Stepping up Finance in Common
I was in two minds going to the fourth edition of the Finance in Common Summit. The summit brought together some 1,500 participants from the broad landscape of 520+ public development banks (PDBs) and their stakeholders (including financiers, government officials, experts and civil society) in Cartagena from 4 to 6 September.
On the one hand, I felt privileged to be among the happy few who could speak and help shape the discussions, notably as a member of the FICS Knowledge Advisory Group (where I represent ETTG, the European Think Tanks Group), composed of prominent world experts.
I was energised by the prospect of learning from better and innovative practices and of joining forces to improve the ecosystem of PDBs at a time of multiple crises. Reforms of the multilateral development banks (MDBs) and international financial architecture stand high on the agenda of the international community – following the recent Paris Summit for a New Global Financing Pact and the Triple Agenda for strengthening MDBs report for the G20, which gives a new impetus for the PDBs’ agenda.
On the other hand, I feared the inevitable rehashing of development discourses and self-congratulating presentations of current PDBs’ approaches, which have collectively failed to deliver on the ‘billions to trillions’ promises. I was also wondering whether, after the hottest summer on record due to climate change, a transatlantic flight was a responsible move. But the summit met my more positive expectations.
I returned convinced that the annual summit was more than ever a laudable effort and worthwhile exercise, despite its limits.
While I still feel guilty about having flown so far for a three-day event, and I did not escape the litany of development and climate finance buzzwords, I returned convinced that the annual summit was more than ever a laudable effort and worthwhile exercise, despite its limits. First and foremost, it helps shape an international community of development and climate finance stakeholders, linking global and local agendas and MDBs with national and sub-national development banks and sharing experiences and insights.
The roundtable format allowed a wide range of stakeholders to share key lessons, concerns, ambitions and innovative approaches (some of which I highlight below) – although too often in short interventions without much time for discussion. At least as important, if not more, it allowed for new connections, collaborative prospects among various stakeholders, and the conclusion of many side deals among bankers. It also led to the adoption of a final declaration and new initiatives.
While these may have uneven merits, they offer the opportunity to address critical issues, as in the case of the Green Coalition of Development Banks on the Amazon region, or the PDB Platform for Green and Inclusive Food Systems launched in Rome at the 2021 Finance in Common Summit (an issue we, at ECDPM, are actively engaged in). They also offer the opportunity to address more marginal but relevant issues, such as the coalition for sustainable development through sports as a tool for human, social, economic and environmental development.
Besides climate and biodiversity, social concerns – often expressed with force in Latin America – also stood high on the agenda in Cartagena. In a period of perma-crisis with increasing socio-economic disparities, PDBs have a critical role to play in this regard. The notion of ‘just’ transition must become integral to all PDBs. Women empowerment and gender mainstreaming must be more forcefully addressed by development finance. Dedicated sessions also focused on the human rights imperative PDBs should embrace.
We put forward some very practical recommendations for a comprehensive and cooperative human-rights-based approach for PDBs (see also our related recommendations on PDBs’ complaint mechanisms). More broadly, we shared our advice on the need for PDBs to align their operations not only to the Paris Agreement but also to the SDGs, as outlined by a newly released study by the International Development Finance Club, which builds on our SDG alignment analysis published by ETTG.
While PDBs should actively pursue climate and development actions in a mutually reinforcing manner, they should also more explicitly acknowledge the unavoidable trade-offs.
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Box 1: Highlights of our recommendations on human rights for PDBs Public development banks should include a formal commitment to human rights in their mandate and policy. This includes robust do-no-harm commitments, assessing and reviewing environmental and social management frameworks to ensure they can integrate and deliver on human rights responsibilities based on the UN Guiding Principles on Business and Human Rights, and integrate human rights considerations throughout the entire project cycle. Beyond risk compliance, PDBs can also seek to actively promote human rights to enhance the contribution of their operations to the SDGs. This can be done by building capacity and raising awareness across all levels of the PDB on human rights, ensuring meaningful stakeholder engagement, setting responsible exit principles, enabling – and, where appropriate, contributing to – remedy, and ensuring transparency and proactive disclosure. PDBs should seek to adopt some minimum harmonised standards and regularly exchange on better practices. They should also adopt proper complaint mechanisms, for which we provided another set of specific recommendations. |
Numerous innovative and ambitious practices were highlighted, which could lead to meaningful improvements if replicated across a range of PDBs.
Numerous innovative and ambitious practices were highlighted, which could lead to meaningful improvements if replicated across a range of PDBs. I stress a few silent ones here, but many more will influence our work forward.
The Inter-American Development Bank has been prominent in structuring and financing debt-for-nature swaps. While unsuitable for countries at risk of or in debt distress, debt swaps hold high potential if the process can be standardised and scaled to more countries, possibly more cooperatively, as we have argued.
A range of solutions was highlighted to increase PDBs’ financing in local currency, including foreign exchange hedging (for instance, by TCX), which should be boosted in a cooperative manner. Sony Kapoor, a vocal advocate, sketched an ambitious global fund to reduce currency risk for developing nations, an issue also considered in the preliminary recommendations of the High-Level Expert Group on Sustainable Finance set up by the European Commission.
Echoing the MDB reform agenda, several PDBs, such as the New Infrastructure Development Bank and the West African Development Bank (BOAD), identified ways to use their resources more effectively by optimising their balance sheet – doing more with their existing capital. These include risk mitigation mechanisms and re-insurance schemes by private companies such as Lloyds, ‘selling’ part of their more mature operations on the market while keeping skin in the game to free some capital space to initiate new projects (such as the BOAD's securitisation as part of its ‘originate-to-distribute’ process) and bond issuance.
Similar considerations include moving from project-to-project financing to portfolio financing, aggregating individual projects more attractive to large (institutional) investors (such as the portfolio syndication by the IFC’s Managed Co-Lending Portfolio Program - MCPP), and improving the capital adequacy framework for callable capital. These are technical but significant issues actively considered by the G20 for the World Bank Group, and possibly other MDBs.
Interestingly, PDBs and experts also illustrated the use and further potential of artificial intelligence (AI) for better data analysis and management, ranging from faster and more accurate assessment of credit profiles, reducing risk and increasing returns on development investments, to identification of SDG priorities in PDBs’ vast amount of operational documents, to mention just a few.
The FiCS database on PDBs, set up by the Agence Française de Développement (AFD) and the University of Peking, is also a great source of information. It holds enormous potential for better understanding and assessing the structure, strategies and operations of PDBs.
The 2023 edition of the Finance in Common Summit will also give rise to a more structured global community of academics and experts working on PDBs and related issues in close connection with interested PDBs, an endeavour with which ECDPM and ETTG are closely associated.
PDBs alone won’t manage to fill the $2.5 trillion financing gap. As helpful as it can be, the Finance in Common movement is only one of the many steps needed to radically evolve our approach to development and climate finance. A small but important step forward.
The views are those of the author and not necessarily those of ECDPM.
