The European Investment Bank in 2016: what lies ahead?

Added 11 Feb 2016
by Maria Jose Romero and Xavier Sol (Counter Balance)

The European Investment Bank (EIB) has become one of the giants of the financing landscape – its lending was 77.5bn EUR in 2015 – and yet it remains highly unaccountable and opaque. Civil society organisations (CSOs) had the rare opportunity of bringing the Board of the EIB – these being EU Members State representatives – to task, raising three key tests that the EIB should pass if it is really serious about improvement, particularly when acting outside Europe. This happened on 1 February during the Civil Society Seminar with the Bank’s Board of Directors in Luxembourg. Unfortunately, despite our clear asks, we didn’t get any new commitments from the Board that day.

Although the vast majority of the EIB’s operations take place within the EU, currently more than 7bn EUR (not an insignificant amount) is disbursed in regions all over the world, with an emphasis on the EU’s neighbouring countries. Outside the EU, the EIB operates under various mandates that are approved by the European Parliament and the Council of the European Union, which are based on EU external cooperation and development policies. Specifically, the new mandate of the EIB for the period 2014 - 2020 asks for an increased emphasis on EU development and human rights objectives, in line with EU treaties, and more stringent transparency and evaluation requirements for the EIB. However, the Bank claims not to be a development bank but rather to contribute “indirectly” to reaching the Sustainable Development Goals.

As CSOs we have called on the EIB for major changes to its institutional culture and practice to allow for bridging the gap between binding EU legislation and the reality of the EIB’s operations on the ground. But we have not seen much of it delivered so far. 

In our view, the EIB faces three main challenges in 2016:
1) Improving accountability towards citizens by addressing the failures of its complaints mechanism. This year improving the efficiency and independence of the EIB Complaints Mechanism will be key as the bank will launch a public consultation to review it. The Mechanism is a tool of horizontal accountability for the EIB vis-à-vis its stakeholders (especially citizens and communities affected by EIB-supported projects, whether from the EU or not, for example via resettlements) in terms of handling complaints about its activities.

Research by Eurodad and Counter Balance has shown that despite its efforts, the office of the complaints mechanism seems unable to achieve its mission independently, efficiently and in a meaningful way for those impacted by EIB operations. For instance, there is no system of formal relations between the EIB Board of Directors and the mechanism, and the mechanism remains under pressure from EIB management. In recent cases – including the Mopani project in Zambia and a case of public procurement in Bosnia – EIB management openly ignored the recommendations of the complaints mechanism. This highlights how remote the complaints mechanism remains from decision-makers within the bank.

We are concerned that the Board of Directors is generally unaware about the cases that are dealt with by the complaints mechanism even though the Board approves all bank operations. Hence we strongly encourage the EIB Board of Directors to actively take part in this review, which we hope leads to genuine and necessary improvements.

2) Favouring quality of investments over quantity by:
a. Deepening the efforts made so far in terms of monitoring and reporting development results. The new Results Measurement Framework (ReM) developed for the impact financing envelope in African, Caribbean and Pacific countries – the so-called REM+ which is still in its pilot phase – shows that it is feasible and desirable to aim for better knowledge of who the direct and indirect beneficiaries of EIB projects are and how they are impacted by EIB investments. Reaching and reporting positive development results, especially regarding poverty reduction, should be a basic requirement for all projects financed by the bank. 

b. Reviewing lending through the financial sector, i.e. mainly commercial banks and private equity funds. Intermediated lending represents many challenges for the EIB, particularly in terms of transparency (there is a shocking lack of information on who the final beneficiaries of EIB funds are); outsourcing of due diligence responsibilities; social and environmental impacts of the final project being financed through the financial sector; and the nature of the financial sector entities the EIB work with. Counter Balance’s past research illustrated these flaws in the EIB’s approach to intermediated lending. But since the publication of this report in 2010, the bank has not taken any serious steps to address these issues.

c. Adopting a stronger and more responsible anti-tax avoidance policy. Tax justice stands high on the political agenda in Europe and it is now time for the EIB, as the EU Bank, to clean up its act. The European Commission’s anti tax avoidance package published in late January 2016 explicitly called on the EIB to stop its operations through non-cooperative jurisdictions. Therefore, the EIB’s Board of Directors should take bold steps in this regard. A revised policy should be based on practices such as public country by country reporting for client companies and the identification of the beneficial ownership of clients.

3) Enhancing transparency in EIB operations and decision-making. Usually, the meetings of the EIB’s Board of Directors are kept secret as its minutes are not disclosed to the public. This practice contrasts sharply with the European Central Bank and other multilateral institutions, such as the World Bank’s International Finance Corporation, since these institutions publish the minutes of their board meetings. In order to advance towards greater transparency (which should of course be based on the principle of recognising the right to information for affected citizens) of the decision-making bodies of the bank, a crucial step will be a clear commitment to making disclosure of minutes of board meetings a standard practice, not something that results from a long process of request, and to publish such information on its website. This way, every citizen will have the chance to understand how decisions about projects impacting territories and people are made. Overall, a more pro-active stance on disclosure of information is needed at the EIB.

On these points, CSOs are ready to engage in a genuine dialogue and contribute to policy design. But this willingness to engage also needs to be matched by a more pro-active and progressive attitude from the EIB. If the EIB is serious about fulfilling its development mandate, it should take on these challenges in an ambitious manner.