Managing environmental risks in development banks and development finance institutions – what role for donor shareholders?

How and where infrastructure is built – and how environmental and social risks related to infrastructure are managed – will have a direct influence on whether developing countries pursue more sustainable development pathways or not. Development banks and development finance institutions (DFIs) serve as important channels for infrastructure finance, have adopted safeguards systems to minimise and manage the environmental and social risks associated with their projects. This paper provides an overview of these systems and discusses the role of members of the OECD Development Assistance Committee (DAC) in influencing these, in their capacity as shareholders of these institutions. It shows that donor governments influence the policies and activities of development banks, but that the level of engagement varies between bilateral and multilateral development banks and is often determined by internal capacity. The paper argues that donor shareholder governments must continue to play an important role in encouraging development banks to strengthen the implementation of safeguards, which will require continued collaboration within governments, across countries and between development banks and DFIs. Efforts to build the evidence base on the impacts of safeguards in projects will further support this agenda.