By Fran Witt and Fidanka Bacheva-McGrath
Publish What You Fund’s DFI Transparency Initiative is finalising its latest working paper on environmental, social and governance (ESG) and accountability to communities. Ahead of its publication, Fran Witt (Economic Justice and Climate Change Consultant) and Fidanka Bacheva-McGrath (EBRD Policy Officer, Bankwatch) provide a CSO perspective on the transparency and accountability challenges for public development banks (PDBs). They argue that PDBs have much work to do in order to meet their commitments to the rights of project-affected communities.
In November 2020 the first Finance in Common Summit took place, and a joint declaration was published by all the public development banks in the world. The preamble of the joint declaration reads as a significant commitment to transparency and inclusive, sustainable development:
“We, PDBs, [also] commit to act as responsible and transparent institutions, and to develop international cooperation, sharing best practices to improve the sustainability, transparency and quality of our financing” and “Particular attention will be paid to community-led development and the respect of the rights of indigenous people”.
Taken at face value it looks like public development banks have turned a corner, but to what extent are these lending institutions really interested in devolving power to project-affected communities, and to respecting their right to access information so they are able to give informed consent for development projects that will affect their lives?
This blog unpacks the reality against the rhetoric of the PDBs and outlines some areas where we think transparency and the right to information need urgent attention.
Transparency and disclosure or the right to information
Transparency and the right to information are distinct concepts, though not mutually exclusive.
Transparency and disclosure are top-down approaches, where power-holders (in this case the PDBs) may bestow transparent open systems on ordinary people and the intended recipients of development projects. The issue is therefore around “power” – who are the power-holders and who are the power-givers?
Access to information, on the other hand, is clearly articulated in Article 19 of the Universal Declaration of Human Rights and the International Covenant on Civil and Political Rights. It’s not an optional “nice-to-have” for development bank project lenders and their clients. Rather, it is an essential tool that bestows a duty on the PDB and empowers ordinary people to demand accountability from governments and publicly funded PDBs. The right to information provides essential facts that benefit communities and makes it more difficult to hide abuses of power and other illegal activities, as citizens can access key facts and data from power holders.
Transparent processes and stakeholder engagement also benefit PDB plans and assessments as impacted communities often possess information and experiences that can inform the better design of PDB projects. For this, timing is crucial – people need to know about the planned developments before the heavy machinery is at their door.
“Transparency needs to be a two-way process which allows communities to co-create their development pathways, rather than have projects imposed on them without adequate information.”
Fran Witt and Fidanka Bacheva-McGrath
People centred vs client oriented
For project-affected communities, right to access to information is about ensuring that communities have the information, power and resources to determine their own development paths and priorities and can hold PDBs accountable.
In reality, project-affected communities and CSOs often have very limited access to project information, which is in violation of their right of access to information. For example the 2020 IFC/MIGA Compliance Ombudsman Office Review Report asks that the IFC and the CAO clarify circumstances around client confidentiality. It also means that disclosure and safeguard standards are weak, thereby sparing the company from accountability to communities.
PDBs not only have to inform the public of their own activities, but they also should be transparent about the companies, projects, and governments in which they invest. This is where the issue of client confidentiality becomes a sticking point for information disclosure by PDBs, because of concerns that public information could give a competitor an advantage. PDBs need to assess whether to publish information by taking into account the broader benefits of transparency to public trust and markets, and not just commercial harm caused to the contractor.
A new trend is PDB corporate level lending to energy utilities, extractive and agribusiness companies. In such projects, the investment is not directed at specific physical assets, such as mines or meat production facilities, but at debt restructuring or bond issuance. There is a loophole in PDB safeguards and transparency policies, so it is considered that communities who are affected by the client’s operation have no say and can be denied their right to information. This is highlighted in the Compliance Review Report on the EPS Restructuring project and CEE Bankwatch Network blog post.
PDBs also need to create an “enabling environment”, where staff are adequately trained and resourced to carry out inclusive public consultations, ESG assessments, and monitoring and evaluation (and not outsource this work to consultants, private companies or clients), and ensure there are obligations for client compliance.
The weak governance and low capacity of clients, especially public sector borrowers, is also a barrier to transparency when PDBs delegate the responsibility for disclosure on supposedly “low risk” projects. For example, urban modernisation projects with city authorities or public services companies can significantly impact access to shelter and water, but they are considered “low risk”. (A recent CEE Bankwatch Network study focuses on some of the issues this has caused for EBRD and EIB investments in the Western Balkans and Eastern Neighbourhood.) Thus assessments of affordability of public services, or of gender based violence and harassment risks, would not be disclosed to affected people and vulnerable groups. Capacity building for clients and shared responsibility for disclosure are the way forward, in addition to redefining the risk categorisation of PDB projects.
Clients and Financial Intermediaries (FI) should be required to commit to the same publicly available ESG standards of PDBs or national governments (whichever is the stronger). Currently scrutiny of what PDB funds achieve in terms of ESG standards largely ends once funds are provided to an FI and PDBs do not ask for an assessment of development outcomes achieved by a given sub-project. If the right to information is to be respected, then all initial contracts with clients need to be reformed so that they include ESG obligations, and legal right to remedies, as well as stipulating greater disclosure of gender impacts.
The emphasis of transparency in PDB terms is towards the banks and investors and much less towards the right to access to information of communities, and this needs to be redressed. PDBs should therefore reflect on transparency for who and to what end. Transparency needs to be a two-way process which allows communities to co-create their development pathways, rather than have projects imposed on them without adequate information.