IFC financial intermediary lending: A new safeguard needed for the World Bank Group’s riskiest investments

As the International Finance Corporation (IFC) launches a review of its Sustainability Framework, comprising its Sustainability Policy, Access to Information Policy, and the Performance Standards, it has an opportunity to influence and improve standards across the financial sector. Recourse, along with over 50 civil society organisations, are calling for a new safeguard on IFC financial intermediary investments, among others on climate and gender.

• Download our ‘must haves’ for a new safeguard on IFC financial intermediary investments.

The last time the IFC—the private sector arm of the World Bank Group—reviewed its Sustainability Framework was 2009. Barack Obama was less than a year into his USA Presidency and the world was still reeling from the global financial crisis. It has been a long time since these important social and environmental safeguards—which influence the investment policies of hundreds of financial institutions and apply to billions, if not trillions, of dollars of financial flows—were last updated to reflect the global challenges of the time.

In the 14 years since the last review concluded, in 2011, a lot has changed; not just in global terms, but also in the ways that multilateral development banks (MDBs) such as the IFC invest their funds. Civil society organisations (CSOs) have used the Paris Agreement to increase pressure on MDBs to reduce the climate impacts of their investments and gradually stop financing fossil fuel projects. Since the 2008 financial crisis, MDBs have also increasingly turned to a more ‘hands off’ form of lending to projects via financial intermediaries (FIs)—such as private equity funds or commercial banks. This now represents around half of IFC’s portfolio.

In the past decade, CSOs have repeatedly highlighted how FI investments have caused significant harm to communities and the environment. There is a pressing need for the IFC Performance Standards to be updated to reflect these changes and adapt to the particularly risky nature of FI lending. The IFC has already taken some welcome steps in changing the way it invests in FIs. Now there is an opportunity for this progress to be written into the Performance Standards, and for the remaining gaps and challenges to be tackled, through the adoption of a new, standalone Performance Standard (PS) on IFC financial intermediary lending.

• Read the opinion piece in Devex, by Kate Geary and Daniel Willis.

From Recourse’s many years of experience on this topic, developed with our CSO partners that work with communities impacted by IFC investments, we propose a series of six ‘must have’ features for this new safeguard:

1. Improved transparency and disclosure
2. More robust risk-assessment
3. Better due diligence, monitoring and supervision
4. A counterparty-based approach to climate risk
5. Building on the Green Equity Approach to phase out coal
6. Enhanced access to remedy