What should MDBs do to improve their role as catalyzers of a just transition in Latin America's energy sector?

Tackling the climate crisis requires a substantial increase in financing for renewable energy generation. Multilateral Development Banks (MDBs) play a pivotal role as catalysts, facilitating the mobilization of these crucial funds. However, in the Latin America and the Caribbean (LAC) region, the extraction of critical minerals, which are essential for driving the global energy transition, is exerting significant pressure on local ecosystems and communities.

This update is a summary of the conclusions of the article “Los bancos multilaterales de desarrollo y su apoyo a la minería de transición” in the Informe Ambiental 2024 “Contra la corriente Perspectivas para garantizar  el derecho al ambiente sano” compiled and published by FARN (Fundación Ambiente y Recursos Naturales)

MDB projects currently supporting the mining sector in LAC—such as IFC and IDB Invest’s Sal de Vida—have been strongly criticized by local communities for failing to comply with performance standards, such as stakeholder engagement and disclosure and the assessment and disclosure of cumulative impacts. As IFC and IDB consider expanding their investments in LAC´s energy sector, questions persist about how this model generates benefits for local communities, how the costs and externalities are distributed, and what needs to happen to increase compliance with social and environmental standards.

With this in mind, BIC has developed a series of recommendations to improve the role of MDBs at the project and mainstream levels.

  1. Promote a discussion on what an “enabling environment” for the mining sector means, considering long-term social and environmental implications. MDBs should support country platforms and governance agreements for an energy transition adapted to the local context, opening space for effective participation of impacted communities, civil society, scientists, and other relevant stakeholders. MDBs can also play a role supporting technological innovation to reduce mineral intensity and the footprint of mining critical minerals, such as storage efficiency, metal reuse, and developing substitute materials. 
  2. Carry out cumulative impact assessments that take into account the limits of ecological systems. MDBs should adopt a landscape-level approach to consider aggregated direct and indirect impacts of their projects within the natural boundaries of ecosystems. The current project-fragmented environmental impact assessment documents presented by private companies usually fail to develop a proper definition of the project-affected area and identify the interaction of their activities at a basin level (eg. in the basin where Sal de Vida is being implemented, there are 11 ongoing lithium projects). The estimation of project impacts should also consider impacts throughout the project’s life cycle (preparation, implementation, and closure). 
  3. Clarify the additionality of MDBs. MDBs justify their support for private sector-led projects based on the financial and non-financial additionality they can bring to such investments. However, as a recent report by the Office of Evaluation and Oversight (OVE) indicated for IDB Invest, the current definitions of additionality are unclear and misaligned with the development goals of the institution. MDBs should establish clear and consistent definitions of additionality that prioritize developmental impact, such as promoting inclusive growth, prioritizing development benefits for local communities, addressing market failures, or catalyzing investments that benefit marginalized groups. 
  4. Improve project-selection criteria. MDBs should only finance projects that bring regions and communities closer to achieving the Sustainable Development Goals (SDGs) and are aligned with the MDBs' objectives of reducing poverty and inequality, as well as with national strategies and climate action commitments. Adopting more consistent strategies upstream and procuring alignment with environmental and social standards will lead to implementing better projects downstream.
  5. Improve access to project benefits. New and existing mining projects supported by MDBs should promote wider benefits for the communities where the extractive activities are taking place, and should improve their use of the mitigation hierarchy to avoid and compensate communities for the expected impacts. In addition, projects should promote programs where local communities – jointly with companies and/or the public sector – can add value to the extracted mineral resources in those regions. 
  6. Redouble the principles of good governance, which include transparency, access to information, and stakeholder engagement. MDB projects should improve their stakeholder engagement processes to allow all stakeholders to voice their concerns. Further, their inputs should be effectively considered in project design and implementation, preventing situations of cooptation or social washing. Mining companies should forge genuine alliances with local communities where their voice is respected and taken into account. Mining projects will be improved by the consideration of traditional and indigenous knowledge. 
  7. Improve alternatives analysis. In mining projects, MDBs should always consider alternatives to a proposed project and should only adopt the least environmentally and socially harmful alternatives to minimize adverse impacts and risks. 
  8. Improve project supervision. More consistent and systematic project monitoring is needed to confirm that what is found in project documents is also happening on the ground in implementation.