Investment for development: The UK’s strategy towards Development Finance Institutions

This is a House of Commons Committee report, with recommendations to government. The Government has two months to respond.

Ninth Report of Session 2022–23

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Contents

1 What is a development finance institution

The purpose of development finance institutions

1. Development finance institutions (DFIs) invest in the private sector to create jobs, deliver impact and generate a financial return. DFIs are usually majority-owned by national governments (bilateral DFIs) or international organisations (multilateral DFIs) such as the World Bank. British International Investment (BII) is the UK Government’s DFI and is overseen by the Foreign, Commonwealth and Development Office (FCDO).2 The main aims of DFIs are to reduce poverty over the long run through private investment, to increase economic opportunity and the growth of the formal sector, where businesses and employees are registered, monitored and taxed by Governments. The FCDO stated that development finance supports poverty reduction through several channels:

a) DFI investments create jobs and boost productivity while increasing the tax receipts needed to finance public expenditure and anti-poverty programmes.

b) Their investments provide goods, services and economic opportunities that directly benefit lower-income populations.

c) Their investments enable structural economic shifts and longer-term benefits that support poverty reduction. For example, investing in broadband connectivity to under-served communities provides direct access to digital services and raises the overall productivity of those economies.3

Nick O’Donohoe (CEO, BII) added that:

countries cannot emerge from poverty without a prospering and successful private sector. The role of development finance institutions is to provide capital to companies to help [them] grow so that […] they can create jobs and […] pay taxes, which in turn allow Governments to provide health, education and other social goods.4

2. As investment institutions, DFIs balance generating impact with making a financial return. As they are largely self-financing organisations, DFIs reinvest the profits made from their investments into new investee businesses. The financial rate of return is a common measure for investments and each DFI will measure its own portfolio’s rate of return.

3. The risk profile of an investment is also a consideration when DFIs invest. The FCDO uses a broad definition of development finance, such that it is the use of public sector resources to facilitate private sector investment for the development of economies where the risks are too high to attract purely private capital, and where the investment is expected to have a positive development impact.5 Samantha Attridge (Senior Research Fellow, ODI) told us that the purpose of a DFI is to go where private investors will not go as the risk is either perceived to be too high or is too high for the return they expect to get.6 She added:

One job of a DFI is to use its capital, tools and advice to structure investment, and to use public money to adjust the risk and return balance, so that it is attractive for the private investor to come in in the first place.7

4. Many DFIs have pivoted to focus on climate, announcing targets for reaching net-zero emissions and commitments to align with the Paris Agreement.8 There is also an emphasis on gender, with most institutions integrating gender into investment decisions and through internal management practices. Part of that has been driven by the 2X Challenge.9 This initiative reports to have raised $16.3 billion for gender lens investments during 2021 and 2022.10 ESG (Environmental, social, governance) standards and business integrity are key areas for DFIs when supporting investees to adopt and implement good business policies and practices.11 Many DFIs have ESG teams that assess an investee business at the outset and then periodically audit performance over the lifetime of those investments.

5. The support that DFIs offer to investees falls under the concept of additionality. Additionality is a contribution that goes beyond what is available, or that is otherwise absent from the market.12 It is a contribution that should not crowd out the private sector.13 Additionality can be both financial and non-financial:

a) Financial additionality supports capital-constrained markets where private sector partners are unable to obtain commercial financing.

b) Non-financial additionality refers to the non-financial value that can be added and which the private sector is not offering. It is ultimately expected that this will lead to better development outcomes. Examples include providing or catalysing knowledge and expertise, promoting social or environmental standards and fostering good corporate governance.

To ensure they are not distorting markets and competing with commercial investors, DFIs are required to show their investments are additional.14

DFIs and the Sustainable Development Goals 2030

6. Multilateral development banks (MDBs) and DFIs are now considered to have an important role in supporting the UN Sustainable Development Goals 2030 (SDGs)15 and the Paris Agreement.16 Covid-19 has however stalled the progress of the SDGs and widened the financing gap for their achievement.17 The UK Government’s 2023 Integrated Review Refresh seeks to reinvigorate progress towards the SDGs and features sustainable development as the UK’s second thematic priority for international policy.18 The Rt. Hon Andrew Mitchell MP, Minister for Development and Africa, also told us that the FCDO is directing BII to focus on the SDGs and climate change.19

7. DFIs are uniquely positioned to attract capital from the private sector.20 They can act as anchor investors in businesses or funds that are in nascent markets or located in fragile states.21 More focus has therefore been placed on MDBs and DFIs to scale up the capital they mobilise from markets and the private sector to meet the SDGs.22 Traditionally, DFIs have invested in companies through equity investing, debt financing, or through financial intermediaries but DFIs are now offering alternative tools so they can find new ways of attracting private sector finance.23 A recent example is through the Climate Finance Plus initiative that aims to mobilise $1 billion of climate financing in emerging markets.24

8. DFIs have, however, received criticism over the investments they make. In 2019, Devex reported that DFI leaders were grappling with how to increase their investments to least developed or low-income countries, how to ensure they were collaborating rather than competing, and how to effectively mobilise private capital rather than crowd it out.25

Types of DFIs

9. There are around 24 DFIs worldwide, which can be categorised into multilateral and bilateral entities.26 At the end of 2021, the total portfolio of the DFI sector was valued at $84 billion.27 At the time of publishing our report, the United States’ International Development Finance Corporation (DFC) was the largest bilateral DFI.28

10. Bilateral DFIs have different governance arrangements that range from being fully owned to having a majority ownership by their respective Governments.29 Each DFI also has its own strategic outlook, and sectoral and geographic mandates. The DFC, for example, focuses on impactful global development, advancing US foreign policy and generating returns for the American taxpayer, whereas France’s DFI, Proparco, focuses on inclusion and sustainability and is committed to becoming the first DFI to fully comply with the Paris Agreement.30 DFIs have also partnered across a number of collaborative forums, such as the 2X Challenge, the Adaptation and Resilience Investors Collaborative (ARIC)31 and Africa Resilience Investment Accelerator (ARIA).32

11. Development finance institutions can make a substantive contribution to developing private markets in low- and middle-income countries by pioneering new and emerging industries, promoting positive change through investment activities and stimulating private-sector investment to develop markets.

2 What is British International Investment

British International Investment (BII)

12. British International Investment (BII) was established in 1948 as the Colonial Development Corporation and has previously operated under the names of Commonwealth Development Corporation and CDC Group. Minister Mitchell told us that CDC Group underwent significant reform in 2011. He said:

When we came into Government in 2010, we determined that CDC had lost its way. It had become a fund of funds. It was not augmenting the development DNA of its antecedents. When it was set up in 1947, it was clearly developmental. We could also see that, in a number of areas where you would expect a development finance institution to be investing, it was not doing that, and so, when we came into Government, we set about reforming it, and it was a pretty brutal process, with hindsight.33

CDC Group rebranded to British International Investment in April 2022, which was deemed “purely a name change”.34 BII’s website makes a distinction between those investments made when BII was named CDC Group and adds a disclosure to each of those investments.35

13. The primary goal of BII is to focus on development and development impact. It claims to demonstrate the financial viability of investing where markets are fragile or have failed to create jobs. It also invests to catalyse private investment and drive sustainable economic growth. Minister Mitchell told us that:

[BII investments are] directly and indirectly providing a million jobs. […] It is paying wages from those investments where tax on the wages is something like $3 billion, and those companies that BII is investing in are paying tax to Governments […] Every £100 that BII invests drags in behind it £82 of private sector money.3637

BII invests capital in businesses either directly (by investing equity or providing loans and other debt finance) or indirectly (by investing through financial intermediaries such as private equity funds, banks or micro-financing entities). BII’s different strategy periods dictate the types of investment activity that BII can undertake and these are defined within its corresponding strategy documents. A previous strategy period may permit a type of investment that might be prohibited under BII’s current strategy. However, BII will remain invested in such business until it divests or the business is sold.

Figure 1: BII’s annual size of its portfolio has consistently grown

Figure 1 shows BII’s annual size of its portfolio between 2020 and 2022. The bars in the chart shows bars show that BII’s portfolio consisted of 1,195 companies in 2020, 1,327 companies in 2021 and 1,476 companies in 2022.

Figure 2: Annual size of BII’s portfolio

Figure 2 shows the annual size of BII’s portfolio by value between 2018 and 2022. The bars show that BII’s portfolio was valued at $5,553 million in 2018, $6,200 in 2019, $7,100 million in 2020, $8,142 million in 2021 and $8,233 million in 2022.

Figure 3: BII’s annual portfolio return (%)

Figure 3 shows BII’s annual portfolio return between 2015 and 2022, as well as its seven-year weighted average. BII report these figures in both Sterling and the US Dollar, which is depicted in this chart. The portfolio return was 22.6 per cent (Sterling) and 5.2 per cent (US Dollar) in 2016; -0.7 per cent (Sterling) and 7.8 per cent US Dollar in 2017; 1.8 per cent (Sterling) and -2.6 per cent (US Dollar) in 2018; -6.2 per cent (Sterling) and -2.1 per cent (US Dollar) in 2019; -3.7 per cent (Sterling) and -0.9 per cent (US Dollar) in 2020; 11.2 per cent (Sterling) and 10.8 per cent (US Dollar) in 2021; and 4.8 per cent (Sterling) and -3.8 per cent (US Dollar) in 2022. The seven-year rolling average was 6.1 per cent.

14. BII’s investment policy sets BII’s geographic parameters. Over its latest strategy period, between 2022 and 2026, it is permitted to invest in Africa and South Asia and has expanded to the Caribbean and Indo-Pacific since 2022.38 This policy has historically been set by BII’s shareholder, the FCDO, and has been adapted over the time that CDC/BII has been in operation. There are investments outside of BII’s current geographic parameters that are active investments within its portfolio.39 On 21 June 2023 the Government announced that BII would expand its operations to support the reconstruction of Ukraine.40 This direction is supplementary to the information that guides BII through its investment policy.

