European Commission criticises the EIB’s role as a development bank

The European Commission recently published an evaluation of EIB development operations under its External Lending Mandate during the period 2014-2018. The Commission’s findings confirm our previous assessments and repeated calls for improvements in the fields of transparency, human rights due diligence and development impacts of EIB projects.

The European Investment Bank (EIB) has for years dedicated around 10% of its lending to operations outside the EU, in particular under its so-called External Lending Mandate (ELM). The ELM is a system under which the EIB benefits from a budgetary guarantee from the EU to support its development operations – set at a level of EUR 32.3 billion for the 2014-2020 period. As such, the European Commission is responsible for ensuring that the EU guarantees are wisely used by the Bank, and that reports are made annually to the European Parliament and Council on the EIB’s performance.

Despite the Commission’s recent evaluation of the EIB gives an overall positive assessment of the soundness of EIB operations, for the first time clear critical lines have emerged on the need to better align the Bank’s activities to the EU development policy objectives. Let’s take a look at the few most important ones:

The European Parliament flagged this issue in its latest report on the EIB, just as we did in our Going Abroad report back in 2016 and in a recent briefing: the EIB is responsible for conducting serious due diligence on the Human Rights impacts of the projects it finances. The European Commission has now taken its turn to flag the same weakness in the operations of the EIB, mentioning that “Human Rights due diligence should be an integral part of ELM project preparation“.

In particular, the EC recommends the EIB to integrate in its contracts with clients “clauses enabling to suspend disbursements in case of serious breaches of human rights or environmental and social standards” – something the Bank should have been doing for a long time.

The EIB has begun to acknowledge these calls for improvements on human rights due diligence by starting the work on a guidance note for project promoters regarding stakeholder engagement. Although the Bank consulted civil society organisations on a draft in February – March 2019, there has not been any information on the note since then. Even when it is published, this guidance note doesn’t fulfil the urgent need of proper human rights due diligence on the policy and project level.

Under the procedure set out in Article 19 of the EIB Statute, the Commission issues an opinion on every project in the EIB pipeline, based on a short note produced by the EIB services. Under this procedure, a negative opinion of the Commission is tantamount to a veto for the EIB. A positive opinion means that the project can move ahead and be submitted to the EIB Directors for their approval.

But the Commission’s evaluation demonstrates the current limits of this procedure: the level of information shared by the EIB under the Article 19 procedure is often insufficient and should be enhanced. Hence, the Commission’s efforts to ensure coherence of the EIB activities with EU policies – including on Human Rights – face limitations due to a lack of available information.

In addition, the Commission notes that its monitoring and evaluation on EIB projects is also delicate, as “it is difficult for Commission services to gain insight into their performance other than via external stakeholders, given that reporting on actual results is provided only after project completion and there is no obligation for the EIB to signal implementation problems.” A blunt conclusion drawn by the EC is that the “actual results and impacts of the EU intervention remain largely unknown“.

In this context, we welcome the Commission’s willingness to exert a “stronger policy steer from the EU“, including via the Article 19 procedure and to require more information to the EIB about how it assesses, implements and monitors its projects. Furthermore, we call on the EC to make this whole process more transparent by making its opinions under the Article 19 procedure available to the public, which is not currently the case

The Commission acknowledged concerns raised by civil society organisations about the negative impacts of several projects supported under the ELM which lacked compliance with EU wider policies. These concerns related to environmental matters, as well as to human rights issues, including the intimidation of whistle-blowers or citizens expressing critical views (as in the case of the EIB’s highly problematic support for Ukrainian agri-giant MHP), the rights of local landholders or forced resettlements (see the Nepal Power System Expansion Project), inadequate information and consultation of local communities (problems with indigenous peoples status in Nenskra dam in Georgia), and fundamental reservations about EIB financing of infrastructure projects or credit lines in countries with poor human rights track record such as Azerbaijan.

At a time where the design of the post-2020 European financial architecture for development is under heated discussion, this evaluation sends a signal to the EIB: when supported by EU guarantees, financial institutions must adopt a serious do-no-harm policy.

If the EIB is to be serious on its external mandate, it has to deliver on human rights due diligence, better align with the development policy objectives of the EU such as poverty reduction, and act in a more transparent and accountable manner.

As it currently stands, however, the EC’s new report confirms the words of Thomas Wieser, Chair of the High-level Group of Wise Persons on the European financial architecture for development, quoted in Financial Times, when he said that the EIB “lacks the necessary knowledge on development projects.”