New effort launches to create DFI transparency framework

WASHINGTON — Many development finance institutions have come under increased scrutiny in recent years, criticized for their lack of transparency as they invest more money and gain prominence.

What’s clear is that each DFI seems to share different types of data in a variety of ways, according to a Devex analysis, and many don’t publicly share information about their investment process or how they determine impacts.

To address this challenge, Publish What You Fund, an organization focused on aid and development transparency, is launching the DFI Transparency Initiative, which aims to create an actionable framework that DFIs can use to better share information publicly.

“The state of DFI transparency is not sufficient to allow us, or anybody, to know what we’re actually buying with public resources, what the investments are, what the rationale is, how we measure impact,” Gary Forster, CEO of Publish What You Fund, told Devex. “How do we learn from different investments if no data or information is available? How do DFIs exhibit their own value?”

Without more data and information it is difficult to know whether the use of public money to subsidize private companies is actually de-risking investments, mobilizing more resources, and achieving development outcomes, he said.

There are several key areas that lack transparency: how investment decisions are made, the actual impacts of the investments, and what companies, countries, or individuals are benefitting from the investments.

The lack of transparency about how DFIs make deals and the details behind their transactions is one of the key challenges in determining whether DFIs are a good use of official development assistance, said Charles Kenny, a senior fellow at the Center for Global Development. Too often those deals are made behind closed doors and driven by relationships, not public policy priorities, he added.

There is also a need for more information on how DFIs calculate development impact. For example, knowing how they come up with the number of jobs created, he said, adding that sharing the process for their calculations shouldn’t raise commercial sensitivity concerns.

There are some organizations that have made efforts in the past several years to increase transparency on how they make investments. The International Finance Corp. has publicly shared its Anticipated Impact Measurement and Monitoring system, which it uses to make decisions on which projects it will invest in and estimate the likely impacts.

IFC has also worked to provide greater transparency around its use of blended finance. In an October op-ed for Devex, Philippe Le Houérou, head of IFC, announced that the organization will publicly disclose the estimated subsidy for each proposed project and a justification for why it is necessary for all deals in its blended finance facilities.

“At IFC, we have tried to be a leader in improving transparency about private sector development — particularly regarding how we manage risks and the development impact of what we finance,” said Aaron Rosenberg, IFC chief for public affairs. “We’ve been able to improve transparency in some key areas by being pragmatic and thinking through some of the obstacles and constraints we sometimes hear.”

IFC’s commitments are a good first step, Kenny said, adding that he’d like to see other DFIs follow IFC’s lead and share information about the level of subsidy they provide and why it was necessary.

The confidentiality challenge

DFIs often cite commercial sensitivities as a reason they don’t share more information. While in some cases there are commercial sensitivities and regulatory challenges that may limit information sharing — pricing information, in particular, can be sensitive — there are ways to work around some of the concerns and find creative ways to disclose information. Sometimes all it takes is asking the investee or borrower.

The argument that commercial sensitivities prevent DFIs from sharing data about transactions may be a bit misleading “because we’re so far away from that kind of information being released,” Kenny said.

The initiative will look to help DFIs find ways to work around commercial, legal, and confidentiality issues. Practices vary across DFIs, so building on the work of those that have found ways to address some of the confidentiality concerns and trying to scale adoption can help address transparency issues, Forster said.

The new initiative will work with DFIs and focus on detailed discussions about specific pieces of processes they use and how they could be made more transparent, with a goal of moving beyond global principles to concrete action, he said.

Publish What You Fund will form a project advisory board of current and former senior-level DFI leaders, representatives from civil society organizations, and think tanks that will govern the initiative and help identify the six core areas to examine. For each of those core areas — which could potentially include the use of subsidies, impact measurement, and accountability to communities — the project team will do about four months of research to determine a baseline of what needs to be done and include the views of stakeholders.

At the end of the two-year initiative, the goal is to have actionable transparency recommendations co-designed with DFIs that will allow them to share more information, Forster said.

The initiative is not meant to criticize DFIs, but to ensure that transparency and sharing the data can help them learn and make the case for why their investments are effective and important, Forster said. So far, DFIs have been receptive to the initiative and seem willing to participate, he said.