15. Minister Mitchell described BII’s approach to development finance as delivering both pioneer and patient capital.41 Due to this approach, the Foreign, Commonwealth and Development Office (FCDO) considers BII to be a leader across DFIs because it invests in the hardest markets and with the riskiest products.42 Minister Mitchell told us:

I am pretty confident today that you will not find a development finance institution that is better at what it is doing, in terms of the criteria it has been set, than BII.43

Funding BII

16. The UK Government reports its capital flows to BII as Official Development Assistance (ODA), but does not count any profits that arise from BII’s investments as ODA.44 This reporting practice followed a Department for International Development consultation in 2014 into the reporting of ODA from DFIs, which included the then-CDC Group (CDC).45 Current OECD-DAC rules on scoring private finance as aid permit DAC members to take a ‘grant equivalent‘ approach or the ‘institutional’ approach that the UK has taken since the mid-2010s.46

Figure 4: FCDO’s annual capital injection to BII

Figure 4 shows the FCDO’s annual capital injection to BII between 2012 and 2021. The chart shows that there were no capital injections during 2012, 2013 and 2014. An amount of £450 million was transferred in 2015, which decreased to £285 million in 2016. There was an injection of £336 million in 2017, which increased to £742 million in 2018 and £1,008 million in 2019 but decreased to £650 million in 2020 and £446 million in 2021.

2022–26 strategy

17. The FCDO is BII’s sole shareholder and uses an arm’s-length approach for its governance and oversight of BII. The FCDO sets BII’s technical strategy, policy for responsible investing and investment policy ahead of each strategy period.47 The technical strategy sets the parameters of BII’s operations, which include the permitted economic sectors it can invest in, its geographic remit, the proportion of new investments made through climate finance and the proportion of new investments to qualify under the 2X Challenge.4849 In each strategy period, the FCDO sets a financial hurdle return for BII’s investments.50 This is calculated to ensure the organisation remains financially sustainable and will therefore cover its operating costs and be recycled into future investment activity.51 A target impact metric is set for all investments committed to from 2022 onwards.52

18. BII’s current strategy started in 2022 and extends until 2026. It has three priority areas: productive development (e.g., job creation), sustainable development (helping countries respond to climate change) and inclusive development (promoting gender equality and alleviating poverty). The new investment policy confirms BII’s commitment to openness and transparency, such that it will maintain an online database of the companies and funds it has invested in, and it will publish an impact scorecard as part of its annual review.53

19. The new strategy instructed BII to expand its reach to the Indo-Pacific region and Caribbean. This shift aligned with the UK Government’s Indo-Pacific tilt, which is outlined throughout the Integrated Review.54 BII intends to focus on renewable energy within the Indo-Pacific, and expects to invest between £300 million and £500 million in the markets of the Philippines, Indonesia, Vietnam, Cambodia and Laos over the 2022–26 strategy period.55,56 BII also plans to increase its staff numbers to reflect its growth in investment and the proportion of employees based in its investment markets.57 This includes adding representation in Ghana and the Indo-Pacific.5859 In September 2022, BII opened an office in Singapore as its Indo-Pacific base.60

3 Governance

The FCDO-BII relationship

20. The FCDO is the sole shareholder of BII but does not have a seat on BII’s Board. Instead, an arm’s length approach is taken between the two entities. The FCDO guides the strategic direction for each five-year period by setting BII’s technical strategy, policy on responsible investing and investment policy. Decisions over BII’s day-to-day operations are delegated to the BII Board, for which the FCDO directly appoints the Chair and two of the Non-Executive Directors.

21. The FCDO views its absence from the decision-making on individual investments as important. This is so BII is viewed as a credible, long-term, impact-focused investor by its commercial counterparts.61 When asked whether the FCDO should have representation on BII’s Board, Minister Mitchell said:

investment decisions should be in accordance with the terms of the market and are not political.62

The arguments further outlined by the FCDO and Minister Mitchell were:

a) Robust lines of accountability from the Board to the Shareholder: as the FCDO appoints the Chair and two Non-Executive Directors, and sets BII’s strategic objectives and key operating parameters, the Board is held accountable for delivering this strategy. To have an FCDO official on the Board would confuse and blur these lines of accountability.

b) An effective and empowered Board: as sole shareholder, the FCDO takes the view that having an FCDO official on the Board, responsible for providing the Department’s considered view on every decision, would undermine and potentially destabilise the Board and reduce its effectiveness.

c) Independence from political pressure: The independence of BII’s Board sends an important signal to the market. It enables BII to reassure potential investee companies and co-investors that it conducts its activities in a commercial manner—without political interference—and will be a reliable and predictable, long-term business partner: these are attributes its private sector partners value.

d) Commercial reputation: BII’s independence enables it to operate on a commercial basis. The clear demonstration of commerciality helps to increase confidence, and supports the positive impact that BII can have on wider markets and on the perceptions and behaviours of private investors.63

22. BII believes that it already operates a close relationship with the FCDO, and having Board representation could dilute the Board’s focus.64 On the current governing relationship, Nick O’Donohoe told us:

We aspire to have a seamless relationship with FCDO. At any point in time, FCDO should certainly know what our broad strategy is in a country—that should be agreed with them—and it should also know what projects we are working on. FCDO can be enormously helpful, frankly, both in steering us to interesting projects as well as helping us better understand them as we diligence them.65

He added:

[…] at no time in my six years as chief executive of BII have I ever been given instructions by FCDO as to what to invest in or what to divest from. That degree of independence continues to be very important.66

When asked about the structure of BII’s ownership model, Diana Layfield (BII Chair) told us:

there is an alignment with the national interest but not one at the level of operational investment decisions […] I hope it works well for the taxpayer in terms of accountability and the ability to combine a broad alignment with national objectives with a deep focus on development and professionally driven investment decisions.67

23. Some witnesses deemed this an effective governance structure, suggesting that it allowed BII to focus on its public mission and take risks that private shareholders might not be willing to take.68 ODI agreed that the approach taken was effective, but suggested that the FCDO could exert more control by being more specific in BII’s strategy and investment policy.69 Examples provided to our inquiry indicated that this arms’ length approach had resulted in some investments with a clear development rationale, such as MedAccess, a business that provides financial guarantees for pharmaceutical companies to allow them to expand production and reduce the cost of vaccines and medical supplies.70 We also saw first hand the in-country development impact that Worldlink Communications Ltd, a BII investee, brought to remote Nepalese communities. That company has helped to address the regional inequalities between urban and rural communities through increasing internet connectivity.71

24. Yet there are also examples of BII investments that operate at odds with UK Government policies. Investments made prior to a strategy period remain in BII’s portfolio until it exits or disposes of such investments. This has resulted in some legacy investments conflicting with the UK Government’s strategic direction. Action to tackle climate change is a prominent feature of the 2022 International Development Strategy (IDS), and the IDS includes a commitment for all UK ODA to be aligned to the Paris Agreement.72 Yet 9.9 per cent of BII’s portfolio by value was exposed to fossil fuels in 2021.73 There also does not appear to be a definitive path for BII exiting those fossil fuel investments or transitioning its existing investment portfolio to green energy.74 This lags behind other peer institutions, such as the International Finance Corporation (IFC), which has committed to supporting clients in reducing their coal exposure to zero by 2030.75 BII’s Chair, Diana Layfield, repeatedly refused to give us a commitment or timeline for when BII would divest from its fossil fuel investments,76 while Minister Mitchell did not deem it unreasonable for BII to provide an indication of when it plans to exit those fossil fuel investments.7778 However, he added that the Government shouldn’t seek to dictate the precise date of exiting those investments since this might compromise BII’s ability to realise value from the investment.79

25. There have been few attempts to adapt BII’s legacy investment portfolio so it aligns with the UK Government’s development policy. This has resulted in UK aid funding projects that conflict with national priorities, such as those in Mozambique where BII is invested in gas infrastructure while the FCDO works in disaster response and climate resilience.80 While China is recognised as a systemic competitor in the 2021 Integrated Review and the 2023 Integrated Review Refresh81 BII also remains invested in Chinese businesses, including one with links to the Belt and Road Initiative.8283 When questioned about that investment, the FCDO told us:

BII have exposure to the China National Investment and Guaranty Co through CDH China Fund III, LP, which is managed by CDH Investments. The investment in the fund was made in 2006 under a different investment policy, set by the Government of the time, when the requirements of BII were to invest in emerging market funds.84

26. The recent expansion of BII’s geographic remit to Ukraine was a decision taken by the UK Government, following its consultation with BII’s Board.85 It was described as an “in-strategy cycle change […] on an exceptional basis”.86 Minister Mitchell told us that BII is building partnerships in support of this work and the FCDO viewed this move as being aligned with its arm’s-length approach.87 This action by the Government however demonstrates clearly that BII is not free from political pressure. BII has not previously operated within Ukraine but has been instructed by the Government to support Ukraine’s reconstruction. The decisions over individual investments will be led by BII’s partner institutions, the IFC and EBRD. We therefore consider that this arrangement undermines the pre-existing arm’s-length relationship since BII does not appear to be an integral part of this decision-making, but seems instead to be a vehicle for the UK Government to channel funding to Ukraine (see paragraph 41). It is also not clear why the UK Government has chosen to channel the additional funds through BII instead of directly funding the EBRD, which has invested a cumulative €18 billion in Ukraine.8889

27. We note that the United States’ International Development Finance Corporation (DFC), which has also committed to initiatives for the reconstruction of Ukraine,90 employs a contrasting Board composition to that of BII. The DFC has eight Board members, including DFC’s Chief Executive Officer, four Government officials and three private sector representatives.91 This ensures both public and private sector representation, in which the sectors work in partnership and each focus on their areas of expertise. The mix of public and private representation ensures there is an alignment of public policy with DFC’s operations. This public sector representation is seemingly lacking from BII’s current Board composition, which has allowed BII’s investment portfolio to contrast with UK Government priorities, as set out in the International Development Strategy and 2023 Integrated Review Refresh.

