MICROFINANCE PAPER WRAP-UP: “ESG and Accountability to Communities;” Published by Publish What You Fund

This report examines 20 development finance institutions (DFIs) to learn how these organizations: (1) are transparent in terms of their policies on environmental, social and governance (ESG) issues; (2) disclose ESG risks and plans to manage those risks; and (3) implement independent accountability mechanisms (IAMs) to ensure policies are being followed. Among the benefits of ESG transparency can be more effective community partnerships.

The authors note a recent shift in the way DFIs conduct transparency from “procedure to principle-based policies” due to what is now a “presumption of disclosure that acknowledges the right to access information.” While this shift has enhanced the ability of stakeholders to “pursue various mechanisms to access information,” some civil society organizations interviewed for this report noted instances in which the changes negatively affected transparency. For example, the Asian Development Bank now only makes many documents available after request rather than disclosing them preemptively.

Generally, the DFIs’ policies regarding the disclosure of ESG risks are well developed; 17 of them disclose their policies on environmental and social safeguards. The authors evaluated the extent of disclosure by DFIs according to the following categories: disclosure of policies both institution-wide and to the communities affected by each project, actual global and per-project disclosure of data under each relevant policy, and IAM disclosure both globally and per-project. The conclusion is that “the practices undertaken by DFIs rarely match their policy obligations.”

The authors argue there is a lack of effective accountability mechanisms and community disclosure practices despite robust global policies. In a review of cases under two IAMs, more than 50 percent of registered cases contained a complaint regarding transparency. To reduce this rate, the authors suggest DFI amend their policies to require documentation of disclosures to project-affected communities, including the time and place of relevant meetings.

A 2019 study of the IAM of the Asian Development Bank revealed that in 19 percent of cases, an issue regarding information, consultation and participation was reported. To reduce the number of such reports, the authors suggest: (1) the identification of key stakeholders and representatives of project-affected communities; (2) the accessible disclosure of all critical information pertaining to the project; (3) consultations with local communities via “culturally appropriate communication tools” before, during and after project implementation; and (4) consideration of the goals of the World Bank’s safeguard consultation policies.

DFIs categorize projects by level of risk, a process which “often determines the level of required disclosure,” that is, with maximum disclosure planned for projects with maximum risk. However, some projects were categorized incorrectly, leading to inadequate levels of disclosure. The authors argue DFIs should disclose: (1) the qualifications for each category of risk; (2) the disclosure requirements for each category of risk; (3) each individual project’s category of risk; and (4) an explanation of why each individual project was assigned to its risk category.

In regard to the DFI-client relationship, the general agreement among DFI staff is that the client institution, rather than the DFI, should conduct disclosure to project-affected communities. One reason is that the client generally has more of an ongoing presence in the area than does the DFI. The IAM of the World Bank’s International Finance Corporation (IFC), for example, stipulates that clients must disclose the existence of these accountability mechanisms to ensure that project-affected communities are aware of recourse options.

This is a summary of a paper published by Publish What You Fund; February 2021; 41 pages; available at https://www.publishwhatyoufund.org/download/dfi-transparency-initiative-ws3-working-paper-on-esg-and-accountability-to-communities/

By Bradley Shulman, Research Associate

Additional Resources

Publish What You Fund Homepage
https://www.publishwhatyoufund.org/

Publish What You Fund Transparency Initiative
https://www.publishwhatyoufund.org/dfi-transparency-initiative/

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