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Advocating for responsible policies of development banks

Development banks should comply with strict environmental and human rights rules to ensure that their projects benefit and do not harm the poorest groups. Both ENDS monitors the banks to make sure they do.

Multilateral and national development banks play an important role in many development projects. Both ENDS follows the policies of these banks and the projects they finance very closely as they use a lot of public money that is explicitly intended to promote development. In addition, they often invest in the least developed and fragile countries that private investors shy away from. That means that development banks can potentially have a positive impact in these countries. However, failing policies and lax compliance with their own rules frequently mean that their projects have a negative impact on the very people that these projects are designed to help.

Both ENDS and the development banks

Both ENDS focuses mainly on the banks that have the greatest impact in least developed countries and in which the Netherlands has a financial interest and influence. These are:

  • FMO: 51% of the shares of Dutch development bank FMO are owned by the Dutch state. It is one of the largest bilateral development banks in the world.
  • The World Bank: the first multilateral development bank, with extensive local impact and a trendsetter in sustainability policy. The Netherlands can exert its influence at the Bank through its constituency.
  • The Asian Infrastructure and Investment Bank (AIIB): a new multilateral development bank set up in 2016 to counterbalance the World Bank. The largest shareholders are China, Russia and India. Like other European countries, the Netherlands also has shares in the AIIB. This new bank presents opportunities to promote sustainability, but China's dominance presents a lot of risks.
  • The Asian Development Bank (ADB): grants loans to governments in developing countries. The Netherlands is one of the 67 members.
  • The European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD): the Netherlands is a shareholder in both of these European development banks.
  • Other regional development banks, such as the African Development Bank (AfDB) and the Inter-American Development Bank (IDB; Latin America): because the Netherlands has little influence within these banks, we focus mainly on strengthening regional networks and local partners who work to improve the social and environmental policies of these banks.

Development banks' social and environmental standards

Development banks should set an example in setting up and applying strict social, environmental and human rights standards. They also closely monitor each others' activities and developments in relation to sustainability and human rights. Many of them adhere to the IFC Performance Standards, developed by the International Finance Corporation, the private sector branch of the World Bank Group.

However, the banks increasingly attract private capital to enable them to make large-scale investments. That results in more and more public-private partnerships. The banks also have to compete with increasing capital flows from other sources, like China. That exerts greater pressure to relax the current standards to make investments quicker and easier. Moreover, the banks' standards are by no means always adhered to in practice. That is why we, together with partners throughout the world, try to persuade public financial institutions to tighten up their rules and actually put them into practice.

Besides strict standards, transparency and independent complaints mechanisms are important to identify abuses and enforce structural improvements.

International networks relating to development banks

We do not call for reforms in development financing alone, but as much as possible together with a wide range of other organisations. Both ENDS is therefore active in many networks of civil society organisations, including the Euro-IFI Network of European NGOs which monitors the policy of the World Bank Group, and the NGO Forum on the ADB, which does the same for the Asian development banks ADB and AIIB. In relation to the European banks, Both ENDS works closely with CEE-Bankwatch and Counterbalance.

Both ENDS was also actively involved in setting up and strengthening the CSO Coalition on the AfDB, a network of organisations that examines the effects of the investment policy of the African Development Bank and makes suggestions for improvement.

In addition, Both ENDs works together with local organisations that resist projects funded by development banks. By bringing our local partners into contact with the banks and supporting them in submitting complaints, we can either show the banks that their rules need to be tightened up, or that their policies, which look so good on paper, do not always turn out that well in practice.

Towards more social and sustainable policies by development banks

At FMO, our efforts have been successful. As a result of the problems surrounding the Barro Blanco dam project in Panama, the Dutch development bank has set up a complaints mechanism. And, after our intensive efforts to bring about structural changes after the murder of Berta Cáceres in the context of the Agua Zarca project in Honduras, FMO has tightened up its environmental, human rights and gender policy. We continue to monitor whether this policy is indeed complied with.

In the case of other banks, such as the ADB, we have been able to stop standards from being reviewed, and thus most likely degraded, for many years. Persistent pressure from various groups from civil society is also slowly generating greater transparency and participation at the banks. A good example is the large-scale consultation process on the World Bank's Environmental and Social Safeguards. New banks like the AIIB are also setting up complaints procedures and the EIB is reforming its own mechanism.

Locally, our work is creating greater knowledge and awareness among civil society organisations on the impact of development banks on their living environment and, together with our partners, we are ensuring that the voices of local communities and organisations are increasingly being heard by policy-makers at the banks.

 

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