28. Under the current arm’s-length relationship, BII holds some investments that conflict with the UK Government’s policies, such as those relating to fossil fuels and there have been few attempts by BII to adapt its legacy investment portfolio to align with UK interests. The recent UK Government decision to expand BII’s remit to assist with the reconstruction of Ukraine demonstrates that the FCDO can intervene to steer BII’s investment activity, even where BII does not have necessary deep country knowledge and experience. The United States’ International Development Finance Corporation (DFC) demonstrates that public sector Board representation is not inherently damaging to a DFI’s commercial reputation given that, at the time of writing, this was the largest bilateral DFI. To ensure that BII’s strategy and operations are consistent with the International Development Strategy and FCDO objectives, to protect taxpayers’ interests and to ensure that BII’s investments help the world’s poorest people, FCDO should increase its oversight of BII and take a non-voting seat on the BII board.

FCDO-BII in-country operations

29. The FCDO’s arm’s-length approach extends to its ‘on the ground’ working relationship with BII as they are both considered to operate as separate entities. Minister Mitchell told us:

We do not expect the Foreign Office to interfere in the working practices of BII, because those are laid down in the agreement with the shareholder.92

30. Our predecessor Committee recommended that DFID and CDC forge a closer working relationship through greater collaboration.93 Since 2011, BII has improved its in-country presence by expanding to new regional offices. Yet it seems that there is still scope to strengthen this working relationship. ICAI’s report on UK Aid to India found there had been a range of missed opportunities to develop synergies between BII’s investment portfolio and the FCDO’s DevCap.94 ICAI also found that, within the agriculture sector, while the FCDO, BII and AgDevCo had complementary stated goals, there was little operational co-ordination between programmes and investments.95 Consequently, opportunities for greater synergy between these organisations, through joint working along their supply chains, may have been missed.96 While the FCDO claims AgDevCo is an example where BII and the FCDO have strengthened joint development impact on the ground,97 the ICAI findings show that there are still improvements to be made in how they collaborate.

31. We did, however, observe close collaboration between the UK Embassy and BII representatives in Nepal. This provided a good example of how the FCDO’s institutional knowledge of a country’s development needs can be a useful tool for co-ordinating BII’s investment decisions.98 Minister Mitchell agreed that this example “was an outstanding outcome, because it is the two of them pushing each other forward on a common agenda”.99 Nick O’Donohoe cited Nepal as a good reflection of BII’s five-year strategy, since BII had begun investing in Nepal during 2017.100 It was however recognised that different approaches may be taken within countries, depending on the make-up of BII’s in-country presence.101

32. The FCDO claimed the Nepal example was not unique in how BII and the FCDO worked together on the ground:102 it cited standardised guidance that was developed in 2018 and revised for the 2022–26 strategy period which seeks to strengthen the strategic collaboration and to align the strategic and investment priorities of both entities.103

33. There are greater benefits for close collaboration and this should be promoted across all jurisdictions. Agora Global, a company focused on development effectiveness, reaffirmed that development finance can achieve maximum impact when it is seen as “one tool in a suite of options, which need to be fully integrated.”104 The FCDO and BII can both benefit from greater collaboration at the country office and regional levels.

34. The FCDO must work collaboratively with BII throughout its operations to deliver the International Development Strategy’s objective of supporting countries to grow thriving economies by 31 March 2024. It should do this at both country office and regional levels by sharing institutional knowledge and ensuring that BII’s investments complement the FCDO’s bilateral programme. This should be built into the single country plan of each country where BII operates: the plan should outline operational synergies between FCDO and BII staff, identifying where the FCDO’s bilateral programmes complement BII’s investment activity and finding opportunities for further collaboration.

Strategic direction

BII’s technical strategy 2022–26

35. The FCDO sets the strategic direction for each five-year period and BII senior management are responsible for delivering that strategy. Parameters set within its technical strategy and investment policy guide BII’s investment activity. The criteria are high-level and enable BII to make investment decisions with little FCDO input.105 The FCDO holds BII accountable through regular performance reporting.106

Performance Monitoring

36. BII’s technical strategy includes criteria for investments, such as in climate finance and gender lens investing. It includes a target of 25 per cent for new commitments meeting any one of the gender lens criteria. This target had already been exceeded in 2021 (prior to the strategy period),107 and has been exceeded for 2022 commitments.108 The low threshold contrasts with the target for Sweden’s DFI, Swedfund, which has a goal of at least 60 per cent of Swedfund’s investments meeting the 2X Challenge criteria within three years of the date of investment.109 In addition, the BII’s technical strategy includes no baseline figures or targets to monitor and track performance against the output/outcome metrics for capital mobilised and the number of jobs created.110 It is therefore difficult to assess how BII’s investments have performed against these output and outcome metrics, and truly identify whether all its investments are delivering real impact and value for the taxpayer. We do not find BII’s approach to tracking gender lens achievements to be dynamic or suitably stretching to achieve greater development impact. Performance monitoring of key metrics to track other key indicators is also absent from BII’s strategy and public reporting.

37. The FCDO must incorporate SMART targets into its strategy documents that stretch the development impact that BII achieves, such as the number of quality jobs created through its gender lens investments.111 This must be done by March 2024 to achieve active governance over BII and to ensure that BII’s investments are achieving greater impact for the world’s poorest people.

Geographic footprint

38. The 2022–26 technical strategy adds the Caribbean and the Indo-Pacific to BII’s permitted geographies for channelling investment. This is in addition to BII’s footprint in Africa and South Asia. Nick O’Donohoe told us:

If you look at our five-year strategy, you will see reference to the importance of Africa. […] We do not have specific country allocations, but we have broad strategic ambitions as to where our money should go. If we deviate from that, we correct it.112

Minister Mitchell added:

We set clear criteria, which are designed to make sure they go to the more difficult places and to have this pioneer effect.113

39. BII’s portfolio is monitored to ensure it is balanced and sensibly allocated based on what the Board deems to be the areas of highest need.114115 However, this absence of geographic targets or handrails from BII’s strategy has resulted in 28 per cent of BII’s global portfolio by value being concentrated in India, a middle-income country during 2021.116 By contrast, Nigeria is BII’s second biggest market but held only seven per cent of BII’s global portfolio during that same year.117 It is also difficult to track and monitor the proportion of BII’s investments held within a country or region over a definitive timeframe as BII’s key data only includes information for its latest year where the figures have been verified.

Figure 5: BII investments: top 10 countries (as of end 2021)

Figure 5 shows the top 10 countries that BII was invested in as at the end of 2021. The bars show that India received the highest proportion of BII’s investment at 28 per cent. This is followed by Nigeria at seven per cent, Kenya at five per cent, Egypt at five per cent, Morocco at four per cent, Bangladesh at three per cent, Pakistan at three per cent, Ghana at two per cent, South Africa at two per cent and Cameroon at one per cent.

Source: British International Investment (BII0109)

Figure 6: BII investments: top 10 countries (as of end 2022)

Figure 6 shows the top 10 countries that BII was invested in as at the end of 2022. The bars show that India received the highest proportion of BII’s investment at 26 per cent. This is followed by Egypt at eight per cent, Nigeria at eight per cent, Kenya at five per cent, Bangladesh at four per cent, Zimbabwe at four per cent, Morocco at four per cent, South Africa at three per cent, Uganda at three per cent and Pakistan at two per cent.

40. While the FCDO also reports on the country allocations of its programme spend, this does not include investments made by BII.118 There is therefore no overarching profile of where the UK Government’s ODA is spent thematically or geographically. ICAI reported that when BII’s investment expenditure was combined with the FCDO’s programme spend, India was the 11th largest recipient of UK aid in 2021, receiving more aid than countries like Bangladesh and Kenya.119

41. The recent expansion of BII’s geographic remit to Ukraine has been ring-fenced by the FCDO up to £250 million over the next five years. As money will be allocated “as investment opportunities emerge and ODA budgets allow”, we deem the funding for Ukraine’s reconstruction to be a Ministerial decision that has not been guided by the markets. Minister Mitchell told us:

I expect to see projects focusing on those sectors that will promote Ukraine’s sustainable development, by investing in green and resilient infrastructure, opening up financial lending to internally displaced persons, and […] supporting local agricultural solutions to fix what is a major source of global food insecurity.120

The FCDO and HMT have therefore defined the parameters for BII’s investment in the region. The ring-fencing of an amount to Ukraine is effectively capping the amount that BII can focus on the region, which undermines the premise that investment decisions should be free from political interference and are guided by the markets.

42. The FCDO should have more oversight of the regional split of BII’s funds. It should actively monitor the thematic and geographic split of BII investments and include this within its annual reporting of ODA expenditure. The profiling of BII investment activity should also reflect the FCDO’s priorities, and this should be guided by the FCDO setting geographic and thematic handrails. The geographic and thematic areas of BII expenditure should be reported alongside the FCDO’s annual programme expenditure so the UK taxpayer has true sight of how UK ODA has been spent regionally and across thematic areas.

