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IDC and DBSA’s investment policies must support just recovery

27 May 2020 at 10:19 am

Investment policies of South African development finance institutions the Industrial Development Corporation (IDC) and the Development Bank of Southern Africa (DBSA) not only fall short of international social, environmental and governance standards, but are not yet being deployed to support a just transition towards a climate resilient future.

This is the key finding of a report released by the Centre for Environmental Rights (CER) today, entitled “Financing Fairly: An Assessment of the Investment Policies of Development Finance Institutions in South Africa”. This report benchmarks the finance and investment policies of the Industrial Development Corporation (IDC) and the Development Bank of Southern Africa (DBSA) against international social, environmental and governance standards and in relation to peers from around the world.

Using the methodology of the Fair Finance Guide International and international research group Profundo, the study assesses the sustainable development and corporate social responsibility commitments of six development finance institutions (DFIs) around the globe against social, environmental, and governance standards in relation to specific themes and sectors. The report provides the results of the assessment in relation to the IDC and DBSA, with particular emphasis on two themes: climate change and power generation.

Head of CER’s Corporate Accountability & Transparency programme Leanne Govindsamy says: “DFIs have the potential to fulfil an important role in financing a more equitable and just society – one in which the inter-dependence of people and the environment is valued and protected.  As a legal organisation working to realise environmental justice, the CER recognises the important role of DFIs in advancing climate and environmental justice, and we hope that our assessment proves useful in helping them to refine their policies. We also hope that civil society organisations use the assessment to inform their different areas of work and engage constructively with DFIs.”

The six DFIs assessed in this report include: the African Development Bank (AfDB), the Development Bank of Southern Africa (DBSA), the European Investment Bank (EIB), the Netherlands Finance Development Company (FMO), the Industrial Development Corporation (IDC) and New Development Bank (NDB).

The elements of the assessment were grouped under seven themes and  in two sectors: transparency and accountability; climate change; corruption; human rights; gender equality; health; nature; the financial sector; and the power generation sector. DFIs were assessed based on the policy content (establishing whether the policy complies with the requirements of an element), and the policy scope (based on whether the policy applies to some or all of the DFI’s financing activities).

CER’s Financing Fairly report focuses on the results of the DBSA and the IDC, while Profundo has produced a broader, more global report which contains a research and analysis in respect of all six DFIs. In the Profundo report, the IDC ranked last among assessed peers, while the DBSA ranked fourth.

It is important to note that only publicly available finance and investment policies were considered in the assessment. An exceptionally low score within a particular theme could reflect poor policies – but in some instances – as was the case with the IDC – it also reflects a lack of publicly available policies.

In terms of the climate change theme, the DBSA’s publicly available policies failed to include or align with the elements of international climate change standards. Therefore, while the DBSA made significant strides towards limiting its exposure to climate risk through its financing of renewable energy projects, the results reveal the lack of a necessary accompanying shift away from the financing of fossil fuels.

The IDC scored zero for the assessment under the climate change theme, because it failed to publicly disclose its formal policies.

Neither the DBSA nor the IDC have fossil fuel exclusion policies, nor do they take strong positions against financing coal-fired power generation.

The DFIs’ climate change scores must be considered within the context of the legislative and political mandates of DFIs, which may limit a DFI’s freedom to determine their own policy and decision-making. A possible explanation for the lack of full commitment towards a low-carbon transition on the part of South African DFIs is the continued incorporation of coal-fired power into South Africa’s energy mix, making their transition away from the financing coal-fired power more difficult and complex.

Our report finds that South African DFIs should be actively resisting political influence over their own developmental agendas and policies, and should instead rely on South Africa’s international commitments, existing legislation and guidance on sustainable development such as the Sustainable Development Goals to justify decision-making and policy reform.

“The failure to protect the environment and climate has already resulted in a deterioration of the health and well-being of South Africa’s people. The Covid-19 pandemic has exposed the fault-lines of deep-rooted unequal development. Millions of people residing in informal settlements are exposed to higher risks of infection, compounded by uneven distribution and access to food and water. The need to protect our water sources, ensure food security, and create a healthy environment so as to reduce people’s vulnerability to the effects of climate change and to viruses such as COVID-19 has never been more urgent,” says Govindsamy.

Non-profit environmental group 350Africa.org has called for government and decision-makers to ensure that their response to COVID-19 contributes to a just recovery by upholding 5 key principles, including putting people’s health first and creating resilience for future crises.

Commercial banks in South Africa have slowly begun to increase their focus on the risks their financing poses for climate change, but ironically it is the public finance institutions like the IDC that have failed to publicly account for how they are responding to the climate crisis”, added Ahmed Mokgopo, 350Africa.org Campaigner.

DFIs play a crucial role in the economic and social development of the countries and regions in which they operate. By financing strategic projects, DFIs can improve welfare, reduce poverty and inequality, and promote a healthy environment – all while preserving our resources for generations to come. “We call on our DFIs to play a positive role in our economic recovery from the impacts of the Covid-19 pandemic and ensure that their policies advance sustainable development, while paving the way for a just recovery,” says Govindsamy.

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