Civil society calls for safeguards as BRICS bank approves first loans

By Lean Alfred Santos 18 April 2016

The New Development Bank and Contingent Reserve Arrangement were signed into treaty at the 6th BRICS summit in 2014 in Brazil. With the NDB approving its first batch of loans, civil society organizations are calling for transparency and dialogue with officials of the financial institution in developing a robust social and environmental safeguards framework. Photo by: Kremlin.ru

Civil society organizations have expressed concern over what they say is a lack of transparency in the social and environmental safeguards used by the New Development Bank, a multilateral finance institution founded by Brazil, Russia, India, China and South Africa (or popularly known as the BRICS).

The NDB has promised to focus on renewable energy projects and approved its first batch of loans last week. The bank will invest $800 million in renewable energy projects, with India and Brazil receiving $250 million and $300 million, respectively. These inaugural projects, approved during meetings in Washington, D.C., are expected to reduce harmful emissions in the bank's member countries by 4 million tons annually.

Despite its environmental mandate, however, critics say that the bank’s loans could harm local communities and ecosystems if the proper safeguards are not put into place. Existing multilateral banks conduct evaluations to assess the possible impact of proposed projects before a loan is approved. In the case of NDB, many CSOs say they and others don’t understand — and haven’t been consulted about — this process.

“The institution claiming to represent the 'next generation of development finance' does not yield proper value the opinion of external stakeholders,” Caio Borges, attorney for business and human rights at São Paulo-based human rights group Conectas, told Devex. “It shows that the NDB has not yet achieved a balanced position on the discussion about the future of safeguards of development finance institutions.”

NDB did not respond to inquiries from Devex requesting comment. However, bank leader KV Kamath has previously said that the institution is open to dialogue. The NDB, he said, will understand “borrowers’ requirement and have dialogue with them.”

Advocates say they haven’t been included in discussions yet. Nomonde Nyembe, attorney for business and human rights program of the University of the Witwatersrand's Center for Applied Legal Studies in South Africa, told Devex that the NDB’s failure to consult with local groups and to publish details of its evaluation process could expose the bank to reputational and operational risks.

“The failure to consult is, in and of itself, risky. It denies people their right to self-determination and participation,” she said. “A development bank that begins its operation[s] on a non-human rights frameworks sets itself up for human rights violations in the future. This is financially risky.”

International standards

Social and environmental safeguards create guidelines for multilateral institutions in designing their programs to ensure that communities and the environment are not affected negatively by the projects. Crafting and implementing such safeguards has never been a straightforward affair for development institutions.

The World Bank, for instance, has been reforming its safeguards framework over the past four years, holding various discussions and engagements with stakeholders. Consultations for the bank's second framework draft was concluded last month. The Beijing-based Asian Infrastructure Investment Bank, the world's newest multilateral institution, also opened consultations in the development of its safeguards framework last September, albeit with some issues raised by civil society representatives regarding its details.

By contrast, civil society groups say the establishment, launch and operations of the Shanghai-based financial institution have been opaque. Although basic documents of the bank has been publicly available through its website, other key policies — and the way they were crafted — remain unclear.

“The NDB has been shrouded in secrecy since its launch, failing to disclose information regarding policy development or project selection and refusing to respond to inquiries from civil society groups,” Gretchen Gordon, coordinator of the Coalition for Human Rights in Development, told Devex in an email exchange.

With its $100 billion in paid-in capital, the NBD looks set to become a major multilateral player in the coming years, which advocates say is all the more reason to uphold international standards.

“Transparency is intrinsically linked to accountability. Without knowing what the NDB promise, it is difficult to hold them accountable for failing to adhere to that commitment,” Nyembe said. “This is not only a deviation from international standards for international finance institutions but a deviation from accepted standards for representative democracies.”

According to Article 14 and 15 of the bank's Articles of Agreement, the Shanghai-based institution is supposed to publish reports, provide relevant information as well as exercise transparency and accountability in all its proceedings.

Borges of Conectas said the bank has not been responsive to his organization’s requests and questions particularly regarding the lack of grassroots consultation.

‘Race to the bottom’

Speed may be one factor in the lack of transparency, said Borges. The bank has promised to make loan decisions faster than any existing multilateral institution.

“Founding members of the NDB are determined to make the bank operational as soon as possible and to approve all the policies … necessary for the bank to make its first disbursements with brevity,” said Borges. “We're not in an either-or situation where the bank has to sacrifice basic principles and elements of social accountability in order to operate faster than its competitors,” he said.

He worries that a failure to conduct adequate due diligence and implement safeguards may lead to a 'race to the bottom' amongst other lenders. It could also lead to human rights violations, deleterious effects on communities, or even projects with a lower-than-expected return, Borges said.

Nyembe said her call for dialogue and discussion is only meant to improve the operations of the bank and safeguard the people and the environment that will be affected by its programs. If given the chance to finally sit down with NDB officials, she is hoping that “suggestions made by civil society should be treated with seriousness [while] enough time and resources should be allocated to ensure that the consultation is comprehensive, geographically far reaching and substantively in depth.”

“It is in the interest [of BRICS countries] and their citizens that the NDB develop environmental and social safeguards, form an effective grievance mechanism with the power to make binding decisions and be transparent about the expectations of countries funded,” Nyembe said.

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About the author

Lean 2
Lean Alfred Santos@DevexLeanAS

Lean Alfred Santos is a Devex development reporter focusing on the development community in Asia-Pacific, including major players such as the Asian Development Bank and the Asian Infrastructure Investment Bank. Prior to joining Devex, he covered Philippine and international business and economic news, sports and politics. Lean is based in Manila.


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