Starting next week, the Finance in Common Summit is reportedly the first time that the world’s 450 public development banks will gather in support of common action for climate and the UN Sustainable Development Goals. As we approach the halfway point of the DFI Transparency Initiative, we reflect on what we’ve learned and discuss the implications for communities, markets and the private sector as public development banks continue to grow.
The broad reach of public development banks
At the most simple level, public development banks use public money to make investments that will have a positive outcome for the public. These can range from huge energy projects such as hydropower dams that bring energy to hundreds of thousands of people, down to small investments to provide SMEs with the capital and cash flow they need to grow. According to the Summit’s own website these entities invest around US$2.3 trillion dollars per year, representing 10% of annual investment around the world. Their ability to provide concessional finance, or to offer solutions that the private finance market simply can’t, provides access and opportunity for hundreds of governments and thousands of private firms looking for support.
The list of groups with a stake in these public development banks is long. The most important must surely be those citizens to whom a projects benefit is intended to serve, the communities which will be connected to the off-grid solar plant, or the farmers who can use the new road to get their produce to market. If the investment doesn’t work out, or if there are issues along the way, these individuals will suffer. The same is true for recipient governments where cross border investments are made – including multilateral and bilateral development banks such as the World Bank, African and Asian Development Banks, the US DFC and UK’s CDC. The private finance sector both globally and locally have a stake – if they are trying to build their own offering, support businesses, and build markets, then the activities of these large development banks can either provide helpful support or unhelpful competition.
The development banks themselves have their own stakeholders, both official and unofficial. Official shareholders include the Board directors and shareholders with a legal mandate to govern and steer the development banks. Unofficial shareholders include those who make decisions about increasing the amount of public resources that are allocated to these banks and can include Ministers, Members of Congress, and other parliamentarians. Arguably the tax payers whose money is used to fund these institutions have a desire to know their funds are being invested wisely, equitably, and are in support of the goals the recipient governments and communities have set for themselves.
Accountable to who?
Given such a broad range of interests there is an inevitable demand for information about the activities of these public development banks. Over the past 18 months Publish What You Fund has been undertaking research on the levels of transparency of 21 of the largest multilateral and bilateral development banks (commonly known as Development Finance Institutions, or DFIs). Our aim has been to explore the current practice and identify potential for improvement. With guidance from a multi-stakeholder project advisory board, we started by identifying five priority work streams that form the basis for the project’s work:
- Basic Project Information
- Objectives, Theories of Change and Impacts
- Environmental, Social and Governance (ESG) and Accountability to Communities
- Value of Investment: Mobilisation and Structure of Deal
- Financial Intermediaries, Offshore Financial Centres and Beneficial Ownership
At the time of writing we’ve completed and published the research for work streams 1 and 2, and will soon launch the research for work stream 3. In mid-2021, once all of the research is complete, we will produce a set of transparency recommendations and will work with individual development banks to implement them.
What are we learning about the transparency of these DFIs?
The granular research outputs from the DFI Transparency Initiative are online so please take a look if you want to get into the detail. For now let me share some of our general observations. Work stream 1 identified the extent to which there is very little standardisation of the reporting of basic project information by the major DFIs. The disclosure of basic project information by DFIs is piecemeal and non-standardised. For example, there is inconsistent disclosure of fundamental fields such as the project rationale, the funding instrument, and the ESG category.
Our work stream 2 research illustrated the near universal fact that DFIs don’t publish activity level impact data. While this raises questions about how stakeholders can determine the value for money and efficiency of investments, it also poses a challenge for development banks looking to learn from one another’s efforts. This research also identified challenges around how DFIs measure and disclose aggregated data, and raised concerns around how impact is apportioned to the scale of the investment made. In their defence DFIs stated that commercial confidentiality constraints inhibit their ability to disclose certain impact data. However, in interviews with representatives from CDC, PIDG and GIF it became apparent that there are ways to overcome these commercial confidentiality challenges. Finally work stream 3 has identified the gaps between policy positions and actual practises regarding project disclosure to communities. We’re looking forward to sharing this work in the coming weeks.
Promises without proof
The agenda for next week is heavily weighted towards development bank officials and high profile speakers. Representatives from the private sector, project affected communities and CSOs are few and far between. Next week, when the public development banks meet, we will no doubt see public statements about their intentions to contribute to the attainment of the SDGs and make efforts to combat climate change. However these statements need to be backed up by evidence of the investments that are being made, the impact these are making, and the efforts being taken to consult with and be accountable to affected communities. DFIs must adhere to the highest standards of transparency, provide public access to data, and engage in meaningful public consultation where their policy and decision-making processes are concerned. They must develop and improve transparency, monitoring, oversight, and grievance and accountability mechanisms to actively prevent investments from undermining human rights.
Public development banks don’t exist for their own sake, they exist for the planet and the people. Their levels of transparency should reflect this fact.