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Sector Reports - 16/10/2018

The Development Bank Sector: frequent & severe controversies despite advanced sustainability commitments

New Vigeo Eiris report analysing 11 supranational development banks finds tax responsibility a systemic risk and 45 controversies of high severity

The report provides Vigeo Eiris’ exclusive opinion on sector vulnerabilities, controversies and emerging risks, as well as strengths, innovations and best practice in terms of CSR. The report highlights sector ESG challenges and emerging issues, as well as performance scores and advanced indicators on critical issues such as energy transition, business ethics, human capital and human rights, governance, executive remuneration, transparency on taxes and integrity of lobbying practices.

Key Findings:

  • The Development Bank sector under Vigeo Eiris’ review consists of 11 international financial institutions chartered by two or more countries to foster economic and social development. These institutions may play a crucial role in supporting a tangible transition to sustainability: some have specific mandates, such as Eurofima (aimed at supporting the development of rail transportation in Europe) or the Council of Europe Development Bank (promoting social cohesion and social integration in Europe). Others focus on the development of specific regions, such as the European Investment Bank, Corporación Andina de Fomento in Latin America, Eurasian Development Banks, or the Nordic Investment Bank.
  • Vigeo Eiris awarded an average overall score of 52 to institutions in the Development Bank sector, on a scale of 0 to 100. The sector’s performance remains unchanged since our previous analysis in July 2016.
  • As with our previous review, the sector ranks 1st out of Vigeo Eiris’ 39 sectors, covering a total research universe of 4,500 companies.
  • The largest Development Banks display similar robust to advanced CSR performances, due to collaborative efforts to implement common environmental and social standards in their operations.
  • The Development Banks sector reporting rate is 81%, significantly above Vigeo Eiris’ universe average (54%).
  • ESG risk mitigation scores are robust in relation to reputation and operational efficiency (54/100 and 53/100 respectively) due to the application of enhanced due diligence to prevent corruption risks in projects and rigorous environmental and social safeguarding policies.
  • Risk mitigation scores are limited in relation to human capital (44/100) due to the low disclosure of information regarding strategies to promote employees’ career development and prevent work-related stress.
  • The sector faces 45 controversies of high severity, most commonly relating to business ethics, fundamental human rights and climate change.

Key Takeaways

  • To support their member countries’ efforts against climate change, Development Banks are expected to take significant steps to mainstream climate actions in their financing activities. Overall, the sector’s capacity to tackle climate change and support the transition to a low-carbon economy is robust (52/100). However, only few institutions disclose the GHG emissions associated to the projects financed (namely the European Bank for Reconstruction and Development, European Investment Bank and the Asian Development Bank).
  • Development Banks are highly exposed to business ethics risks in their projects and operations: they must ensure their funds are not used for illicit purposes, and effectively contribute to improve the living conditions of target populations. The sector displays strong performance in this regard with an average score of 59/100. Development Banks work collaboratively to strengthen their anti-corruption practises at an international level.
  • Development Banks can provide an essential contribution towards the Sustainable Development Goals through their ability to catalyse public and private resources from institutional investors to finance projects. However, findings show that the sector is in the early stages of integrating the SDGs, and tools to measure and report on their contributions still need to be developed.
  • Tax responsibility, which can cause macroeconomic and societal distortions, is increasingly identified as a key systemic risk in the sector. Civil society organisations call for Development Banks to adopt more stringent policies on tax havens, to go beyond minimum legal requirements and to take the lead on tax integrity issues internationally. Yet only a few institutions disclose dedicated policies and enhanced due diligence in this regard.

Best performing areas:
o Environmentally responsible financing
o Corruption and money laundering
o Internal controls & risk management

Worst performing areas:
o Health and safety
o Executive remuneration
o Environmental strategy (direct impacts)

Top Performing Companies:
o Asian Development Bank (69/100)
o International Bank for Reconstruction and Development (68/100)
o European Investment Bank (66/100)

Company making best progress since 2016:
o Asian Development Bank (+8)

To view an excerpt of our 2018 Development Banks sector report, download the document below.
To enquire about accessing our sector reports, please contact the relevant team below:
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icon-download-34x36 Key Findings_Development Banks_August 2018
Keywords : Banks, csr, ESG