Policy positions shared by European DFIs
DFIs who are members of the EDFI Assocation share common positions on many fronts, from responsible financing to mobilisation, and more.
Responsible Financing
European DFIs invest to make a significant contribution towards the Sustainable Development Goals (SDGs) and the Paris Climate Agreement.
They invest with the aim of having a positive impact, and we strive to ensure respect for human rights, and environmental and social sustainability. Responsibly managed private sector enterprises, supported by EDFI members, play a vital part in achieving sustainable development: they create jobs, boost growth, and fight poverty and climate change. Such businesses also set an example for other private enterprises.
EDFI member institutions have endorsed a set of commitments for an approach to responsible financing of sustainable development, encompassing responsible financing, impact management and transparency. The commitments are set out in the “EDFI Principles for Responsible Financing of Sustainable Development.”
The principles outline a EDFI-member-agreed list of joint ambitions on climate- and energy-related finance, including key commitments to mobilise private investments aligned with the Paris Agreement. The EDFI Statement on Climate and Energy Finance aims to signal a real ambition for the sector while recognising the development needs of the countries European DFIs invest in.
EDFI members have agreed on harmonised environmental and social standards encompassing:
- Environmental and Social Category Definitions
- Requirements for Environmental and Social Due Diligence
- MDB IDFC Common Principles for Climate Mitigation Finance Tracking
- EDFI Exclusion List (applicable to mutual financing activities)
- EDFI Fossil Fuel Exclusion List (applicable to all financing)
These standards are all reviewed regularly. Benchmarks for the EDFI members are the UN Declaration of Human Rights, the ILO Core Conventions and the IFC Performance Standards on Economic and Social Sustainability and associated Environmental and Health & Safety Guidelines.
Sustainable Finance Regulatory Framework: Unleashing Global Gateway by adapting EU sustainable finance rules
The EU’s sustainable finance framework operates, in part, by promoting the mutual exchange of information among entities subject to the same rules and relying on linkages to other EU laws and regulations. While this creates a coherent regulatory ecosystem within the European context, it presents challenges for European investors in Low- and Middle-Income Countries (LMICs), where EU regulations are not applicable and regulatory frameworks differ.
Investors seeking to apply the EU Sustainable Finance framework outside the European Union also face other challenges, including:
- ESG Data Availability: Companies in LMICs frequently do not disclose, and may not realistically be able to disclose, sufficiently extensive and reliable information for investors to comply with their obligations under the regulations.
- Reliance on European Law: The framework’s reliance on European law, such as in the Taxonomy’s requirement that economic activities “do no significant harm” (DNSH), creates challenges in LMICs where different regulatory frameworks exist.
- Criteria Not Adapted to LMICs: The stringency of regulations written for developed markets risks overlooking the significant benefits of investments in LMICs that put companies on a path towards sustainability.
- Exclusion of Third-Country Investments: The non-recognition of third-country investments in the Taxonomy’s Green Asset Ratio calculation makes climate-focused investments in LMICs appear as if they are not sustainable, discouraging such opportunities.
For example, Netherlands-based FMO, a DFI, invested almost €1.1 billion in green projects in 2023, financing emissions reductions of over 2 million tons of CO2 equivalent. Yet its Green Asset Ratio is technically 0. If such ratings discourage investors from pursuing investments in developing countries, it slows the flow of finance to combat climate change outside the European Union.
To address these challenges and support the mobilisation of private investment for climate, environmental, and social objectives in LMICs, the EU Sustainable Finance framework can be adapted through a handful of measures.
See the EDFI Sustainable Finance Regulatory Framework report
Human Rights
Summary on investments and human rights
With respect to investments and human rights, EDFI has prepared a summary of the principles and standards that EDFI members apply to ensure that their operations and those of their clients take due account of their human rights commitments and promote human rights improvements.
Gender
Advancing Gender Smart Investing
EDFI members have been actively building partnerships and tools to advance gender finance. over the last years. In particular, EDFI members are committed to mobilising capital to advance women as leaders, entrepreneurs, employees and consumers, using gender-smart approaches, and achieving more pipeline and/or better commercial outcomes.
