The demand for change: reflections on two years of investigating the transparency of development finance institutions
At the start of November 2021, Publish What You Fund’s DFI Transparency Initiative marked a new phase in our project with the launch of our DFI Transparency Tool and our report Advancing DFI Transparency. The tool and accompanying report are the result of two years of research across five work streams that have sought to understand the opportunities and barriers to increasing the transparency of development finance institution (DFI) operations, resulting in a product that provides granular guidance on the types of information that are needed by a range of stakeholders.
Over the next couple of months, we will be releasing a series of blogs that profile each of the components of the DFI Transparency Tool, digging into issues around some key indicators and highlighting examples of both innovative practice and areas where transparency improvements are most urgently required. We’re starting the series with a blog that discusses our experience of researching DFI transparency for the last two years, looking both at how the industry has changed for the better in recent years and the amount of work that still needs to be done.
DFIs are changing for the better, and transparency is part of that process
During the course of our research we conducted dozens of interviews with DFI employees who provided invaluable insight into their organisations’ operations. One of the most strikingly consistent aspects of these discussions was the broad consensus around the need for DFIs to be more impactful, more efficient, and more sustainable. Moreover, it was consistently recognised that to achieve these goals DFIs must be more transparent in their operations. The good news is that there is a wealth of evidence that DFIs are generally moving in the right direction both in terms of their activities and of their transparency. Across each of our work streams we encountered new developments that have the potential to contribute to these trends.
Numerous initiatives hold the promise of improving the outcomes of DFI investments. The creation of new tools to predict the development impact of investments including the Joint Impact Model, IFC’s Anticipated Impact Measurement and Monitoring (AIMM), and DFC’s Impact Quotient (IQ) mark a step forward in ex-ante impact analysis, while also promising improvements in the monitoring and evaluation of projects. Developments such as these hold the potential to increase the amount and improve the quality of data held by DFIs, which could have significant implications for improving transparency. There have also been notable improvements in terms of transparency such as the recent decision of IDB Invest to begin publishing to the International Aid Transparency Initiative (IATI) Standard, and IFC’s publication of levels of concessionality in their blended finance operations.
Progress is uneven
However, despite improvements such as those noted above, there remains huge room for improvement within the sector. Too often we identified instances where disclosure was insufficient, either by individual DFIs or a broader, sectoral lack of disclosure with respect to certain types of information. The fact that there remain major multilateral DFIs that disclose little more than the name, date, and value of their investments, that the early disclosure of high risk projects by bilateral DFIs remains the exception rather than the rule, and that so little progress has been made in improving the transparency of the on-lending activities of DFIs’ financial intermediary investments, highlights the need for meaningful change.
Demands for increased transparency are widespread
Finally, we spoke to a diverse range of stakeholders who emphasised the need for improved transparency. Representatives of project-affected communities emphasised the need for DFIs to effectively communicate the environmental and social risks of their investments and to be transparent about avenues for recourse where harm has been done. Private sector interviewees noted that, as the preeminent impact investors in emerging economies, DFIs have the opportunity to mobilise resources for the sustainable development goals through transparency of the financial structuring of their deals and the impacts they achieve. Meanwhile, DFI shareholders and tax payers in donor countries need evidence that the investments they are funding represent good value for money in a context of increasingly constrained public development resources.
It is in this context that we have launched the DFI Transparency Tool. Our research has shown that disclosure of information in line with the tool is ambitious but achievable. Furthermore, stakeholders have identified the information defined by the tool as important, highlighting the need for DFIs to act now to improve their disclosure. The tool has received the support of a number of stakeholders including the EBRD and US DFC at the launch event. To further encourage change within the sector we will be using the DFI Transparency Tool as the framework through which we will analyse the transparency of leading DFIs during 2022. Over the next few months we will be consulting on a methodology for this analysis with a view to publishing an initial assessment and ranking in a year’s time.
What is core information and why is it fundamental to the transparency of development finance institutions?
The illusory promise (and real potential) of new DFI impact management tools
If DFIs are truly committed to openness and accountability they should publish all environmental and social documentation
Transparency of financial information: The key to increasing development flows
Why do DFIs invest in financial intermediaries and why do we need to know more?