Post Financing for Development, Multilateral Development Banks Must Change Course
This month’s Fourth International Conference on Financing for Development (FFD4) in Sevilla, Spain came at a critical juncture for international development. There is an estimated $4 trillion shortfall in funding for development at the same time that Global North countries are pulling back on official development assistance, despite the deadline for the completion of the 2030 Sustainable Development Goals fast approaching. Last held in 2015, FFD is an opportunity for governments to set out a roadmap for increasing financing to address crucial development needs.
By many measures, the FFD4 outcomes document – the Compromiso de Sevilla or Sevilla Agreement – fell short of civil society expectations on important topics, including reducing countries’ debt burdens, gender justice, and global inequality. To help address the financing shortfall, the Compromiso de Sevilla proposes an increased role for multilateral development banks (MDBs), with a call to triple their lending capacity. If we really want sustainable development, any efforts to increase MDB activities should be met with an increased commitment to accountability and remedy to local communities.
Troubling History of Unmet Commitments
The history of MDB finance is full of examples of projects that have harmed the very communities that are meant to benefit from development. From displacement from ancestral homes to pollution of water sources and worker abuses, there have been numerous instances of communities being left poorer than before a development project began. These harms often reflect the prevailing top-down development model, determined in a few centers of powers, that is not community driven and shifts the risks of development on local communities. In addition to harming communities, bad MDB projects have also failed to meet their stated development goals.
Major Shift in MDBs Needed
For the proposed increase in MDB financing to achieve its intended end of sustainable development, the post-Sevilla agenda must see MDBs:
Strengthen their commitments to environmental, social, and human rights protections: The Compromiso de Sevilla calls on MDBs to “[ensure] adherence to social and environmental safeguards in all operations.” For decades, MDBs have had safeguards that set out requirements on topics including Indigenous People’s rights, economic and physical displacement, and biodiversity. However, these standards are often not strong enough to ensure that harm is adequately prevented and mitigated. MDBs should ensure that their safeguards meet the highest standards.
The World Bank Group’s International Finance Corporation (IFC) is currently updating its Sustainability Framework, which includes its Performance Standards that are used by hundreds of financial institutions around the world. This is an opportunity to modernize the Performance Standards, which have not been updated since 2012, to better address issues such as climate change and retaliation. Having strong standards is not enough, however. Despite decades of having environmental and social standards, experience has shown that MDBs, including the IFC, still have issues with ensuring that these standards are robustly implemented. This must change.
Strengthen Independent Accountability Mechanisms: The World Bank Group was the first MDB to create an independent Accountability Mechanism (IAM) over 30 years ago. IAMs are offices where affected communities can raise concerns about the environmental and human rights impacts of projects and pursue a compliance investigation or a mediated dispute resolution process. There have been over 2,300 complaints to these offices across MDBs, development finance institutions, and other agencies since they were first created, and often they are the only viable channel for addressing harm caused by MDB projects.
However, not every IAM operates according to international good practice and standards set by the UN itself, including transparency, predictability, and human rights compatibility. Several MDBs are currently undergoing reviews of their IAM policies, including the Asian Development Bank, the Asian Infrastructure Investment Bank, and the European Investment Bank, and these policy reviews must result in stronger IAMs that are easily accessed and used by project-affected communities. Already, preliminary results for the Asian Infrastructure Investment Bank are disappointing, and the institution should course-correct to ensure that it’s a responsible development actor.
Commit to Providing Remedy: Although IAM processes have been important tools for communities to seek justice, and communities have achieved outcomes that include project redesign and compensation, too often MDBs and their clients fail to sufficiently remedy the harms confirmed through IAM processes. Very few remedial commitments made through IAM processes have been fully implemented. This remedy gap devastates communities, with impacts that span generations. This new era of development finance must include a commitment to fully remedy these harms that undermine sustainable development.
The IFC has been a first mover on addressing this remedy gap, with the recently launched Interim Remedial Action Framework, which recognizes the IFC’s responsibility to contribute to remediating hams and includes commitments from the IFC to support community development programs and other remedial actions. Implementation will be key and will demonstrate whether IFC’s commitment to addressing the remedy gap is genuine. Other MDBs should follow suit and develop similar frameworks.
Ensure that Harmonization Does Not Come at the Expense of Strong Due Diligence and Accountability: The Compromiso de Sevilla calls for more cooperation among MDBs and harkens to similar calls by the G20 group of governments. Recent efforts to increase cooperation between MDBs have raised red flags as to whether MDBs value efficiency over the protection of local communities. The World Bank and Asian Development Bank recently approved a Full Mutual Reliance Framework, where the institutions can designate a lead lender for some co-financed projects and rely completely on the due diligence and monitoring of that institution. Troublingly, the framework restricts communities’ ability to hold each institution accountable for its financing of the project by restricting their access to just the IAM of the lead lender. It also threatens to apply weaker environmental and social safeguards and accountability standards for the projects under the framework.
Civil society organizations and the UN Working Group on Business and Human Rights have called on the World Bank and Asian Development Bank to introduce stronger guardrails during the pilot phase of the framework and ensure that communities are not disadvantaged. Other MDBs are developing reliance frameworks, and they must avoid the mistakes of the World Bank and ADB framework.
What Will Happen by the Next FFD?
The end of the Compromiso de Sevilla says that UN member states will explore the need for another Financing for Development Conference in 2029. Whether the next FFD happens in 5 or 10 years, will we see a significant change in the development finance landscape by then? MDBs are being tasked with a larger role in the coming years in the effort to increase financing for development. For these efforts to result in truly sustainable development that prioritizes people and planet over profit, MDBs must drastically increase their commitment to accountability to project-affected communities. We must see dramatic progress from these actors way before the next FFD.