Clearing the fog? Transparency and accountability at Development Finance Institutions

Added 01 Oct 2015
Those of you who followed the Financing for Development (FfD) conference in Addis Ababa this July will have noticed that the Addis Ababa Action Agenda embraced private finance as a central tool to finance the recently endorsed post-2015 Sustainable Development Goals. You will also have noticed, however, that the FfD outcome failed to address some outstanding problems, such as the lack of transparency and accountability surrounding investments made by the key drivers of this agenda: Development Finance Institutions (DFIs).

Eurodad has questioned whether DFIs are the right institutions to hold such a dominant position in development finance. In recent months we have looked at their monitoring and evaluation mechanisms, ongoing support to companies using tax havens, involvement in public-private partnership (PPP) projects and their true cost to the public sector. Over the past few months, we specifically examined their levels of transparency and accountability - an exercise which resulted in a briefing focusing on two of the largest multilateral DFIs: the EU’s European Investment Bank (EIB) and the World Bank Group’s International Finance Corporation (IFC).

Why transparency and accountability?
First of all, the right to access information held by public authorities is a fundamental right recognised by a large group of judicial bodies, including the European Court of Human Rights and the UN Human Rights Committee. As public institutions with a development mandate, DFIs should give full effect to these rights. Secondly, transparency allows a variety of actors, including governments, parliaments and civil society organisations in both donor and partner countries to hold DFIs to account. 

To that end, we decided to examine both the EIB and IFC against five criteria put forward in the Transparency Charter for International Finance Institutions (IFIs) which was developed by the Global Transparency Initiative. These five criteria have proven to be particularly useful for our research: access to information, automatic disclosure, limited exceptions, right to request information and access to decision-making. 

What have we learned?
The overall lesson we can draw from this exercise is that, while both the EIB and IFC have undertaken notable efforts to step up transparency and accountability, they generally fall short when assessed against our criteria. To pick out a few observations: 

  • Access to information: Both DFIs fail to give full effect to citizens’ right of access to information. They do not include transparency clauses in their contracts with clients which would require the latter to share important information with the general public. This is particularly important for intermediary investments, whose lack of transparency has in some cases led to severe human rights violations.
  • Automatic disclosure: The IFC discloses more information automatically and consistently than the EIB, although some documents remain subject to client confidentiality. Both DFIs fail to indicate in a public register all the documents they have at their disposal.
  • Limited exceptions: Both DFIs’ transparency policies contain a wide range of exceptions that are grounded in confidentiality or commercial interest arguments that are often not clearly defined. 
  • Right to request information: It remains unclear if DFIs undertake pro-active outreach efforts to raise awareness at local level about the right to request information or which documents they have at their disposal. This makes it difficult for citizens to know which specific data they can request.
  • Access to decision-making: Decisions at the EIB and IFC are mostly made behind closed doors with limited information reaching the public. It thus remains difficult for citizens to be aware of the different country positions within the Board.

More food for thought
When taking a deeper look into some of the other mechanisms which can scrutinise DFIs - such as stakeholder engagement and complaints mechanisms - we bumped into significant problems: 

  • Both the IFC’s Compliance Advisor Ombudsman (CAO) and the EIB Complaints Mechanism (EIB-CM) face difficulties in making themselves accessible for local stakeholders or dealing with the increasing number of complaints. Furthermore, findings and recommendations by these complaints mechanisms are non-binding and can thus be neglected by the DFIs. 
  • In the case of the EIB, stakeholder engagement should be carried out by the private sector company and verified by the Bank as part of its due diligence requirements. However, it remains unclear how strictly the Bank conducts its due diligence. Also in the case of the IFC, the implementation of the stakeholder engagement handbook is questionable as evidenced by several complaints at the CAO.
These findings are concerning in light of the implementation of the FfD outcome and should be addressed as soon as possible. Indeed, as standard setters among DFIs, the EIB and IFC should take the lead and abide by the highest transparency and accountability standards. One of the first upcoming opportunities to remind powerful global bodies of this are the World Bank and International Monetary Fund (IMF) Annual Meetings taking place 9 - 11 October in Lima, Peru. In partnership with Counter Balance and other CSOs, we are also planning to play an active role in the EIB’s consultations on the revision of its complaints mechanism, scheduled for the end of the year. 

In the meantime, enjoy the full briefing