Most DFIs rank terribly in first-ever transparency test

When it comes to being clear and upfront about their investments, even the best-performing development finance institutions can barely muster a passing grade in a new transparency index. The first-ever DFI Transparency Index, released on Wednesday, found that in general these institutions provide scant evidence of impact, fail to disclose mobilization data, how much private money their investments incentivize, or even show accountability to communities, according to Publish What You Fund, a not-for-profit organization focused on aid transparency, which created the index. Worse still, many DFIs don’t make basic information about their investments available. This is particularly true when it comes to their private sector operations. Although DFIs have been encouraged by donors and the development community to attract more private capital through their investments, the sparse public evidence about where they put their money and what it achieves has led to calls from shareholders for more accountability. And this opaque accountability comes as the eye of scrutiny is being honed on the development sector amid calls for reform of these institutions, which are charged with investing in everything from small businesses to infrastructure projects in lower-income countries. This first ranking comes after a years-long collaborative process with DFIs and experts to create a DFI Transparency Tool to help them identify shortcomings and come up with plans to improve their data sharing. The index itself was an iterative process that allowed DFIs to make improvements over the past eight months prior to the final evaluation and scoring. DFIs say having a clear road map is helping, but there are still significant shortcomings. “A lack of disclosure around results and mobilization limits the ability of stakeholders to ensure that DFIs are investing in the most impactful ways and mobilizing private finance efficiently,” said Gary Forster, CEO of Publish What You Fund, during a launch event for the fund in Washington, D.C. The index ranked 30 DFIs — with combined assets of $2 trillion — across five categories: core information, impact management, environmental social, and governance standards, along with accountability to communities, financial information, and financial intermediary subinvestments. The results are far from stellar. The Asian Development Bank’s public sector operations are considered the most transparent in the ranking, with a top score of 75.9 out of 100. That’s about average marks on a report card, but most other institutions didn’t fare as well and have a lot of room for improvement. The International Finance Corporation, or IFC, clinched the top nonsovereign or private sector ranking with 54.4, which is pretty poor. And the U.S. International Development Finance Corporation managed only 38.2, though was top among bilateral institutions. While it’s hard to imagine a much worse performer, the Islamic Development Bank Group came bottom of the ranking, with a measly 7.0 for its sovereign operations and 2.8 for sovereign and private sector operations. The index comes at a critical moment for development lenders as the World Bank and other multilateral institutions have faced criticism about their ability to address modern challenges and calls for reform. The anti-poverty lender, earlier this month, put together a road map for change following a landmark speech by United States Department of Treasury Secretary Janet Yellen, as she and other key shareholders demanded an overhaul of the institution. “Increased MDB transparency will be particularly important as shareholders seek to evolve these institutions to better address global challenges,” said Margaret Kuhlow, deputy assistant secretary for international development finance and policy at the U.S. Treasury Department, at the launch event. The challenges The index highlights one area that DFIs fell short in their reporting almost across the board — private capital mobilization, or how much private money each dollar they invest brings in a deal. That’s important because part of the World Bank reform discussion is increased private capital mobilization and improved related reporting, Kuhlow said. Transparent data is critical to attracting more private funding. One of the best data sources — the Global Emerging Markets Risk Database — is closely guarded by DFIs, something criticized by private companies, which want access to the information. The data is crucial to help them better understand markets and assess risks, which could expand their investment ability. But they could soon get access because the U.S. government is pushing DFIs, and IFC in particular, to make that information public. While more money is needed to address mounting development needs, the quality or impact of funding needs “way more attention,” said Nadia Daar, head of the Washington, D.C. office at Oxfam International. The most useful data DFIs can share publicly, according to Daar, is their impact data, or information about what their investments are achieving. Yet the index found that it’s an area where they really lag in terms of disclosure. “We need this impact data much more systematically to understand where DFI's should be investing, what are the positive impacts and what importantly are the risks,” she said. Progress Despite the somewhat bleak ranking results, DFIs are improving and have committed staff and money to improving transparency, Forster said. Although DFIs often use commercial confidentiality concerns as the chief reason for not being more transparent in their disclosure of financial details, experts say that is changing. “While it's not practical to rewrite all existing agreements, today should mark a line in the sand where going forward DFI's consider transparency obligations when agreeing contracts with investees,” Forster said. The index, and accompanying DFI Transparency tool, which was released in late 2021, has pushed the DFC to prioritize these issues, said Elizabeth Boggs Davidsen, the vice president of the agency’s office of development policy. Guided by improvement areas outlined in the tool, the agency set up an internal task force to address data and transparency, increased the amount of data available about specific transactions by 70%, updated its impact framework, and has developed an agency-wide transparency policy, said Boggs Davidsen. DFC has still not made much progress on mobilization data, but it has developed a new system to measure how much private money each of its investments attracts. It aims to create internal procedures to implement the transparency policy, and shift its culture to be more focused on impact, which isn’t easy for an institution that historically was primarily focused on how much money it was investing, Boggs Davidsen said. “We all have a long way to go,” she said. “Where I think our next step is really how do you create a more permanent culture around transparency within our agency?”