Fit for purpose?

Development Finance Institutions (DFIs) have traditionally provided financing directly to projects in diverse sectors such as infrastructure, energy, education across developing economies – this is referred to as direct finance. Since the early 2000s, DFIs have increasingly turned to indirect or intermediated finance - financing through financial intermediaries (FI) such as commercial banks and investment funds. Against this backdrop, this Report aims to assess whether DFIs´ policies for the management of environmental and social risks (E&S) in intermediated finance can effectively prevent and address negative human rights impacts.

This Report uses international business and human rights standards to provide a focused analysis of DFIs´ approaches to the management of human rights risks as part of their environmental and social risk management. Specifically, the Report focuses on the DFIs’ E&S risk management policies in the context of FI financing referred to in this publication as “Safeguards”. 

The report identifies various gaps in the DFIs´ policies and procedures against the expectations set out in the UN Guiding Principles on Business and Human Rights (UNGPs). Specifically, the Report uncovers three areas of concern in respect to the (i) the scope of application of DFIs´ policies to intermediated finance operations and transactions, (ii) the quality and adequacy of the DFIs´ management of environmental and social risks; and (iii) barriers to remedy for those potentially and actually affected by FI financing.

The report will be primarily relevant for DFIs, international and national policy makers, as well as CSOs and academics working at the intersection of human rights and development finance. Those interested in a quick reference guide on the on the implications of the UNGPs for DFIs’ policies on intermediated finance should consult the companion of the report.