Washington D.C.- A report released today by the World Resources Institute (WRI) recommends that multilateral development banks (MDBs) incorporate environmental and social policies into their lending to financial intermediary (FI) institutions in developing countries.

The report is released as the World Bank Group's private-sector arm, the International Finance Corporation (IFC), updates its environmental and social safeguards. The revised policies are expected to be approved by the World Bank Board within the next few months, but the latest draft of these "performance standards" does not address how the new guidelines will apply to FIs. Traditionally, MDBs have made direct loans for projects such as roads and large dams. However, the growing trend is for MDBs to make loans to FIs (such as commercial banks or investment funds), which then invest the MDB money in a variety of subprojects ranging from large infrastructure to small- and medium-sized businesses.

WRI's report, "Multilateral Development Bank Lending Through Financial Intermediaries: Environmental and Social Challenges," finds that MDBs often support loans to FIs based only on a limited assessment of potential environmental and social impacts of subprojects.

"Large lending banks such as the IFC should require the same standards for all projects, whether the lending is direct or channeled through a financial intermediary," said Atiyah Curmally of WRI, who co-authored the report with WRI's Jon Sohn and Christopher Wright. "As it stands now in the draft performance standards, a large percentage of IFC lending may not require application of environmental and social standards -- a potentially significant loophole."

The report surveys the current FI lending practices of three leading MDBs: the European Bank for Reconstruction and Development (EBRD), the Inter-American Development Bank (IDB) and the IFC. The growing practice of MDB lending through FIs currently consists of between 20 percent and 40 percent of MDB annual private-sector investments in developing countries. By 2003, approximately 35 percent of the IFC's total cumulative commitments, or $5.89 billion, were investments in finance, insurance, or collective investment vehicles. The IFC is the largest provider of equity and debt to private-sector companies in emerging markets. The report's findings are based on interviews with staff members at various MDBs and a survey of MDB publications.

WRI's report recommends that MDBs:

World Resources Institute

World Resources Institute

The World Resources Institute (WRI) is an environmental think tank that goes beyond research to find practical ways to protect the earth and improve people's lives. Our mission is to move human society to live in ways that protect Earth's environment and its capacity to provide for the needs and aspirations of current and future generations. Because people are inspired by ideas, empowered by knowledge, and moved to change by greater understanding, WRI provides—and helps other institutions provide—objective information and practical proposals for policy and institutional change that will foster environmentally sound, socially equitable development. WRI organizes its work around four key goals:

People & Ecosystems: Reverse rapid degradation of ecosystems and assure their capacity to provide humans with needed goods and services.

Access: Guarantee public access to information and decisions regarding natural resources and the environment.

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