Gender lens investing

43. BII’s approach to gender lens investing is guided by the criteria of the 2X Challenge.121 DFI investments qualify as 2X-aligned if they meet at least one of the five metrics of the 2X criteria in areas that cover entrepreneurship, leadership, employment, consumption and intermediated investment. The thresholds range from 30 per cent to 51 per cent and would be classed as 2X qualified if 51 per cent of a company’s ownership are women or 30 per cent of women are in senior management. BII’s technical strategy states that it will pursue a gender finance agenda and references the use of the 2X criteria for promoting gender lens investing. This has been mainstreamed into BII’s investment decision-making by incorporating the criteria into BII’s impact score for all its investments.122123 The FCDO’s International Women and Girls Strategy 2023–30 also places women and girls at the centre of the FCDO’s operations and investments and cites BII as a key enabler for gender-smart investing under the 2X Challenge.124

44. However, BII does not have a suitably targeted strategy to outline its aspirations and goals in this area and its approach to gender investing. Information is lacking about how BII is encouraging women and girls to join the workforce through internships and apprenticeships; the types of jobs that its investments are supporting and promoting; and the work that BII is performing to ensure equality of salaries, opportunities and promotion. Improvements in equality for women with protected characteristics should be recorded to assess BII’s performance in each of those areas, and each item should be measured, baselined and externally reported on. In comparison, the US International Development Finance Corporation (DFC) publishes an impact thesis for gender equity, which includes who it is targeting, how it plans to reach them, its target for those investments with targeted outcomes and key metrics.125

Under-represented groups

45. There is a lack of focus on or targeting of under-represented groups within BII’s strategy and reporting.126 The 2022–26 technical strategy does not set any definitive outcomes, outputs or targets across those groups: consequently it lacks information about how BII’s investments directly and indirectly increase the participation of those persons in the workforce.127 The FCDO’s Disability Inclusion and Rights Strategy 2022–2030 simply states that the FCDO and BII will work to influence financial institutions and set standards.128 It also states that the FCDO will continue to work with BII to increase ambition on this agenda and support the economic empowerment of people with disabilities.129 In contrast, the DFC outlines how it plans to target those groups within its impact thesis. For example, it aims to provide “sustainable financial services and credit to women, small businesses and other under-represented groups”.130

46. BII should articulate the work it strives to do to promote gender equality and target under-represented groups through its investee businesses by setting its own proposal for impact. This should set out the categories of people that are being targeted, the impact that the investments are targeting and the target outcomes and key metrics that will be measured to show the change created from BII’s investments.

British Investment Partnerships (BIPs)

47. The British Investment Partnerships (BIPs) are a major focus within the International Development Strategy.131 BIPs are a collaboration between the UK Government and businesses, sovereign wealth funds, private investors, international organisations, and civil society.132 The BIPs are designed to mobilise up to £8 billion of UK-backed financing a year by 2025.133 BII is considered to be the lead institution for mobilising investment from the private sector into businesses that would not otherwise be commercially attractive because of risk considerations.134 Minister Mitchell envisioned BIPs would boost living standards through British investment while securing a return for the taxpayer.135

48. Yet to some witnesses the BIPs have appeared fragmented in both design and approach.136 There is no focused strategy with defined inputs, outputs and outcomes to assess their performance. Equally, there is no delivery plan or set targets to guide the Department’s mobilisation of capital although this is a key aspect of BIPs and the delivery of the Sustainable Development Goals.137 Minister Mitchell told us:

[the FCDO] have not set specific private sector mobilisation targets [in order] to remain flexible and tailor our offer to the investment needs of our partner countries.138

How BII fits within this mechanism and the expectations placed upon it is also not clear and can limit the success of its delivery.139,140

49. A British Investment Partnerships strategy is urgently needed to drive effective co-ordination of actors within the BIPs and to ensure the International Development Strategy’s objective of delivering development in partnership achieves maximum impact. The FCDO must create this strategy, outlining its expectations of all parties involved in those partnerships, by 31 March 2024. The strategy must define inputs, outputs and outcomes measured by entity and progress against these metrics must be publicly reported each year.

4 Poverty reduction

How BII targets poverty reduction

50. BII’s investment policy aims to measure the impact score of its investments,141 including the extent to which the investment reaches poor and marginalised people. The policy defines low-income populations as people living below $5.50 per day. We have previously queried this threshold, given it is close to the World Bank’s poverty line for upper-middle-income countries, and in stark contrast to the poverty line for the poorest people, which the World Bank defines as $1.90 per day for low-income nations and $3.20 for lower-middle-income counties.142 BII quoted research that indicates a threshold of $13 per day is associated with a permanent escape from poverty. It also cited practical reasons for the $5.50 benchmark, such as the need to invest in businesses that are financially sustainable, for those businesses to have a long-term development impact:

If the benchmark was set at the “extreme poverty” level of $1.90, we would vastly limit the number of investable businesses because it would mean 50 per cent or more of their employees or customers are living on less than $1.90 per day. In practice, businesses serve customers at a range of income levels rather than solely targeting those in extreme poverty. To serve low-income populations a business needs to offer affordable products and these low costs are achieved through offering their products at scale and splitting the costs of running the business across a large number of consumers.143

51. BII’s targeting of investments has resulted in a concentration of 28 per cent of its global portfolio by value in India, a middle-income country (MIC) during 2021.144 Five lower-middle income countries account for a further 22 per cent of BII’s total portfolio for that same year.145 This includes Nigeria, Africa’s largest and most populated economy with significant oil and gas reserves, together with Kenya, Egypt and Morocco.146147 The One Campaign adds that, in 2021, BII invested in just 15 fragile and conflict-affected states,148 with only Nigeria receiving more than one per cent of BII’s total investment during that year.149

52. BII investments in MICs have been criticised by ODI as being concentrated in broad-based financial conglomerates that include major banking institutions and microfinancing institutions. ODI claims that these conglomerates lack clear financial additionality (as defined in paragraph 5) and are not predominantly serving poor households.150 We were told that they are often listed companies and have significant existing access to finance.151 ODI also states there is substantial evidence that microfinance only delivers a small level of impact for wages and consumption over the long-term.152 These types of investments are believed to have failed in delivering transformational impact on economic growth and to have achieved only short-term poverty alleviation under limited circumstances.153 There is, therefore, concern that BII is attracted to this sector because of its high returns, rather than development impacts.154

53. When questioned over why India, a MIC, receives the largest portion of BII’s investment, Minister Mitchell told us that BII investments in India are focused on climate financing:

India is a very important part of our efforts to produce climate funds to tackle climate change. Our very close partnership with India helps to promote some very good expenditure in that area.155156

While it is clear that some of BII’s investments are primed to tackle climate change, we are not persuaded that all of BII’s recent investments were in companies that have clear development links. We have identified some such examples, which include BII’s investment in PEP Technologies (mCaffeine), an Indian company that makes personal care products, and Wonderchef, coined “a leader in cookware and kitchen appliances”.157 Both investments were made by a financial intermediary but since BII underwent significant reform in 2011. When asked about the development impact of PEP Technologies, the FCDO told us:

BII invested in Amicus Capital Partners Private Equity I (ACPPE I) in 2016. At the time, BII invested in India to build the domestic capital market, which is now, seven years on, significantly more developed. The Indian-focused ACPPE I fund was established to target investments at small businesses and start-ups that needed capital. Start-up companies and entrepreneurs in India’s healthcare, technology, consumer and financial services sectors had struggled to access working capital to scale up, once their business model had been proven. BII’s impact thesis for Amicus centred on access to those in towns that were underserved; a digital strategy to overcome limitations in physical infrastructure; and to support local manufacturing and sourcing. The fund invested in PEP Technologies in 2020 in line with these aims agreed in 2016.158

These examples link to the concept of additionality, which has been explored further in paragraph 62 and builds upon ICAI’s 2023 report on UK Aid Spending in India that found much of BII’s Indian portfolio lacked strong ‘financial additionality’.159

54. While some investments in MICs, particularly in India, have yielded a financial return for the taxpayer as well as created jobs for many people, we were told that those benefits are less apparent for people who live on less than $2 per day. Minister Mitchell stated that those people are reached through social programmes, such as in health and education, which are provided through other means than BII.160 ICAI’s report on UK Aid Spending in India stated that many of BII’s investments provide benefits to middle-class consumers, rather than the poor.161 It reported:

One BII study found that only 30 per cent of those benefiting belong to the bottom 60 per cent of India’s population by income.162

It therefore seems that the current targeting of BII investments is not fully reaching the most marginalised people in MICs.

55. There is a risk that BII will lose its development focus again, given the large concentration of its investments in MICs that do not appear to be targeted toward the poorest and most marginalised people. A cap to BII’s investments in MICs could focus BII on channelling more money to less-developed markets within low-income countries, where it could produce relatively higher impact and align with each recipient country’s national plans and programmes.163 BII could exit those existing investments that do not have a clear development focus and recycle that money into new, more pioneering markets. The Danish Investment Fund for Developing Countries (IFU) has a rule that 50 per cent of its investments must be made in countries with gross national income per capita below 80 per cent of the upper limit of the lower-middle income bracket.164 There is therefore a precedent for capping DFI investment in MICs.165

56. Some of BII’s investments in middle-income countries have been poorly targeted and do not appear to be reaching the poorest and most marginalised people. In some cases, BII investments have tenuous links to development impact. By concentrating its investments in middle-income countries, there is a risk that BII will lose its development focus and prioritise financial returns.

57. BII must better distribute its investment across countries with different development needs and income status by capping the proportion of investments that it holds in middle-income countries, at a percentage determined by the Minister for Development, by 31 March 2025. The rate should be defined within BII’s investment policy and frequently monitored through BII’s published reporting.

The ultimate beneficiary

58. BII’s philosophy of development is that countries cannot emerge from poverty without a prosperous and successful private sector.166 DFIs provide capital to companies that create jobs and pay taxes so governments can provide health, education and other social goods.167 We have however challenged whether the ultimate beneficiaries of BII’s interventions are the world’s poorest people. We have found two investments which are owned by high-net-worth individuals. One such investment is through a fund that invested in Dangote Industries, a conglomerate that owns Dangote Cement.168169 This is owned by Africa’s richest man, Aliko Dangote, and has been accused of causing serious environmental damage.170 Another investee company is Tyme Bank (Tyme), a leading South African digital bank that BII invested in through a financial intermediary.171 The ultimate holding company is Ubuntu-Botho Investments Proprietary Limited, which is majority owned by Patrice Motsepe, a mining magnate and South African billionaire.172

59. There is a risk that investing in these high-net-worth individuals could negatively impact in-country inequalities by significantly increasing the assets of these individuals while producing only small gains for the populations their companies serve.173 There are also questions over the additionality that BII brings to those investee companies.174 From the two previous examples, it is unclear to us how BII’s contribution would differ to that from commercial investors in these cases. When questioned specifically on BII’s investment in Dangote Industries, Minister Mitchell told us that:

[there is a] need to look at the outputs of the investment rather than, in the case of Mr Dangote, the nature of the investor, so long as it is lawful and legal.175176

60. To ensure that poverty reduction is central to BII’s investment decisions, BII must pursue investments that demonstrate a clearer focus on driving inclusive economic growth and reducing financial and social inequality.

