How can MDBs strengthen sustainable infrastructure finance?

Multilateral Development Banks (MDBs) have the potential to play a major role in assisting low-income countries to achieve development goals along with climate resilience and mitigation through sustainable infrastructure financing. While these infrastructure projects promise environmental sustainability, social development, and economic growth, MDBs must improve project planning and safeguards implementation to attain the triple win.

As world leaders gather this month at the US-led Climate Summit and consider how to “build back better,” Multilateral Development Banks (MDBs) are expected to play a key role in advancing the summit’s resulting goals. Sustainable infrastructure financing is a critical tool MDBs have increasingly used to address the climate crisis as it simultaneously enhances access to basic services, economic growth, and climate resilience. Though MDBs often highlight such triple wins, infrastructure projects still have the potential to cause great environmental and social damage. 

Typically, MDBs and their clients understand sustainability exclusively in environmental terms, but for an infrastructure project to be fully sustainable, it needs to encompass the four capitals: built capital, human capital, social capital, and natural capital. (MDBs provide financial capital.) Fortunately, new MDB guidance documents, such as the IDB Sustainable Infrastructure framework, encourage infrastructure projects to integrate considerations for the four capitals through upstream planning and strong coverage of environmental and social criteria at the project preparation and design stages. The implementation of this additional guidance improves the effectiveness of safeguards requirements, including environmental and social impact assessments and management frameworks (ESIA/ESMF), stakeholder engagement, inclusion of marginalized groups, access to project benefits, gender equality, health safety, biodiversity protection, and the prevention and mitigation of pollution and other project risks. Integrated upstream planning is essential for infrastructure finance to move beyond a “do no harm” approach to embrace innovation and provide lasting social and economic co-benefits to communities. Additionally, avoiding project-related harms requires that MDBs fully implement their safeguards.

Our partner INESC recently monitored a river transport infrastructure project in Brazil that exemplifies the risk built infrastructure, even if sustainable in principle, can pose to communities and the environment when MDBs neglect safeguard implementation. This river transport project was far preferable to building new roads in the Amazon, given the high toll of such roads on the environment, yet the local community still suffered from the resulting unmanaged growth in commodity agriculture, local truck traffic, and damage to local fishers’ livelihoods. Had the IFC properly enforced its Performance Standards, its client could have supported the four capitals better through meaningful stakeholder engagement and a rigorous ESIA to inform measures to prevent and mitigate harm. 

Increased financing of sustainable infrastructure projects is essential to achieve a green recovery, but the MDBs need to improve their design and implementation of these projects. To best support the four capitals that make infrastructure projects sustainable, MDBs should

  1. Complete timely spatial planning at the ecosystem scale and protect biodiversity. When determining where physical assets will be located, MDBs must plan at the ecosystem scale to account for the overall impacts the physical infrastructure will have on the surrounding environment and its ecosystem services. Conducting spatial planning at the ecosystem scale also requires MDBs to consider the secondary impacts and the accrued cumulative impacts from multiple projects affecting the ecosystem, including those financed by other institutions and the private sector.[1] MDBs need to complete ESIAs well in advance of feasibility studies so that ESIA findings can inform the project design. As a high percentage of people in lower-income countries are directly dependent on the land for their livelihood, sustainable infrastructure projects need to recognize this dependence by protecting forests and other natural ecosystems and integrating biodiversity maintenance into the project design.   
  2. Implement meaningful stakeholder engagement and strengthen access to project benefits, particularly for marginalized groups. Infrastructure will not be sustainable if it fails to take into account the needs, wants, and existing traditional practices of local populations. As IDB and others have recognized, MDBs must consult with local stakeholders, including marginalized groups, throughout the project cycle to include their feedback into project design and mitigate harmful impacts of the project. Local communities know the area and its particular features better than others, and they often use traditional or artisanal practices that are more sustainable than those from outsiders to maintain their livelihoods. MDBs should draw from this valuable knowledge to shape infrastructure planning and maintenance. 
  3. Plan for an influx of workers and new residents. Infrastructure projects often result in an increased number of people coming to the area, whether seeking employment or improved quality of life. However, these people will still have a need for other basic public services and may increase risks for those in the area. When designing infrastructure projects, MDBs should work to prevent harm (including sexual exploitation, abuse, and harassment) resulting from worker influx while integrating complementary public services like sanitation, water, electricity, transportation, healthcare, and education that will enhance both the safety and success of the project.   
  4. Prioritize land titling and registration: Infrastructure development in areas without clear land titling exacerbates land grabbing, unsustainable resource exploitation, and under-investment in the land itself. When people have legal ownership of land, they are better equipped and inclined to care for and invest in it. Especially in areas where governments have not recognized the land tenure of Indigenous Peoples and other traditional communities, MDBs need to work with communities and governments to determine clear ownership and responsibility for both public and private lands prior to construction.

MDBs will have a major role to play in the adoption of sustainable infrastructure, but for a green and equitable recovery, these institutions must rigorously implement their safeguards and reframe the concept of sustainability to include built, human, social, and natural capital.

[1]Timothy J. Killeen, Ph.D.: A Perfect Storm in the Amazon Wilderness: Development and Conservation in the Context of the Initiative for the Integration of the Regional Infrastructure of South America (IIRSA), p. 9; Conservation International, 2007.