How can Congress improve the environmental, social, and accountability policies of IDB Invest through conditions on a general capital increase?

In March 2024, the U.S. Treasury Department supported a $3.5 billion general capital increase (GCI) at the Inter-American Investment Corporation (IDB Invest), the private sector lending arm of the Inter-American Development Bank (IDB). However, the GCI requires congressional authorization before the U.S. can appropriate funds to IDB Invest. On July 25, 2024, the Senate Appropriations Committee approved the State, Foreign Operations, and Related Programs (SFOPs) Fiscal Year (FY) 2025 appropriations bill, which would authorize the IDB Invest GCI provided that Treasury certifies the IDB Group has made “satisfactory progress” in implementing reforms that improve the institution’s effectiveness, efficiency, and responsiveness. While we support increased Congressional oversight of IDB Invest, the conditions in the Senate’s FY25 SFOPs bill do not go far enough. Should Congress move forward with authorizing a GCI at IDB Invest, we encourage policymakers to condition the authorization on IDB Invest’s creation of a remedy policy and improved implementation of its environmental and social (E&S) standards, including strengthening the capacity of the E&S team.  

A General Capital Increase at IDB Invest

MDBs seek GCIs from shareholders to increase their total lending capacity. IDB Invest’s request for a GCI comes as the IDB Group implements its new Institutional Strategy, which includes reforms aimed at maximizing the IDB’s scale and impact and improving the institution’s development effectiveness. However, the reforms in the Institutional Strategy do not address IDB Invest’s structural issues in the implementation of its E&S and access to information policies and it does not lay out IDB Invest’s responsibility to provide remedy when its projects harm communities and the environment. 

The GCI conditions in the FY25 Senate SFOPs bill require IDB Invest to make “satisfactory progress” on “reforms that increase responsiveness to the development needs…improve the effectiveness…foster the development of a vibrant private sector . . . help address global and regional challenges… and promote more efficient use of [IDB Group's] financial resources,” matching the goals of the new Institutional Strategy. However, as mentioned above, the new Institutional Strategy does not meaningfully address IDB Invest’s E&S due diligence, accountability, and transparency issues. Therefore, conditioning U.S. authorization on the Strategy’s implementation is a missed opportunity to push IDB Invest to improve how it implements projects and provides remedy to communities.  

Access to remedy and implementation of E&S policies 

IDB Invest repeatedly approves projects without correctly identifying and addressing key E&S issues, fails to provide remedy when its projects cause harm, and exits projects before implementing remedial measures and without community consent. IDB Invest’s failures to implement its E&S policies can be seen across its portfolio, including in the Pronaca, CMI Alimentos, and Paracel projects. 

For instance, in the San Mateo and San Andres hydroelectric projects in Guatemala, IDB Invest failed to adequately implement its E&S policies and exited before implementing remedial actions. In 2018, communities affected by the hydroelectric plants submitted a complaint to the Independent Consultation and Investigation Mechanism (MICI), the IDB Group’s accountability mechanism. In 2021, MICI published a Compliance Review report that found IDB Invest violated its due diligence policies and failed to properly supervise the project for E&S concerns, including protection of Indigenous Peoples and threats of reprisals. IDB Invest exited the project, limiting IDB Invest’s leverage to push the client to provide remedy for the affected communities. Though MICI recommended that IDB Invest develop a responsible exit plan, two years have passed, and communities are still waiting to see the plan. 

Recommendations for Congress

Expanding IDB Invest’s lending capacity without significant improvements in the implementation of its E&S policies and the creation of a remedy policy will increase the risk that IDB Invest projects harm communities. Should Congress move forward with authorizing a GCI, we encourage Congress to condition authorization on certification that IDB Invest has:   

1. Created a standalone remedy policy, developed through public consultation, that clarifies the exceptional circumstances under which it will contribute financially to remedy (including direct financial contributions) when harms occur. A GCI should also be conditioned on the creation of a separate responsible exit framework that requires the development of responsible exit plans through consultations with project-affected communities. Consultations should be conducted in a culturally and gender appropriate manner and should preserve the security of participants.
2. Improved project supervision to avoid reliance on client self-reporting. IDB Invest needs to enhance project oversight to systematically identify and address issues in project design and implementation. IDB Invest must allocate greater financial resources to E&S monitoring to enable highly skilled and experienced personnel to conduct fieldwork on all high- and medium-risk projects.
3. Strengthened the role of its primary E&S team and elevated the institutional standing of the Sustainability Policy. IDB Invest must be prepared to develop and implement corrective measures when clients fail to meet E&S compliance standards. 
4. Enhanced transparency and proactive disclosure of all E&S and project documents. IDB Invest should proactively disclose all information related to the project’s risks, impacts, and benefits that are required and provided by the client.