The European Investment Bank has specific obligations in its mandates to achieve social and environmental goals beyond the financial bottom line, including “reducing poverty with the objective of sustainable development” (The Cotonou Agreement, for African, Caribbean and Pacific countries) and “the improvement or protection of the environment” (External Lending Mandate for Asian and Latin American countries).
In practice, however, the EIB has been involved (actively, though the bank has a notorious tendency to take a “back seat” role) in some of the most egregious and destructive large-scale projects funded by international financial institutions (IFIs) in recent years. The Chad-Cameroon pipeline , the Lesotho Highlands water project , the Nam Theun II dam , the West Africa gas pipeline and other highly contentious projects have all been made possible through the provision of EIB loans.
There are several institutional flaws in the EIB that cause this. One is its structure of decision-making: the EIB’s major investment decisions are taken by a non-resident board of directors, made up of EU finance ministers, that meets ten times a year, reviewing an average of 30 projects in a single sitting. This kind of rushed process means that once a project gets into the EIB’s funding pipeline, it is virtually guaranteed support.
The EIB also lacks the capacity and expertise to analyse or monitor projects in a consistently pro-developmental manner. Projects are evaluated almost entirely by economists, with a minimal sustainable development unit that is marginalised within project design and appraisal. A project’s “rate of return” and other econometric criteria dominate project selection.
There are similar limitations in the EIB’s belief system. The EIB is committed to a somewhat outmoded ideology of bottom-line economic growth, which in its own words “can only be driven by the private sector.” The result is a very clear tendency towards supporting large-scale, environmentally and socially destructive projects whose primary beneficiaries are major corporations. In many cases these beneficiaries are more in need of the ‘political risk insurance’ provided by a public financial institution than the actual money.
The ‘growth ideology’ also ignores the social implications of growth in real human societies. A rising tide does not float all boats equally, but noticeably improves the lot of some groups, sectors and classes, while at the same time having limited or even negative impacts on others. The results can often be social polarisation, conflict and tension, as well as the withering away of some industries as others flourish.
A classic example is the oil and gas sector, in which the EIB is the world’s largest lender, providing nearly 60 percent of total IFI support for the sector in 2006. So paradoxically damaging has the discovery of oil and gas been to many countries’ economies and societies that analysts have coined the term “resource curse”.
More up-to-date analysis focuses on the distributional impacts of economic growth – who benefits and who loses – and on project ownership: the early involvement of affected communities in project design and operations, so that projects are more likely to benefit local people and thus ultimately have a greater chance of success.