Additionality

61. Additionality (as defined in paragraph 5) is considered as part of BII’s investment criteria through its investment process.177 Nick O’Donohoe told us that there is a requirement for BII’s investments to be additional because it is an ODA institution: this needs to be justified for every investment that BII makes.178 He further described how BII considers additionality in its assessment of potential investees:

Additionality is a rather nuanced concept. It is not that, every time you decide to put money into something, you have to go round and find out whether somebody else would do it. It is more of a judgment. It reflects not only financial additionality but what we call value additionality. It is not just about being the only person who will put the money in, but how you will use your influence […] in terms of running and growing the company and, hopefully, achieving development impact from the company.179

62. Evidence we received however suggested that BII has not demonstrated the additionality of its investments and is in fact crowding-out private capital.180 Mintoak Innovations Private Limited, a financial services platform for SMEs, told us that it was already a profitable business before it sought BII investment and specifically targeted BII as an investor because of its contacts. We were told:

We are a profitable start-up and hence have had the luxury of being selective about our investors. Having demonstrated initial success on the platform through scale and engagement, we were looking for investors who could open up access to banks and financial institutions in other emerging markets like Africa.181

Tom Adlam, an independent consultant on impact investment, questioned how alternative finance was not available for BII’s partnership with DP World that invested in port redevelopment in Somaliland, Egypt and Senegal, and BII’s deal to partner in the Safaricom-led Ethiopia telecoms consortium.182 ICAI’s 2023 report on UK Aid Spending in India also found that much of BII’s Indian portfolio lacked strong ‘financial additionality’ and did not have a clear link to inclusive growth and poverty reduction.183 In response to ICAI’s findings, Nick O’Donohoe told us:

One of the things we have to accept about this whole concept of additionality is that it is a dynamic concept, not a static one. If you asked me today whether I would make that investment again today, the answer is no, we would not, because now there are very large amounts of money available for that type of bank.184

63. Agora Global commented on the sustainability of the impact that DFIs create when adding gendered conditions to their concessional financing arrangements. They claimed that while there is initial impact by ensuring women have access to credit, the root cause of why women were not receiving equal access in the first place was not being addressed. Therefore, when the debt was repaid, the financial institution would revert to old practices.185 ODI also told us that investment cases do not adequately explain how specific investments are additional nor how they might contribute to secondary impacts.186 This may have resulted in BII pursuing investments that do not have a clear case for additionality.

64. We would expect BII to exit an investment when its case for additionality has been unfounded or when a sector or business has proven market viability for the private sector to crowd-in. Consequently, we questioned whether BII is recycling its money sufficiently quickly by exiting those proven investments. Minister Mitchell told us that BII is encouraged to recycle its money quickly and not stay in investments primarily because they are helping achieve its return targets.187 However, he said individual investment decisions were not for the Government to make:

It would be quite wrong for officials to tell the business when it should or should not exit from an investment. That is a commercial decision for BII to make; I would be very content to leave that to BII.188

65. In some instances BII has not demonstrated the additionality of its investments and is consequently competing with and crowding out commercial investors.

66. BII must target nascent markets that struggle to stimulate investment from the private sector. BII must annually assess the value it adds to investee companies. Where BII has not proven its additionality to an investment or its case for additionality is no longer valid, BII should exit that investment.

Crowding-in private sector investment

67. The covid-19 pandemic has widened the financing gap for achieving the Sustainable Development Goals and has increased the need for DFIs to mobilise private sector finance, and crowd-in investment.189,190 Financial intermediary Acumen claimed that it had seen some positive examples of BII crowding-in private banks to sectors that would otherwise be deemed too risky.191

68. However Gryphon Holdings Plc (Gryphon), a merchant banking firm, criticised the approach taken by DFIs to crowd-in private sector investment.192 Only a small amount of private capital flows were mobilised when DFIs, including BII, invested alongside other DFIs. Gryphon estimated that DFIs now represent at least 70 per cent of all new money into private equity funds operating in emerging and frontier markets, with less than 30 per cent coming from private sector investors. Oxfam’s research identified similar practices in the health sector, where one hospital in Nigeria had around 12 overlapping investments from a handful of DFIs.193 The Center for Global Development suggested that generously resourced DFIs were operating in a sector that offered limited viable investment opportunities. This “help[ed] explain why so many DFIs pile into the same deals”.194

69. The FCDO told us that BII investing with other DFIs was a form of risk spreading.195 However, a consequence of that has been low mobilisation results. ODI told us that the UK Government mobilised an average of £1 billion ($1.3 billion) per annum between 2018 and 2020, and BII mobilised about 50 per cent of this (£0.5 billion) according to the OECD figures.196 In comparison with other DFIs, BII was found to be less effective at stimulating private sector investment than other DFIs. Samantha Attridge (Senior Research Fellow, ODI) told us:

BII mobilises 40p on the pound. […] On average for most development finance institutions it was 80p in the pound. […] this billions to trillions agenda is just not materialising and BII is not alone here.197

While Minister Mitchell told us that BII has a mobilisation of 82p in the pound,198 it is lower than the Development Finance Corporation (DFC), the US development finance institution, which has a mobilisation ratio of about 1.5 in the pound. We have been told that this is due to the DFC having a much wider toolkit than BII.199 Yet even if BII were to achieve this ratio, it would still fall short of contributing significantly towards the BIPs target of £8 billion.200 The current approach taken by BII for crowding-in private sector investors is seemingly not effective. The Center for Global Development suggested that future flows of ODA would be better allocated elsewhere because of these flaws to the DFI model.201

Financial intermediaries

70. Financial intermediaries facilitate investment in some of the harder to reach areas due to their specialist market knowledge and geographic focus. They include banks, non-bank financial institutions, permanent capital vehicles and funds.202 Money is committed to an intermediary that either provides onward lending, microfinancing or makes onward investments to its portfolio companies. BII states that working through intermediaries allows it to access specialist expertise and ‘asset-gathering’ capabilities that enable its capital to reach more-difficult countries and benefit specific groups, such as green companies or women-led businesses.203 Its capital can be broken up to reach smaller companies and, in the case of its supply-chain financing, facilitate very small amounts of working capital.204 In 2021, BII made £400 million in commitments through this investment vehicle,205 and held 33 per cent of its total portfolio in financial intermediary investments.206

Fees

71. Financial intermediaries can, however, be an expensive mechanism for making investments. BII spent £39 million in fees to funds during 2022.207 Nick O’Donohoe claimed this was consistent with the typical management fees that other firms pay for private assets.208 Minister Mitchell defended this amount, stating that financial intermediaries play an important role in helping BII achieve its objectives.209 However, by paying a standard price for those management fees, BII fails to reflect the value it adds to the intermediary by improving its environmental, social and governance (ESG), and business integrity practices. This has resulted in BII spending an amount on those intermediaries comparable to the FCDO’s bilateral ODA allocation to Sierra Leone during 2021–22.210

Control over investments

72. BII invests through financial intermediary funds to harness areas of expertise and geography. BII makes a commitment to a fund, from which the fund manager draws down money for investment activities. There is a certain degree of separation between BII investing in a financial intermediary and the onward investment made by that investment vehicle. BII states that its relationship is with the fund manager, with whom BII has frequent and regular contact. A legally binding limited partner agreement sets out the terms of engagement, such as where the fund can invest BII’s capital and the obligations that the fund manager needs to meet. BII performs due diligence on the fund but requires the fund manager to develop processes, capacity and governance systems to enable their fund managers to implement appropriate standards within their portfolios.211

73. The current process has appeared to allow BII to subcontract its legal, ethical and development responsibilities to those investee fund managers despite it being taxpayers’ money that is being invested. BII is seemingly transferring its control over where the money is deployed, and we have seen examples where BII’s control has been diminished. When questioned about the control BII exerts over intermediated investments, Nick O’Donohoe said:

The basis upon which we are hiring intermediaries […] is that they have discretion over the investment portfolio. That is why we spend so much time beforehand ensuring there is alignment between the type of companies we want to see them investing in and what they actually invest in and the standards they set.212

74. While we have heard examples of some intermediated investments that have appeared effective in targeting the world’s poorest people,213 there are also some investments that have questionable development links. In 2021, Global Justice Now stated that:

decisions about many of CDC’s investments are therefore not made by development experts with a strong focus on poverty reduction, but by financiers and investment gurus looking to make a good rate of return. The degrees of separation between those investing and the UK taxpayer also makes it difficult to hold Government to account for these decisions, or indeed to obtain coherent information about the investments at all.214

Global Justice Now cited a BII intermediated investment that was made to a cosmetic surgery clinic in India. When questioned in 2021 about this investment, a BII spokesperson said,

“We would never choose to invest in a cosmetic surgery business. We neither intended nor desired to have a stake in Nu Cosmetic and we look forward to the day when it is off our books”.215216

We identified another BII investment which is seemingly lacking in an obvious development outcome that we would expect from a development finance institution. BII invested through an intermediary fund in Wine Connection, a business that holds food and beverage outlets across South-East Asia.217 While that investment was made during an earlier strategy period, it was made since the 2011 reform of then-CDC Group. It is therefore frustrating that the effectiveness of some BII investments, which have clear development links, is being undermined by those investments that were made either during a previous strategy period or through intermediary funds where BII has less control over the onward investments.

