The DFI Transparency Index is built on three years of research and collaboration. In November 2019, we launched the DFI Transparency Initiative, aimed at increasing the transparency of development finance institutions (DFIs). We engaged with relevant stakeholders, including DFIs, NGOs, civil society, the private sector, think tanks and governments. We examined the current levels of transparency among the world’s leading DFIs and advocated for specific and achievable improvements.
The DFI Transparency Initiative was designed to better understand the opportunities and barriers to increasing the transparency of DFIs. Greater transparency can lay the foundation for more informed decision making, more accountability and better allocation of resources, including information to assess the development impact of and learnings from DFI investments.
With guidance from a multi-stakeholder project advisory board, we identified five priority issues that formed the basis for the project’s work. For each priority area we:
- Produced a landscape analysis of disclosure, based on a systematic review of published data of approximately twenty bilateral and multilateral DFIs.
- Conducted in-depth research, informed by a multi-stakeholder expert working group. We sought areas of consensus and disagreement, identified good and innovative practices, and looked for alternatives to full transparency where necessary.
- Produced a working paper that presented the findings, arguments for increased transparency, and recommendations.
- Delivered a webinar to present our findings and gather feedback from stakeholders.
The five priority areas were:
- Basic project information
- Impact management
- ESG and accountability to communities
- Value of investment, mobilisation and structure of deal
- Financial intermediaries
These formed the basis of our five work streams. More details of these are provided below.
Advancing DFI Transparency
Based on this research and consultation, we developed transparency recommendations for DFIs that are both ambitious and actionable, and which would allow DFIs to share more information, including the development impact of their investments.
In November 2021, we published the key findings and recommendations from the five work streams, in the Advancing DFI Transparency report. We concluded that the current state of DFI transparency makes it difficult to see what DFIs are doing, what impact their investments are making, whether they are adhering to their accountability and environmental, social and governance (ESG) responsibilities, and to what extent they are successfully crowding in the private sector.
DFI Transparency Tool
Based on our research and consultations, we also developed the DFI Transparency Tool, a granular tool that will both help to guide DFI disclosure and provide a framework of analysis for future assessments of the sector. We used the DFI Transparency Tool to guide the assessment of 30 leading institutions to produce the 2023 DFI Transparency Index.
The five work streams
The five priority areas which formed the key work streams of the DFI Transparency Initiative are described below:
1: Basic Project Information
Basic project information incorporates all of the fundamental information about an investment or project by a DFI. This may include project-level information such as project titles, descriptions, planned and actual project dates, type of finance, commitments, disbursement, other partners, objectives and project design, location data, and sector identification. This information represents the fundamental building blocks from which other forms of transparency, including those addressed in later work streams, are built.
2: Impact Management – Objectives, Theories of Change & Impacts
Achieving developmental impact is a central mandate of DFIs, setting them apart from commercial institutions. The developmental contribution of DFIs is seen as a critical component in achieving the sustainable development goals (SDGs). Our research sought to understand the ways in which DFIs predict, measure, and record impact.
3: ESG & Accountability to Communities
Given their nature and context, some DFI investments or projects will inevitably involve the risk of adverse environmental or social outcomes. It is important that DFIs have robust systems in place that can manage and mitigate these risks before, during, and after an investment. This work stream focused on two key themes. Firstly, we analysed the ways in which DFIs measure and manage environmental, social, and governance (ESG) outcomes and which standards are being reported to. Secondly, we assessed the transparency of accountability mechanisms including the occurrence and reporting of community consultations, the accessibility of independent accountability mechanisms (IAMs) and the availability of information regarding ongoing or settled disputes.
4: Value of Investment: Mobilisation & Structure of Deal
Achieving the SDGs requires a significant increase in the levels of capital flowing to emerging and developing economies. Given the scale of the financing gap (estimates are from 1 trillion to 2.5 trillion dollars annually), private sector investment has been posited as an important element in making progress towards the SDGs. DFIs thus represent an important component in scaling up the level of investment in emerging and developing economies principally through the mobilisation of private finance.
It is important that DFIs clearly communicate the ways in which they do this. Timely, systematic, and standardised disclosure of financial information would allow DFIs to have a powerful demonstration effect in the markets they work in.
5: Financial Intermediaries
A significant proportion of DFI financing is channelled through financial intermediaries (FIs) such as national and commercial banks in emerging and developing economies, microfinance institutions, and private equity funds. These types of institutions allow DFIs to significantly broaden their scope and reach more clients by effectively disaggregating finance to a scale suitable for smaller stakeholders such as SMEs. However, the introduction of an additional step in the financial value chain has implications for transparency; the extent and detail of sub-project disclosure is almost always less than that with direct investments. A lack of transparency means that it is unclear where a great deal of this development finance ends up, the development impacts that it has, and the environment and social risks that it holds for project affected communities.
A full list of the research outputs of the DFI Transparency Initiative is available here.