Devex Invested: The private sector aid battle

Many of the world’s leading foreign aid donors broke years of deadlock last week to agree to new rules on how to report the use of private sector instruments — loans to the private sector, credit guarantees, equities, and mezzanine finance — toward their aid spending. In typical fashion, the Organisation for Economic Co-operation and Development’s Development Assistance Committee chair Carsten Staur announced the news via a LinkedIn post. This week, the three relevant documents were made public without any accompanying press release or further explanation. (Read the documents here, here, and here.) Staur wrote that the deal “improves incentives for DAC members’ engagement with the private sector and sets a new international standard on transparency and accountability of development finance.” But not everyone is buying it. Why NGOs are worried: Nerea Craviotto, senior policy and advocacy officer at the European Network on Debt and Development, argues in an opinion piece for Devex that under the new rules: 1. Donors will be tempted to channel more official development assistance, or ODA, to the private sector and less grant money to public services in need. 2. Additionality — i.e. the added value of using aid to attract private finance — has been prioritized over concessionality, which entails offering better-than-market terms. 3. There are insufficient safeguards to prevent the inflation of donors’ real effort — for instance, by allowing them to reinvest profits generated via private sector support and still declare this as ODA. Opinion: New private sector investment rules threaten future of aid And it’s not just NGOs: Steve Cutts, a former assistant secretary-general at the United Nations and former chef de cabinet at OECD, has been a leading critic of inflated ODA for some time — we covered his ideas here. Cutts tweeted a “Brussels Declaration” last week from a group of aid experts who argue the new rules mean that the OECD donors like the United States, France, Germany, and the European Union, have now “abandoned ODA’s fundamental principle of recording concessional flows, i.e. transactions that give something of value away, and which therefore require some real budgetary effort.” What now? Critics say DAC continues to let its donor members set the bar too low for themselves and Cutts and Eurodad are among those now calling for an independent review into how the quantity and quality of aid is determined. Will that happen? Eight ball says: Don’t count on it. Child’s eye view You’ve heard of gender-lens investing and refugee-lens investing … Now the United Nations child rights agency, UNICEF, is pushing the idea of child-lens investing. UNICEF USA recently released a framework to help investors understand what metrics they can incorporate into their strategies to support children. As my colleague Adva Saldinger writes, it might mean encouraging businesses to install better child-oriented policies, such as family leave, or increasing investments in businesses that benefit children. Between the various kinds of lenses, it could get hard to see anything clearly, so Adva asked if another lens is too much. The president of UNICEF USA’s Impact Fund for Children, Cristina Shapiro, answered that many of these lenses overlap and work together so it isn't a problem. Another potential concern that's arisen in the gender-lens investing space is whether the standards are strong enough to really drive impact and whether they’re more of a check-the-box exercise for investors rather than something more intentional. Read: Child-lens investing — a new field aims to link money to impact on kids It’s the gas The debate about multilateral development banks’ support for natural gas is on the agenda again as the European Bank for Reconstruction and Development discusses its latest energy policy. The bank’s financial and operations policy committee met last Tuesday to discuss the draft strategy before it goes to the board on Dec. 13. NGOs are pushing for EBRD to cease all support for fossil fuels — in contrast to the €2.9 billion it lent for oil and fossil gas projects worldwide from 2018 to 2021. Gligor Radečič, a campaigner from CEE Bankwatch Network, an NGO, tells Devex that no fossil fuel investment by a multilateral development bank in the 21st century can be considered aligned with a pathway that would prevent a global temperature of 1.5 degrees Celsius above pre-industrial levels. “There is a stronger standard that international financial institutions should keep,” Radečič says. However, EBRD President Odile Renaud-Basso told Devex earlier this year that bank management did not support getting out of fossil fuels entirely. “For some countries, moving from coal to gas for some projects may help them to be Paris aligned,” she said. The European Investment Bank notably ended almost all gas financing in 2019. Its chief climate change expert, Nancy Saich, said on a recent podcast that the idea that natural gas should be part of countries’ energy transition when it came to power generation was “a myth.” “We know how to produce electricity in a way that’s low emissions. We need more storage, we need more transmission networks, but we know how to do it,” Saich said. “We just need to put a lot more effort into that, and we need to be closing down coal-fired power stations. But we don’t have the space left in the atmosphere for wasting any of that with emissions from gas-fired power.” ICYMI: EBRD president says bank must continue to fund some new gas projects Mission accountable As of last month, the World Bank officially has a new mission: to create “a world free of poverty on a livable planet.” But what does that mean for the bank’s accountability watchdog, aka the Inspection Panel? Outgoing chair Ramanie Kunanayagam believes the greater focus on combating climate change could bring new accountability challenges too. “Even large solar does have impacts, including land take, resettlement, and loss of livelihoods, and we need to recognize that upfront,” Kunanayagam tells Devex Contributing Reporter Sophie Edwards. But familiar challenges persist too, Sophie writes. Like working to proactively ensure communities affected by bank projects even know the complaints mechanism exists. Read: What World Bank reforms mean for its watchdog (Pro) Background reading: World Bank project complaints plagued by fear of reprisal + Not a Devex Pro member yet? Start your 15-day free trial of Pro today to unlock all our exclusive reporting and analysis. What we’re reading Major foundations form a $200 million funding coalition for ethical AI use. [Devex Pro] Over 250 organizations back groundbreaking efforts by OECD countries to end $41 billion per year in fossil fuel finance. [Oil Change International] Can African countries overcome the cycle of debt? [Devex] U.S. Treasury Secretary Janet Yellen supports “significant” capital increase for the Inter-American Development Bank’s private sector arm. [Reuters] Adva Saldinger contributed to this edition of Devex Invested.