75. CAFOD has questioned whether BII and the FCDO have any knowledge of the poverty alleviation or development impacts that intermediary funds are promoting.218 This is because BII has less control and less information around fund investments than it does through direct investments.219 Samantha Attridge (Senior Research Fellow, ODI) told us that BII can add a provision to its contracts with intermediaries to direct where an investment is made, but she did not know to what extent this is exercised.220

76. There also appeared to be limited BII oversight of the business practices of its intermediated investees. BII considers that its investments are made to intermediary funds and so performs its due diligence on the fund managers.221 There were however reports of a fraud within an intermediated investment.222 When asked about that fraud, Nick O’Donohoe did not consider BII to be responsible for it as the fraud was alleged to have taken place within an intermediated investment and did not relate to BII’s operations.223 Nonetheless, BII undertook two lessons learned exercises from that instance, which resulted in its internal business integrity processes being revised as well as its policy on responsible investing.224

Low Tax Jurisdictions

77. Some BII investee funds are domiciled in low tax jurisdictions, such as Mauritius and the Cayman Islands. Nick O’Donohoe said:

The fund manager may well be located in Kenya, Nigeria or anywhere else, but most African private equity funds are located in Mauritius. For any commingled vehicle, you are always going to have a jurisdiction that is acceptable to all the participants in that commingled vehicle. It is not just us investing. Typically, we are investing alongside other DFIs and so on.225

He added:

Mauritius is a jurisdiction with strong governance rules around the creation of funds, and as a guardian of UK taxpayers’ money, we need to make sure our funds are domiciled in jurisdictions that have […] strong governance.226

78. Some witnesses have accused BII of investing through tax havens, which result in significant lost revenue for countries in the “Global South”.227 Phatisa Group is an intermediary that invests on behalf of BII and holds funds that are domiciled in Mauritius as a vehicle for investing in Africa.228 When we asked about those funds, the Group’s representative told us that Mauritius is not a tax haven and is whitelisted by the OECD.229 We were also told that Mauritius was used because of its ease of doing business into Africa, its legal system, a Financial Services Commission and the financial services skills available on the island.230

79. When asked about the tax affairs of BII investee businesses, Nick O’Donohoe said:

We will always ensure that the companies that we are invested in are paying appropriate taxes in the jurisdictions in which they are located.231

BII has a Tax Strategy and Policy on the payment of taxes and the use of offshore financial centres. This states that:

BII uses intermediate jurisdictions only to maximise the flow of foreign investment into Eligible Countries and to ensure adequate protection of UK taxpayers’ money.232

Minister Mitchell reiterated that Mauritius was not used for the purpose of tax avoidance:

It is a regime that is neutral in terms of the investment going in, but, when the investment comes out, the tax is paid on any profit from the investment in accordance with the country where it is earned.233

Bond has however called on BII to ensure any foreign company investing in or trading with African countries pays its fair share of tax in countries where the actual economic activity is taking place.234

80. While Mauritius is not currently listed as a tax haven, it is a low tax jurisdiction and has a zero per cent rate of capital gains tax. Financial intermediaries with funds domiciled in Mauritius are therefore paying minimal tax on the gains made from their intermediary fund investments. Tax Justice Network estimates that the tax loss inflicted each year on other countries by Mauritius equates to $2.4 billion.235236

81. We also observe a large disparity over the reach of BII’s investments and the people its investments are serving.237 Mauritius is an upper middle income country,238 and BII’s 2021 data show its portfolio in Mauritius was valued at $14 million, which is comparable to its portfolio in the Democratic Republic of the Congo (DRC).239 However, during 2021, Mauritius had a population of 1.2 million, whereas the DRC had a population of 96 million.240 It is not possible from BII’s data to ascertain whether BII’s Mauritius portfolio is attributed to investments that directly impact Mauritian communities or to those intermediary funds that use Mauritius to register their investment vehicles.

82. Financial intermediaries can deliver market expertise, but such investment vehicles can result in UK taxpayers’ money being used to reward intermediary agents in low-tax jurisdictions. In some cases, the onward investments made by intermediaries have rewarded businesses with weak or questionable links to development.

83. To ensure that poverty reduction is central to BII’s investment decisions and to prioritise investments that are critical to recipient countries’ development needs, BII must:

a) take responsibility for where its money is invested by exerting greater oversight and control over the activities of financial intermediaries who invest UK taxpayers’ money.

b) ensure that its investments reduce inequality by targeting investments that generate tax receipts in the country of operation rather than channelling money through low-tax jurisdictions that ultimately promote tax savings for those intermediary agents.

c) rigorously monitor all its intermediated investments to ensure that it can intervene before its money is invested in companies whose values are not aligned with the International Development Strategy.

Due diligence

Practices and on-going monitoring

84. BII’s Investment Committee oversees the due diligence of potential investee companies and intermediaries. Specialist teams review the potential impact, commercial performance, environmental, social, governance (ESG) and business integrity practices prior to the final Investment Committee decision.241 Investee companies have described BII’s due diligence as “thorough and in line with best practices”,242 “efficient”, and as “working collaboratively with other investors”.243 The FCDO wrote to us that, following the initial investment, BII has regular and close engagement with its investees to ensure its funds are being used appropriately and that its policies are being implemented.244 This includes site visits to BII’s direct investments, financial intermediaries and some of BII’s indirect investees.245 The FCDO claims those site visits are an important element of BII’s engagement with its investment, both during due diligence and while managing its investments.246

Due diligence failings

85. Examples have been provided where BII’s due diligence and on-going monitoring of investments, both direct and indirect, have not identified investee malpractice. Some investments have subsequently brought harm to society and/or its environment.

86. BII had a $54 million direct equity investment in Feronia, a palm oil company in the DRC, which began in November 2013 but has since been exited.247 In 2020, Human Rights Watch reported that the company was exposing workers to dangerous pesticides, dumping untreated industrial waste, and engaging in abusive employment practices that resulted in extreme poverty wages.248 Human Rights Watch identified there was a lack of proper oversight by the DFIs’ investors and this enabled the company to commit abuses and environmental harm that infringed upon health and labour rights.249 We raised those allegations with Stuart Bradley, Managing Partner at Phatisa, a financial intermediary that also invested in Feronia. We were told:

Feronia itself was a big challenge. Certain things happened up front that we could not control. When we invested, the price of crude palm oil was about $1,000 a tonne; it plummeted to $500. That has a serious impact on the bottom line with a requirement to bring in more investors to fund it. […] We had to do a huge amount of rehabilitation to that business. […] There was lots of other stuff like theft going on, and we had to make management changes. It was a big challenge. In hindsight, we perhaps bit off more than we could chew. It was not our greatest investment.250

We also queried the conclusions reached by the FCDO when it assessed Feronia’s operations. Minister Mitchell told us:

That was an extremely complex and difficult investment that started out well in terms of investing in the DRC, which […] is an exceedingly difficult market. It certainly fulfilled the pioneer criterion. It is an investment that BII had great difficulty with and now no longer has.251

87. BII’s healthcare investments in Africa and India have also received criticism from the sector.252 Oxfam alleged that BII has invested in healthcare providers that detained patients who were unable to pay their medical bills.253 In relation to the Nairobi Women’s Hospital, Oxfam wrote that the practice of patient detentions was publicly declared by the hospital director in 2016, before BII invested in the hospital.254 This practice was said to have occurred between 2017 and 2019, and while then-CDC Group was an investor. Nick O’Donohoe told us that BII responded to those allegations by replacing the fund manager, which in turn hired a new management team at the hospital and introduced a new whistleblowing mechanism in 2021. He did not consider there to have been any reported incidents since the implementation of those changes.255 Global Justice Now has claimed separately that BII has backed healthcare companies and hospitals that have misappropriated funds, over-charged or turned down patients or have backed providers that have had no impact on expanding healthcare access to low-income groups.256 In response to those allegations, the FCDO told us:

BII reformed its investment approach to private hospitals in 2021. Any investment requires the hospital to support a significant proportion of users who are on government payment schemes or on low incomes.257

88. BII’s investment in private education is also an area of concern for civil society groups.258259 An open letter signed by 88 organisations was sent to the investors of New Globe Schools/Bridge International Academies (Bridge) in 2018, flagging concerns about those education providers,260 with further complaints submitted in March 2022 to the accountability body of the International Finance Corporation (IFC), the World Bank’s DFI.261 BII was invested in those schools along with other DFIs, which included the IFC.262 While the IFC has since divested from Bridge following those allegations, BII remains invested through an intermediary fund (Novastar).263 In reference to the intermediated investment, Nick O’Donohoe said:

Novastar make their own decisions as to when they are going to divest, and they have not yet divested of their position in Bridge. Because we are one of their fundholders, a small part of that accrues to us.264

Even though BII exited its direct investment following those allegations, this example demonstrates the reduced control that BII has over its intermediated investments when their values change.

89. We have also heard conflicting accounts over what BII’s current policy is toward fee-charging (K–12)265 private schools.266 This follows an independent evaluation of the IFC’s investments in K-12 schools, which resulted in the IFC announcing that it would not resume its investments because of their impacts on educational outcomes, poverty, and inequality.267 In light of the findings in this report, we would expect BII to ensure its K-12 investments do not have unintended consequences on international development, or to exit those investments. While the FCDO said that BII would not prioritise new investments in K-12 education, we note that BII remains invested in those schools through its intermediary investments.268

Abraaj Group

90. A case of suspected fraud has been widely reported relating to a financial intermediary that worked with BII, the Abraaj Group.269 BII made a commitment of $75 million to the Abraaj Group’s Global Healthcare Fund in 2014.270 There was subsequently an investigation by investors, including BII, into whether the fund’s money had been misappropriated. The Abraaj Group filed for bankruptcy in 2018 following that investigation.271

91. When in operation, the fund drew down $50 million of BII’s commitment. Nick O’Donohoe told us in April 2023 that $5 million had been returned to BII while the remaining value in the fund was estimated at about $20 million.272 Although the Government twice told us there had been no financial loss to BII as a result of fraud,273274 Nick O’Donohoe told us that the fund had been “directly affected by fraud” and, with the case still ongoing, BII “would be lucky” to recover the fund’s current value.275 The FCDO however responded that BII revised the valuations of the underlying assets but that was due to a variety of factors, and had not constituted a capital loss.276

92. The Abraaj case was well documented and has drawn attention to lapses in BII’s internal control. This may prompt concerns about the risk of fraudulent activity taking place elsewhere within BII’s operations through its financial intermediary investees, such as those relating to fund investee Spencon (see paragraph 76).277

93. We sought assurances that BII had learned lessons from these experiences.278 Like BII itself, Minister Mitchell placed heavy emphasis on BII’s role in exposing the Abraaj fraud. He told us:

[…] BII, which was then CDC, played a pivotal role in uncovering and blowing the whistle on that fraud. The lessons learned by BII and the wider industry have led to strengthened processes and practices, which significantly reduce the risk of someone being able to commit such a fraud again.279

BII told us that the lessons learned exercise it had performed following its investment in the Abraaj Group resulted in a series of changes to its internal processes and wider market practices, including revisions to its policy on responsible investing and having a single, senior individual who manages the scope of BII’s relationship with any large fund manager.280

94. While the Abraaj example suggests that BII’s internal control flagged suspected fraudulent activity, in light of other reports we are forced to conclude that BII’s internal control failed to identify and prevent some investments that appear to have harmed society and the environment in low-income countries. In those cases, BII was slow to investigate and to act in response to alleged wrongdoing by investee companies.

