How can the DFC strengthen its environmental, social, and accountability standards?

The Development Finance Corporation (DFC), formerly the Overseas Private Investment Corporation (OPIC), was established in 2018 through the BUILD Act. As the U.S. Government’s development finance institution, the “DFC partners with the private sector to finance solutions to the most critical challenges facing the developing world today.” The DFC’s Environmental and Social Policy requires the institution to use the International Finance Corporation’s Performance Standards (PSs) as its safeguards framework. During its first full year, the DFC failed to meaningfully apply the PSs. Specifically, DFC projects lacked transparency and accountability to stakeholders and failed to meet the environmental and social standards that the U.S. requires at the Multilateral Development Banks (MDBs) of which it is a member. 

Despite these past failures, we are encouraged by the DFC’s change in rhetoric and tone under the new leadership team, and look forward to hearing from the DFC CEO and Deputy CEO nominees during Senate confirmation hearings. We hope these nominees will prioritize aligning the DFC’s environmental and social standards and accountability and transparency mechanisms with what the U.S. requires at the MDBs. Holding the DFC to the same standards as the MDBs is an essential step for the U.S. to preserve its credibility at the MDBs, with international partners, and with project-impacted communities. We urge the CEO and Deputy CEO nominees to commit to advancing the following goals at the DFC:

1. Cooperate with Treasury’s Office of Development Results and Accountability (ODRA). ODRA works closely with U.S. representatives at the MDBs to determine U.S. voting positions on individual projects, and monitor projects to confirm they meet required environmental and social standards. The DFC should coordinate with ODRA to achieve greater policy consistency between the MDBs and the U.S.’s own development finance institution. 
2. Match the Pelosi Amendment MDB disclosure requirement. This provision requires U.S. Executive Directors at the MDBs to abstain or vote against any project with significant environmental impacts if an appropriate environmental assessment has not been conducted and made available to the public 120 days before a vote.[1] Currently, the DFC requires the disclosure of projects with heightened environmental or social risk 60 days before Board approval, hindering opportunities for civil society and project affected communities to have a voice in the approval process. The DFC routinely fails to provide adequate notice for public comment periods on policies. These shortcomings prevent the DFC from carrying out the effective stakeholder engagement necessary to achieving inclusive and equitable development and critical to providing full access to project benefits for marginalized groups, including persons with disabilities, gender and sexual minorities, Indigenous Peoples, and other local communities.
3. Commit to ending investments tied to fossil fuels. Under the Biden administration, the U.S. rejoined the Paris Climate Agreement, and President Biden issued a sweeping Climate Executive Order (EO) — both important steps in renewing the U.S.’s commitment to climate action. The DFC should cease support for new extractive/fossil fuel projects[2] as part of a broader exclusion list in line with Section 102 (f) of Biden’s new climate EO.[3] Moreover, the DFC should align its portfolio with the Paris Climate Agreement’s goals, including the 1.5-degree target, and prioritize support for renewable energy, energy efficiency, and low-carbon development. 
4. Establish an independent Office of Accountability. An independent accountability mechanism is necessary to effectively provide redress when projects harm communities and/or the environment. Currently, the budget for the DFC’s Office of Accountability (OA) is part of the DFC’s total budget, impeding the ability for the OA to have true independence. We encourage the DFC to model its accountability mechanism after the World Bank’s Independent Accountability Mechanism (IAM), which is funded separately from the rest of the Bank, and request a separate budget line item for the OA. A separate budget for the OA would help the DFC preserve the independence of its accountability mechanism, avoid conflicts of interest, and create a more proactive approach to addressing harm and complaints from projects. Following the World Bank accountability structure, we also recommend the DFC establish a zero-tolerance policy on reprisals and develop clear protocol to respond to reports of reprisals. 
5. Increase the frequency and quality of DFC public hearings. Under the BUILD Act, the DFC is only required to hold two public hearings per year, with little to no response from management or the Board during these meetings. The DFC’s public hearings should be more frequent and meaningful, allowing communities and stakeholders to voice their project concerns to DFC management, and management should provide substantive responses. BIC encourages the DFC to model its engagement with civil society and communities after Tuesday Group, the Pelosi amendment mandated monthly meeting between civil society and the U.S. Government on MDB-related issues, which serves as a forum for dialogue between impacted communities, civil society, and the inter-agency.

BIC urges the DFC to align its policies and practices with what the U.S. Government requires at the MDBs, not only to strengthen the credibility of the U.S. at the MDBs, but to achieve more inclusive and sustainable development outcomes. Engaging in more meaningful stakeholder engagement, establishing transparent information disclosure policies, and creating an independent accountability mechanism are crucial steps to fulfill the DFC’s development mission. 

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[1] https://www.everycrsreport.com/reports/98-180.html

[2] With the exception of projects designed to capture GHG emissions, e.g. methane leaks resulting from oil or gas extraction, when part of an overall strategy to reduce GHG emissions intensity of the energy sector. 

[3] “(f)  The United States will also immediately begin to develop a climate finance plan, making strategic use of multilateral and bilateral channels and institutions, to assist developing countries in implementing ambitious emissions reduction measures, protecting critical ecosystems, building resilience against the impacts of climate change, and promoting the flow of capital toward climate-aligned investments and away from high-carbon investments.”