Infrastructure finance and sustainable development: Who is keeping their paths apart?

Rethinking Bretton Woods | Sun, Jun 19, 2016

By Aldo Caliari

RBW Project Director reviews a recent study commissioned by the Heinrich Boell Foundation to assess whether the Organization for Economic Cooperation and Development's advice to the Group of 20 on infrastructure finance is coherent with sustainable development goals and commitments.

For several years the Group of 20 (G20) has been increasing the intensity of its focus on infrastructure investment, resulting since the beginning of 2014 in the launch of a Working Group on Investment in Infrastructure. Over those years, the G20 has tasked the Organization for Economic Cooperation and Development (OECD), whose membership comprises 34 countries, to provide numerous technical inputs for its work on infrastructure. The OECD is, indeed, one of the most visible and prolific of the international organizations acting as resources for the G20, often co-branding its reports with the grouping. A recently-released report, “In Search of Policy Coherence: Aligning OECD Infrastructure Advice with Sustainable Development,” puts this facet of the organization’s work under the spotlight.

The study, commissioned by the Heinrich Boell Foundation to researchers at the Institute for Human Rights and Business, could not come at a more crucial moment. This year governments all around the world began implementation of the 17 Sustainable Development Goals (SDGs) agreed last year by their Heads of State. With estimates placing the investment requirements in the trillions, the availability and form of investment commitments to meet the SDGs will significantly shape the chances of success while having also a significant impact on human rights. Sound ideas on how to make investments policies coherent with the SDGs by organizations like the OECD (all of whose members, of course, are among the signatories to the SDGs) will be a crucial piece in enabling such achievement.

In turn, this year’s Chinese Presidency of the G20 has announced its intention to promote close coordination and interaction with the 2030 Agenda –of which the SDGs are part and parcel – and that G20 members should take the lead in implementing it. Some proposals would see the grouping taking an even more active role in implementing the goals. At a minimum, claiming roles like these requires that the grouping’s infrastructure work be informed by advice that reflects some minimum standard of coherence with sustainable development. Without them, and against all best intentions, G20 actions may end up undermining, rather than supporting, the SDGs. The already struggling legitimacy of the forum may further suffer in the process.

The findings of the study do not give cause for relief. Looking into whether the OECD aligned its infrastructure and development work with sustainable development, the authors concluded that most OECD documents addressed to the G20 lack any significant sustainable development content or advice on how to prepare for the SDGs, particularly Goal 9 concerning resilient infrastructure. This was all the more surprising because the OECD does have a program on green infrastructure. This one is treated as a separate field than “regular” infrastructure.

The G20’s work on infrastructure puts an emphasis on the “enabling environment” that should exist in the recipient countries to attract infrastructure investment. Civil society experts have questioned the imbalanced nature of these prescriptions, targeted particularly at guaranteeing institutional investors above-average returns. They ignore that ultimately investments in infrastructure are paid by the public (through government transfers and subsidies to the operating companies) and users (through levies and user fees). The research for the report inquired whether the OECD’s advice places environmental and social indicators alongside economic ones. It found a preference for protecting the interest of investors, rather than those of users, stakeholders and citizens.

Another important issue the report addressed had to do with the integration of environmental and social criteria or responsible business conduct into the advice on infrastructure. This is of particular importance in the context of the G20 proposals that seek to increase reliance on financing by institutional investors. The OECD Guidelines on Multinational Enterprises were reformed in 2011 to better reflect the UN Guiding Principles on Business and Human Rights. The OECD’s advice would have been a crucial channel to state how the behavior of the institutional investors – whose allocations to infrastructure the G20 proposals seek to encourage – could target mitigation and avoidance of harm in this human rights-sensitive field. But a review of a flagship set of guidelines for institutional investors –the High Level Principles on Long Term Financing by Institutional Investors, and its accompanying more than 400 paragraphs of “Effective approaches” to doing so – shows little connection to the OECD version of responsible business conduct, let alone the said UN Guiding Principles.

The study echoes these concerns: “Somewhere in the process, investment volume seems to have become a goal in and of itself, rather than a means to a sustainable outcome in infrastructure investments,” it says. The implied message to the G20 bank and finance ministries is, thus, that “policies to encourage sustainable development and responsible business conduct are of little or no relevance to improved public governance of infrastructure.”

The report also reflects on the dynamics that may have led to such results. The report mentions as a possibility that a complex political environment at the G20 and the specific terms of reference the grouping sets for contributions it commissions from the OECD are factors to consider. These would render OECD-provided inputs to the G20 less holistic than what its broader work and research products would otherwise enable the OECD to offer. G20’s specific requests to not duplicate in the area of infrastructure investment the advice provided to other working groups would compound matters by forcing a compartmentalization of the advice along the functional division of its working groups. For instance, “development matters” would have to be fed to the G20 Development Working Group and kept apart from the advice to the G20 Investment in Infrastructure one.

The researchers, it is worth noting, indicate OECD staff as the source of such insights, but do not seem to have corroboration through testimony of G20 members, thus making the justification highly speculative. In fact, one cannot rule out the entirely opposite possibility: that the OECD inputs –and its own internal divisions of work -- are the ones that condition the G20’s compartmentalized approach to the issues. Ultimately, as stated by the authors of the study, “there is no way for those outside the relationship to know exactly how it works.”

On its face, it seems civil society has no choice but to advocate on both, the supply and the demand side. The OECD should re-examine its work program and structure to draw out its existing positions on sustainable development and the SDGs. The G20 Central Bank Governors and Finance Ministers track should unequivocally demand such coherent policy advice.

With long term investments made now being in a position to determine if the world is locked in or out of a path to reach the SDGs by 2030, there has never been more at stake.

Click here to download the full study.

This blog was written for RightingFinance, from where it is reproduced with permission.