95. The FCDO must hold BII accountable for its due diligence and ongoing monitoring of its direct and indirect investments. To that end, FCDO must audit BII’s investment portfolio over a rolling five-year period against a set of environmental, social and governance (ESG) and development impact standards to validate BII’s internal assessments.

5 Accountability and Transparency

Accountability

96. Accountability is important for democracy.281 It allows people to judge the Government’s performance and seek redress when things go wrong. As a government backed institution BII is accountable to the FCDO, which in turn is accountable to the taxpayer. For public scrutiny to be effective, institutions must be transparent so people can take an informed view over performance.

Independent Accountability Mechanism

97. An Independent Accountability Mechanism (IAM) is an avenue for civil society to raise human rights and environmental concerns. IAMs are an important tool for civil society to hold investee companies to account and seek redress for any malpractice.282 BII claims it has such a mechanism in its Reporting and Complaints Mechanism. BII described this mechanism to us as:

[allowing] anyone outside BII to report alleged breaches of the Policy on Responsible Investing by an investee or a portfolio company of a fund in which BII has invested or a failure of BII to follow the policy. Affected people can submit complaints to BII via the Mechanism, which, if deemed eligible, will be investigated, and where appropriate, BII will enable access to remedy.283

BII added:

Decisions required under the Mechanism are made independently of the departments involved in the due diligence or monitoring of the investment to avoid conflicts of interest. Matters related to the Complaints Mechanism are reported to Board Audit and Compliance Committee.284

98. A number of respondents told us either that BII does not operate an IAM,285 or that there are weaknesses in BII’s current mechanism that threaten to undermine its effectiveness.286 It appears that while BII has a process in place it does not function autonomously to investigate complaints independently on behalf of the Board and civil society groups. Rather, the current process resembles an internal complaints procedure. An example of an independent entity is provided by the World Bank’s International Finance Corporation’s (IFC) accountability body, the Compliance Advisor Ombudsman (CAO).287 The CAO operates its own website independent of the IFC and provides good practice handbooks based on its insights.

Exit strategies

99. The length of BII investments can span between seven and 15 years.288 This includes between one and two years for exiting the investment.289 BII’s policy is to ensure that an exit or disposal is responsible, that it is consistent with the achievement of its mission and objectives (both financial and developmental),290 and within the spirit of the policy on responsible investing.291 Nick O’Donohoe set out the criteria for exiting investments as:

a) Debt: BII exits investments when they mature. It is only in extreme cases that BII’s contracts allow for it to call in the debt.

b) Equity: Exits arise through a sale to a partner. Some companies are listed on stock exchanges and the exit is through the stock exchange process. Most of those exits are private sales that are through a private negotiation with a willing buyer.292

When addressing why BII ultimately seeks a responsible exit from its investments, Nick O’Donohoe told us:

We do not make investments in companies, spend all this time and energy improving their environmental efficiency, changing their working practices and improving health and safety, and then end up selling the company to somebody who will pull back on all the impact that we have had through our ownership of the company.293

100. We questioned at what point BII would stop trying to fix a company that had negatively impacted communities, and instead exit that investment. Minister Mitchell did not see this as a decision for the FCDO, stating:

Exiting these investments might be the right thing to do, but I would leave it to the experts to determine whether and when they did so.294

This appeared to be consistent with the policies of the Dutch DFI, FMO. We were told that FMO would work to bring a company back on track prior to exiting an investment, but that the reputational risk would drive the ultimate decision.295

101. There have also been instances where BII has remained invested in a business where its additionality could not be demonstrated.296 The additionality that a DFI brings to an investee company can change over time: it may be different when a DFI initially invests compared with what it brings over the course of the investment period.297 We would expect BII to actively review additionality as part of its on-going monitoring (see paragraphs 65–66). However, it is not clear whether BII currently monitors the changing nature of the additionality it brings over the investment period.

102. Bond wrote to us expressing concern that Government plans for funding BII over the period to 2026/27 will see its share of the UK aid budget rise significantly. They identified a risk that, given the spending cuts to other programmes funded by UK aid, this decision “is likely to reinforce economic marginalisation and limit poverty reduction impacts from [the] UK aid programme.”298

103. BII must ensure that its entire portfolio is aligned with the UK Government’s development agenda. With a diminished ODA budget there is more pressure to target development assistance towards the poorest and most marginalised groups: consequently, there is a greater responsibility for BII to actively manage its portfolio. It should place a greater emphasis on the impact delivered with the money it controls.

104. To deliver accountability and transparency and to operate in lockstep with the International Development Strategy, BII must assess the impact of its portfolio under previous strategy periods and actively manage its portfolio. BII must perform annual assessments of the impact delivered by all of its portfolio investments, including those businesses that are invested in through financial intermediaries. BII must divest from those investments that do not have a clear development objective and do not align with the International Development Strategy. In conclusion to these concerns expressed by the Committee and some that submitted evidence, we recommend the Minister maintain closer scrutiny on the whole budget and the proportion of the ODA budget allocated to BII. At a time of limited availability of the development budget, the taxpayer needs assurance that Official Development Assistance is used to support the world’s poorest people in the most effective way.

Transparency

105. Transparency matters. Knowing how and where taxpayers’ money is spent, as well as the results delivered by that money, sets the foundation for accountability. Transparency increases aid effectiveness and leads to better development outcomes, which all contribute towards the achievement of the Sustainable Development Goals.299 Transparency is important for DFIs, ensuring they are accountable for generating positive development results, mobilising private sector capital, and managing environmental, social and governance risks.300 For BII, transparency can help it to clearly articulate its story, demonstrate its impact and the value it brings for the taxpayer. For the UK Government, transparency places accountability on BII, which in turn can better inform Government policy and the allocation of development aid.301

Inquiry findings

106. The FCDO told us that BII developed a strong and transparent track record over the previous strategy period, which it continues to build on today.302 BII made a commitment to openness and transparency in its investment policy,303 which includes maintaining an online database of the companies and funds it has invested in. BII committed to publishing an impact scorecard as part of its annual review. It has also worked to align impact measurement across DFIs as part of the EDFI Harmonization Initiative,304 and has collaborated with the Global Emerging Markets Risk Database Consortium initiative for data sharing across its member institutions.305306 Yet submissions to this inquiry have described a lack of transparency towards BII’s external stakeholders, for example, gaps in its published information and a lack of meaningful consultation with civil society groups and communities.307 Consequently, ODI has called for future UK Government support to BII to be conditional on improvements in its transparency.308

107. We have been told that BII publishes only limited information on its investment activity,309 and data is generally at an aggregate level.310311 While there are some individual, in-depth case studies within BII’s Annual Review and Annual Accounts, there is minimal reported data across all of BIIs individual investments.312 Christian Aid observed that while BII sets out its positive impacts in those case studies, it should also set out the action it has taken in response to negative impacts, including redress to those affected, what it has learned and what it will do differently in future.313 Data disaggregation is deemed essential for increasing capital flows to target geographies and sectors, and yet BII only publishes aggregate financial information on the mobilisation of private finance: therefore it is unknown how much capital BII has mobilised in certain countries.314 Publish What You Fund also told us that data disaggregation is important for apportioning development impact amongst multiple DFI investors when invested in the same businesses.315 As there is no apportionment of impact between each DFI investor, there is a risk that each DFI may record the full development impact of that business under its own achievements. This may lead to a double counting of the contributions each DFI makes towards international development, which can inflate the overall contribution of the development finance sector.316

108. We have challenged whether BII’s impact measures are meaningful and reliable for assessing development impact, for example, the number of jobs created is often quoted in BII’s assessment of its performance. Samantha Attridge (Senior Research Fellow, ODI) agreed that improvements could be made as there is more detail about those measures that needs to be shared to make an assessment of the impact created by BII investments:

Job quality is critical in terms of poverty reduction, but it is very difficult. Job quality means different things in different sectors in different countries. We need to also be realistic. How would you aggregate or create a measure that would mean anything in terms of job quality? We need to be mindful that there are some challenges as well about getting more meaningful metrics. It reports, for example, gigawatts generated. We do not know how much of that is green, for example. There is a long way in terms of the metrics that are reported that could give us a bit more insight on the quality of the impact BII investment is having.317

109. Tax revenue generated is also used as a measure of BII’s impact. BII data shows the value of taxes paid by investee companies has decreased from $4.1 billion in 2016 to $1.5 billion in 2021, whereas its total portfolio has increased from $4.7 billion to $8.1 billion over the same timeframe.318 Minister Mitchell proposed that tax revenues should be examined over five year periods, rather than annually, as “it gives a better snapshot”; he argued that the amount of tax revenue raised goes up and down, depending on the state of the investment.319 Publish What You Fund however had told us that the tax figure had declined between 2016 and 2021 because a large amount of the taxes could be apportioned to a telecommunications company in Bangladesh: BII was invested in that company during 2019 but had ended this investment by 2021.320 Publish What You Fund stated that this example demonstrated the importance of data disaggregation so the public could make an informed assessment on the effectiveness of BII’s operations.321

