As the private sector lending arm of the Inter-American Development Bank (IDB) Group, IDB Invest holds the potential to drive investments that promote sustainable economic and social development in Latin America and Caribbean (LAC). However, as BIC’s report reveals, IDB Invest has a troubling tendency to pursue projects that are not only misaligned with its institutional goals, but also fail to generate positive outcomes. In many cases, IDB Invest projects cause significant harm to the environment and local communities.
The report highlights significant gaps and challenges in IDB Invest's environmental and social performance, focusing on its failure to consistently apply its Sustainability Policy and Access to Information Policy across its project portfolio. It is clear that there are serious deficiencies in IDB Invest’s approach to project selectivity, social and environmental due diligence, and client screening and selectivity. These findings align with a recent evaluation by the IDB's independent Office of Evaluation and Oversight (OVE).
Only 25 percent of IDB Invest’s projects achieve intended results, and the institution continues to repeat past mistakes by failing to integrate lessons learned into its project design. Key issues at IDB Invest, detailed in the report, include:
- Lack of strong environmental and social due diligence and compliance. Project monitoring done by BIC and partners reveals that IDB Invest often fails to comply with its environmental, social, and access to information policies throughout the project cycle. These concerns align with the findings of the performance evaluation developed by OVE, which found that a large portion of IDB Invest’s portfolio fails to contribute effectively to the IDB’s goals. Approximately one-third (of operations) show signs that their development objectives may be difficult to achieve and thus require active supervision and implementation of corrective measures.
- Weak environmental and social team. IDB Invest lacks a strong environmental and social team with the technical capacity to analyze the key environmental and social issues and conduct thorough due diligence and assessments on projects.
- Lack of capacity to systematically learn lessons from past projects. OVE noted that, although there is a process in place to identify lessons learned from operations, incorporating such lessons in the design of new projects is still “incipient.” BIC’s project monitoring experience confirms OVE’s assessment, and shows that IDB Invest fails to incorporate lessons from its mistakes in previous projects into future investments.
- Lack of development effectiveness and misalignment of projects with the objectives of the IDB group. This issue was highlighted by the OVE assessment, which noted that effectiveness ratings were negative for 38 of 51 operations (75 percent). Three out of four projects from IDB Invest fail to reach the expected project goals, undermining IDB Invest's credibility and its mission to support sustainable and inclusive development in the LAC region.
- Lack of a clear definition of project additionality. Additionality refers to key inputs the IDB provides to a client and project that are not available from other funding sources. It can be financial (e.g., providing financing or innovative financing structures) and non-financial (e.g., helping clients structure more sustainable projects in terms of environmental, social, and governance standards). According to OVE, IDB Invest lacks a clear definition of "additionality," which should guide project and client selection. This ambiguity has led to misaligned interpretations among IDB Invest’s Board and Management of what types of projects bring additionality, and what IDB Invest’s commitment to additionality should be. IDB Invest’s inconsistent approach to additionality has resulted in the allocation of public funds to already profitable private companies, many of which have poor environmental and social track records.
- Lack of strong strategic project and client selectivity. BIC’s project monitoring experience aligns with findings from the review by OVE, showing that IDB Invest lacks an integrated selectivity framework to guide its operations and client screening effectively. IDB Invest's project and client selection processes are neither strategic nor aligned with the institution's priorities. The selection process is further marred by a lack of transparency, inadequate due diligence, and failure to properly assess environmental and social risks.
In this report, we share several case studies from Argentina, Guatemala, and Honduras as examples of IDB Invest’s poor project selection, weak stakeholder engagement, and inadequate consideration of environmental and social impacts. In Guatemala, Ecuador, Chile, and Paraguay, case examples demonstrate IDB Invest’s lack of compliance with environmental and social standards and poor transparency and information disclosure practices. These cases reflect systemic issues in IDB Invest's project appraisal and supervision processes.
In the brief, BIC provides recommendations for IDB Invest to address the structural and systemic issues presented above. Without significant reforms, IDB Invest risks continuing to fail in its mandate to support sustainable development and improve the lives of people in the LAC region.