DFI Benchmarking
DFI Market Benchmarking Guidelines
EDFI members aim to provide sustainable, long-term financing on market-based terms, in order to “crowd in” rather than “crowd out” private investors while achieving the intended development impacts. A taskforce composed of expert practitioners from EDFI member institutions has developed this guidance note that considers challenges, limitations and potential best practices for EDFI members – and other DFIs – to follow the principle of financing on market-based terms by using benchmarks.
Taxation
European DFIs often operate in challenging institutional environments, where inadequate foreign investment protection laws, dispute resolution mechanisms, judicial enforcement and regulation of foreign exchange transactions increase investment risks substantially. DFIs must take appropriate action to mitigate these risks in a responsible manner, while respecting the sovereignty of countries to decide on their tax policies and regimes. European DFIs recognise that taxation has become a key component of the development of sustainable and responsible businesses, and that the issue of tax avoidance is an increasingly complex problem internationally, given the globalisation of value chains and the existence of competing tax systems. International coordination has gradually intensified to develop and enforce tax transparency standards for instance through the launching of the Global Forum on Transparency and Exchange of Information for Tax Purposes in 2009.
European DFIs commonly use intermediary jurisdictions called offshore financial centers (OFCs) when structuring investments because a substantial number of their target countries do not possess the legal, judicial, regulatory and financial infrastructure to accommodate the requirements of institutional investors seeking to invest in the private sector in developing countries. They have established a working group in 2011 to develop and maintain shared guidelines for transactions involving European DFIs and entities domiciled in OFCs. The working group’s role is to review these guidelines with the aim of further harmonising the EDFI approach to investing through intermediary jurisdictions. It concluded that European DFIs commonly participate in investment structures involving OFCs when this fits the purpose of mobilising private finance towards developing countries and thereby helps to fulfil their development mandates.
However, responsible taxation practices extend beyond appropriate usage of OFCs, hence the need to take a more holistic approach and constantly revise these guidelines and commitments. Therefore, the working group has developed a set of principles that have been endorsed by EDFI members for their approach to responsible tax practices. These principles have been finalised and adopted in May 2018. You can download them here.
The EDFI working group will periodically exchange experiences among DFIs, monitor activities and reports of the OECD, EU and other international institutions, and engage in dialogue with relevant stakeholders on these principles.
Blended finance
Donors and DFIs, including all the institutions in the Private Sector Roundtable, share a goal to mobilise more private capital towards developmental priorities. Scaling up the use of blended finance in the private sector – the strategic use of concessional finance along DFI and commercial investment – has now become a key driver in pursuit of the SDGs. The DFI Working Group released a report DFI Blended Concessional Finance Working Group Joint Report (2021), which highlights the implementation of blended concessional finance by DFIs and MDBs in 2020 – including 15 EDFI members – and the DFI own account and private co-finance invested in transactions alongside the concessional funds. The 15 European DFIs are also part of the Blended Finance Taskforce, which also includes the OECD Development Centre and Convergence. Read more about the role of blended finance in achieving the SDGs in Policy Perspectives, a document published by the OECD. The OECD DAC Principles for Unlocking Commercial Finance for the SDGs were approved at the DAC High Level Meeting on 31 October 2017. Read more about the principles here.
Mobilisation of private capital
Mobilisation in development finance for European Development Finance Institutions (DFIs) refers to their efforts to attract and leverage private capital for investments in developing countries and emerging markets. In 2023, European DFIs mobilised €4.4bn in private finance globally. European DFIs, as part of their strategic focus, aim to significantly increase this number to support the achievement of the UN’s 2030 Agenda goals. This involves using various financial instruments, blended finance approaches, and partnerships to catalyse additional private sector investments in projects that contribute to job creation, economic growth, poverty reduction, tax income and climate action in low- and middle-income countries. By mobilising private capital, DFIs can generate more impact per dollar of public funds and help bridge the financing gap for sustainable development projects in regions where traditional investors may be cautious to engage due to perceived risks.