created in 1999, operates as ‘the independent recourse and accountability mechanism’ of the IFC and MIGA that reports directly to the WBG President (CAO, 2014, p. 4). Part of its mandate includes providing ‘communities and individuals with access to a grievance mechanism that offers redress for negative environmental and/or social impacts associated with IFC/MIGA projects’ (p. 4). OPIC similarly established an Office of Accountability (OA) in 2005 to provide a comparable platform: for (i) ‘affected stakeholders and clients to address concerns and conflicts around the environmental or social effects’ of OPIC-supported projects; and (ii) to ‘evaluate and report on OPIC's compliance with its environmental, social, human rights, and labor rights policies’ (OPIC, 2014, p. 3, section 3.1).

The efficacy of insurers’ environmental and social impact assessments, monitoring and compliance mechanisms vary across the industry. The main limitation is that these safeguards exist mostly in the public sector. Private insurers do not generally consider these issues in their operations and often capitalise on this absence of bureaucracy as a competitive advantage over public providers.Footnote ¹⁹ In the public sector, where such mechanisms seek to subject corporate and host state processes to greater transparency in decision-making and openness towards public scrutiny of investment projects, this may be a positive step for domestic stakeholders. The requirements for consultations and public reviews of environmental and social impact assessments of prospective projects subject both investors and host states to greater scrutiny and surveillance than maybe would have occurred without the involvement of the public insurer. The involvement of a multilateral or major bilateral agency may work towards the advantage of affected communities by leveraging compliance with standards of corporate social responsibility and administrative due process that may not have been either taken into account or implemented otherwise (see Webb, Reference Webb2012, pp. 398–401).

However, studies so far have revealed serious shortcomings in current processes where they do exist, particularly in relation to monitoring and compliance. It has been argued that insurers in general have difficulty with monitoring project compliance with the environmental and social obligations of their clients because of their ‘arms-length relationship with the project company’ (IEG, 2013, p. xi). Being ‘further removed from project implementation than a financier or equity investor’, MIGA and other insurers therefore ‘cannot be expected to have the capacity to influence project design’ (IEG, 2009, p. 28). The WBG's Independent Evaluation Group's (IEG) evaluation of the IFC and MIGA's monitoring and evaluation systems found that the ‘commercially and contractually’ ‘detached relationship’ insurers have with their clients mean that project owners ‘have limited obligations to provide information directly to MIGA [or other insurer] unless specified in the contract of guarantee’ (IEG, 2013, p. 48).

Nonetheless, in relation to MIGA itself, the IEG reports that even ‘where the guarantee contract specifies submission of project updates on [environmental and social impacts], follow-up by MIGA has been weak’ (IEG, 2013, p. 48). Self-monitoring systems also lead to a heavy reliance by MIGA and other insurers on information supplied by project sponsors without independent verification, leading to questions over adequate compliance. Despite the institution of a new monitoring strategy and compliance framework in 2011, the IEG has found MIGA's monitoring of environmental and social impacts weak, with MIGA failing to ‘comprehensively track the environmental and social effects of all its projects’ (p. 49). An IEG report on MIGA's performance in 2013 found that only ‘38 percent of evaluated MIGA projects were rated satisfactory or higher for the quality of their underwriting, assessment, and monitoring’, including of environmental and social aspects (p. 37).

A significant impediment to the efficacy of community safeguards is the conflict between the core business of public insurers and their expected conformity with environmental and social standards of behaviour. This has been compounded by the increase concentration of insurers on the market. Not only are public insurers facing competition from private providers – who are not only able to offer more bespoke financial products and insure larger amounts but also to do so with quicker processing times and less bureaucracy (IEG, 2009, pp. 33–34) – but also from new state-based PRI providers, notably from emerging economies (see Section 2.1), which may not necessarily subscribe to the due diligence standards that are set by OECD providers and multilaterals. MIGA staff, for instance, have ‘expressed concern about the loss of market share to the private sector’ and that aligning its policies and practices ‘more closely’ with the WBG's environmental, social and developmental requirements ‘increases transaction costs … and undermines MIGA's competitiveness’ (pp. 33–34).

