Lifting the Veil on the World Bank Group’s Lending Through Financial Intermediaries
The International Finance Corporation is changing the way it does business — to the detriment of people and the environment.
For years, the World Bank’s private-sector arm provided loans almost exclusively to companies and projects. Now, the IFC is outsourcing the bulk of its development work to for-profit financial institutions. Between 2010 and 2015, the IFC provided $50 billion to commercial banks, private equity funds and insurance firms. These financial intermediaries then invested the money as they saw fit, with little apparent oversight.
The IFC has refused to disclose where most of these funds end up, so Inclusive Development International is following the money to answer this question: How does it impact people on the ground?
The investigation tackled only a small portion of the IFC’s extensive financial-sector portfolio. Yet the results were shocking. The IFC is funneling billions of dollars into some of most notorious companies and projects in the world. The problem is systemic, and not limited to just a few cases.
In many instances, these investments have done more than just fail to help the poor. They have actually caused great harm to people and the environment. According to our investigation, IFC intermediaries have financed companies that have forcibly evicted and impoverished tens of thousands of people. They have contributed to climate change, ravaged forests, polluted the oceans and rivers, and killed endangered species. Activists who have dared to resist them have been jailed, beaten and even murdered.
The projects come from a range of high-risk sectors, such as energy, agribusiness, mining , transportation and infrastructure. They are located in Africa, Asia and Latin America. The findings include some of the most notorious industrial disasters. Yet until now, the IFC’s involvement was unknown.
Inclusive Development International, in collaboration with Bank Information Center, Accountability Counsel, Urgewald, and 11.11.11 , are detailing our research findings in a four-part investigative report, Outsourcing Development: Lifting the Veil on the World Bank Group’s Lending through Financial Intermediaries.
The first report in the series, which was released in October 2016 ahead of the World Bank Annual Meetings, examines the contribution of IFC intermediaries to climate change and the destruction of forests. The report, “Disaster for Us and the Planet”: How the IFC is Funding a Coal Boom, reveals how IFC financial-sector clients have funded at least 41 coal projects since the World Bank announced its moratorium on new coal funding. Check back here over the coming months for the next parts of the series, which will look at financial intermediary investments in India, Southeast Asia and Africa.
We are also publishing a project database, which details all of the cases we’ve uncovered. This will be updated periodically with new findings.
IFC must stop investing in irresponsible financial institutions that fund destructive projects. And it must take urgent action to bring its financial sector investments into line with the IFC Performance Standards and the UN Guiding Principles on Business and Human Rights. We believe it can do this by taking the following steps:
- Regular supervision of financial intermediary sub-investments, particularly in high-risk sectors.
- Individual appraisal, categorization, disclosure, and monitoring of all higher-risk sub-investments of financial sector clients.
- Requiring all of its financial sector clients, as a condition of IFC’s investment, to adopt a human rights policy that is aligned with the United Nations Guiding Principles on Business and Human Rights.
- Public disclosure of higher risk financial intermediary sub-clients and their projects after obtaining consent of the client.
- Public disclosure of how the IFC monitors and tracks development impact from intermediary investments and ensuring that financial sector clients use IFC financing for the intended purposes and not for other projects.
- Making remedying of harms in a prospective financial sector client’s existing portfolio a condition for IFC’s investment.
- Actively ensuring that affected communities have access to redress, including through the CAO.
- Scaling down its financial sector portfolio to a level commensurate with its own capacity to ensure that sub-investments comply with the Performance Standards.