For affected communities, the tension between the corporate and, for public insurers, the foreign and economic policy objectives of political risk insurers mean that environmental and social protection standards have remained ancillary to the insurers’ delivery of its core business. For most insurers, environmental and social issues remain secondary considerations in their due diligence process. Current MIGA Operational Regulations, for example, stipulate that the agency's underwriters must be satisfied that the project is ‘consistent’ with MIGA's Performance Standards (MIGA, 2012b, section 3.06), but these due diligence requirements are separate from the agency's core risk assessment of the project which determines whether the agency will underwrite the project and, if it will do so, the premiums paid on the insurance (MIGA, 2012b, sections 3.11–3.18; see also CAO, 2005, pp. 7–8).

At the same time, the efficacy of independent accountability mechanisms, where they do exist, are often weakened by their limited terms of reference. These mechanisms act generally as ‘problem-solving’ platforms rather than performing formal administrative or judicial review functions. Most facilities, such as the CAO and OPIC's OA, have compliance jurisdiction only insofar as there have been violations of the internal operating rules and procedures, such as MIGA's Performance Standards, by their respective agencies (CAO, 2014, pp. 4–5; OPIC, 2014, p. 9). Unless otherwise specified, these facilities do not have the powers to consider general violations of international law, such as human rights or environmental law, which may be more protective of communities than internal policies, and their remit is generally limited to reviewing the operations of the insurer and not to examining the activities of the project sponsor or investor.

The limitations of CAO, for example, were clear from the outcome of its investigation into the IFC- and MIGA-supported paper pulp mills projects in Uruguay in 2006, which focused almost exclusively on compliance with internal safeguard mechanisms rather than on violations of international law, including environmental law, as alleged by the complainant, the Centre for Human Rights and Environment (Lee, Reference Lee2008, pp. 356–357). Consequently, despite significant environmental concerns – including transboundary water, air and ground pollution that led to a case at the International Court of Justice (ICJ)Footnote ²⁰ – the ‘end result of this formal complaint was mere procedural compliance with the disclosure schedules established by the IFC Safeguards’, an outcome which demonstrated that, while these grievance mechanisms offer communities and NGOs ‘access to a formal adjudicatory venue’, their findings may not ultimately prevent problematic projects from proceeding (pp. 356–357).

Further, as previously discussed, PRI policies and practices, including access criteria, subrogation clauses and mediation services, can effectively prevent host states from taking action where such intervention may be necessary for social, environmental or security reasons, or otherwise assuming the risk of financial liability for such action if these acts constitute one of the political events insured by the foreign investor. This can result in the removal of vital domestic preventative and compensatory safeguards for communities affected by investment projects, but these issues are rarely reviewed by the aforementioned ombudsman facilities.

Consequently, despite these extensive due diligence and accountability mechanisms, communities affected by PRI-supported investment projects in the natural resources sector remain mostly marginalised from the decision-making processes that have significant impact on their livelihoods and well-being, and have limited recourse to compensation in the event of project failure and/or environmental or social damage. This marginalisation of affected communities reflects the dominant narratives of risk underlying the operations of the PRI industry that privilege the financial and proprietary security of the investors over other stakeholder interests (see Section 3.1). In the insurantial discourse that is both embedded in and directive of PRI operational policies and practices, third -party interests are secondary to the material and financial risks borne by project sponsors and investors. Where they are taken into account – in the due diligence and monitoring processes – they are incorporated not because they are perceived as valid issues of concern in their own right (for example, human rights violations or environmental damage), but rather as ‘instrumental to project performance’ (Leader, Reference Leader, Leader and Ong2011, p. 109). In other words, the risk to community interests is viewed ‘as a problem because of the way in which it can have an impact on the [latter] set of interests’ (p. 109), such as the possibility of disruption and community conflict that can derail project operations or lead to regulatory interventions that impact on project viability or profitability.