110. BII reports data to the International Aid Transparency Initiative (IATI) and maintains an Investment Database on its website.322 Observers have, however, found this data to be incomplete and not aligned with the aggregate figures provided at a project-level.323 The majority of the development impact data is missing from this reporting. When it is included the information is ad hoc and, at best, only gives the anticipated impact of the specific investment. This is generally not relevant for assessing the investment’s current performance.324 Both financial and impact investment information lack comparable data over time.325 It is also not possible to identify whether published information is the most recently available data.326 External actors to BII therefore find it challenging to assess BII’s performance, such as whether an investment has achieved its intended outcome, from the available data.327

Financial intermediaries

111. The transparency of investments made by financial intermediaries has been criticised as part of this inquiry. Christian Aid told us that a lack of transparency is particularly acute when investments are made via companies like commercial banks, investment funds and hedge funds that on-lend financing to micro, small and medium-sized enterprises in low- and middle-income countries.328 Publish What You Fund wrote that, while there is a legitimate argument for using financial intermediaries,329 it is impossible to establish what the capital invested by BII through commercial banks has been used for, and whether it is financing harmful activities.330 We were told:

In the case of BII we simply cannot see where the capital that is deployed in banks is currently deployed. We do not know what those own lending activities are. We cannot see the impact of them; we cannot see the extent to which they support the mandate of BII or the extent to which they mobilise additional finance before development goes.331

It was, however, noted that BII’s general transparency of intermediated investments is industry leading as it typically discloses more information about its private equity funding on-lending than any other DFIs.332333

DFI transparency measures

112. The transparency of DFIs has been placed under greater external scrutiny with the first edition of Publish What You Fund’s DFI Transparency Index.334 Publish What You Fund found that the current state of DFI transparency makes it difficult to see what DFIs are doing, what impact their investments are making, whether they are adhering to their accountability and ESG responsibilities, and to what extent they are successfully crowding-in the private sector.335 BII’s performance in the 2022 index was poor. This was relative to the index indicators and also ranking behind its peer DFIs.336

Figure 7: DFI Transparency Index results

Figure 7 shows the DFI Transparency Index results for non-sovereign DFIs out of a possible score of 100. IFC was deemed the most transparent institution with a score of 54.4. The African Development Bank (AfDB) was the second most transparent institution with a score of 51.4 and the Asian Development Bank (AsDB) was third with a score of 46.5. BII was ranked 12th out of the remaining institutions with a score of 26.5. The scores for the other institutions were as follows: the European Bank for Reconstruction and Development (EBRD): 44.1; the Inter-American Development Bank (IDB Invest): 41.8; DFC (United States): 38.2; the European Investment Bank (EIB): 35.0; Proparco (France): 34.5; the Asian Infrastructure Investment Bank (AIIB): 30.6; FMO (Netherlands): 28.9; DEG (Germany): 27.7; BIO (Belgium): 25.1; Norfund (Norway): 24.9; Finnfund (Finland): 24.4; OeEB (Austria): 23.4; IFU (Denmark): 20.3; Swedfund (Sweden): 19.3; SIFEM (Switzerland): 16.5; the Development Bank of Latin America (CAF): 8.4; and the Islamic Corporation for the Development of the Private Sector (ICD): 2.8.

Source: https://www.publishwhatyoufund.org/dfi-index/2023/#non-sovereign

113. DFIs commonly cite commercial confidentiality as a reason for not disclosing disaggregated impact data.337 Yet Publish What You Fund cited research that found investees would, in many cases, be willing to disclose more information if this were to be requested.338 Stuart Bradley, Managing Partner at Phatisa, said:

we provide a huge amount of data to the DFIs on what we are doing at the intermediary level. I cannot comment on what happens to it above there, but we have a huge amount of transparency going up, and lots of stats and details on all our business, on quality, job creation, etc.339

114. Minister Mitchell recognised the need for BII to operate more transparently when he announced his intention of publishing a roadmap for BII to become the most transparent DFI.340 Data transparency not only means publishing more financial and impact information, but also means publishing the information annually to allow for comparability over time. Likewise, accountability relies on BII being transparent about those investments that have not achieved their intended impacts, the reasons behind any failings, and its plans for recourse.

115. BII needs to work towards greater transparency of its investment data. As BII has stewardship over taxpayers’ money, there is greater responsibility to ensure propriety over its investments by annually publishing performance data. We welcome BII’s steps towards improving its transparency by creating a new role for a Transparency and Disclosures Officer.341 We note however that there is scope for considerable improvement in BII becoming a more transparent institution.

116. BII must prioritise the monitoring and reporting of investment activity and transparently report its financial and impact data. This should include, but not be limited to:

a) the number and type of jobs created,

b) types and value of capital mobilised,

c) the 2X Challenge assessment of its portfolio according to the five 2X Challenge criteria,

d) how the 2X classification has improved an investee company above employment levels currently found in the market for a given country.

BII must also adhere to publishing a full annual listing of its investments in coal, oil and gas so an external assessment can be made on its progress against its Climate Change Strategy and a net zero portfolio, as previously recommended within our 2021 report on UK Climate Action and International Development around COP26. The data should be complete for all BII’s investments, published in a timely manner and allow for comparability over time. Where investments have not achieved their planned annual impact outcomes, BII should disclose the reasons for any short-comings and set out its plan for recourse.

117. BII should use Publish What You Fund’s DFI Transparency Index as a roadmap to increase the transparency of its operations and public disclosures.

Conclusions and recommendations

What is a development finance institution

1. Development finance institutions can make a substantive contribution to developing private markets in low- and middle-income countries by pioneering new and emerging industries, promoting positive change through investment activities and stimulating private-sector investment to develop markets. (Paragraph 11)

Governance

2. Under the current arm’s-length relationship, BII holds some investments that conflict with the UK Government’s policies, such as those relating to fossil fuels and there have been few attempts by BII to adapt its legacy investment portfolio to align with UK interests. The recent UK Government decision to expand BII’s remit to assist with the reconstruction of Ukraine demonstrates that the FCDO can intervene to steer BII’s investment activity, even where BII does not have necessary deep country knowledge and experience. The United States’ International Development Finance Corporation (DFC) demonstrates that public sector Board representation is not inherently damaging to a DFI’s commercial reputation given that, at the time of writing, this was the largest bilateral DFI. To ensure that BII’s strategy and operations are consistent with the International Development Strategy and FCDO objectives, to protect taxpayers’ interests and to ensure that BII’s investments help the world’s poorest people, FCDO should increase its oversight of BII and take a non-voting seat on the BII board. (Paragraph 28)

3. The FCDO and BII can both benefit from greater collaboration at the country office and regional levels. (Paragraph 33)

4. The FCDO must work collaboratively with BII throughout its operations to deliver the International Development Strategy’s objective of supporting countries to grow thriving economies by 31 March 2024. It should do this at both country office and regional levels by sharing institutional knowledge and ensuring that BII’s investments complement the FCDO’s bilateral programme. This should be built into the single country plan of each country where BII operates: the plan should outline operational synergies between FCDO and BII staff, identifying where the FCDO’s bilateral programmes complement BII’s investment activity and finding opportunities for further collaboration. (Paragraph 34)

5. We do not find BII’s approach to tracking gender lens achievements to be dynamic or suitably stretching to achieve greater development impact. Performance monitoring of key metrics to track other key indicators is also absent from BII’s strategy and public reporting. (Paragraph 36)

6. The FCDO must incorporate SMART targets into its strategy documents that stretch the development impact that BII achieves, such as the number of quality jobs created through its gender lens investments. This must be done by March 2024 to achieve active governance over BII and to ensure that BII’s investments are achieving greater impact for the world’s poorest people. (Paragraph 37)

7. The FCDO should have more oversight of the regional split of BII’s funds. It should actively monitor the thematic and geographic split of BII investments and include this within its annual reporting of ODA expenditure. The profiling of BII investment activity should also reflect the FCDO’s priorities, and this should be guided by the FCDO setting geographic and thematic handrails. The geographic and thematic areas of BII expenditure should be reported alongside the FCDO’s annual programme expenditure so the UK taxpayer has true sight of how UK ODA has been spent regionally and across thematic areas. (Paragraph 42)

8. BII should articulate the work it strives to do to promote gender equality and target under-represented groups through its investee businesses by setting its own proposal for impact. This should set out the categories of people that are being targeted, the impact that the investments are targeting and the target outcomes and key metrics that will be measured to show the change created from BII’s investments. (Paragraph 46)

9. A British Investment Partnerships strategy is urgently needed to drive effective co-ordination of actors within the BIPs and to ensure the International Development Strategy’s objective of delivering development in partnership achieves maximum impact. The FCDO must create this strategy, outlining its expectations of all parties involved in those partnerships, by 31 March 2024. The strategy must define inputs, outputs and outcomes measured by entity and progress against these metrics must be publicly reported each year. (Paragraph 49)

Poverty reduction

10. Some of BII’s investments in middle-income countries have been poorly targeted and do not appear to be reaching the poorest and most marginalised people. In some cases, BII investments have tenuous links to development impact. By concentrating its investments in middle-income countries, there is a risk that BII will lose its development focus and prioritise financial returns. (Paragraph 56)

11. BII must better distribute its investment across countries with different development needs and income status by capping the proportion of investments that it holds in middle-income countries, at a percentage determined by the Minister for Development, by 31 March 2025. The rate should be defined within BII’s investment policy and frequently monitored through BII’s published reporting. (Paragraph 57)

12. To ensure that poverty reduction is central to BII’s investment decisions, BII must pursue investments that demonstrate a clearer focus on driving inclusive economic growth and reducing financial and social inequality. (Paragraph 60)

13. In some instances BII has not demonstrated the additionality of its investments and is consequently competing with and crowding out commercial investors. (Paragraph 65)

14. BII must target nascent markets that struggle to stimulate investment from the private sector. BII must annually assess the value it adds to investee companies. Where BII has not proven its additionality to an investment or its case for additionality is no longer valid, BII should exit that investment. (Paragraph 66)

15. Financial intermediaries can deliver market expertise, but such investment vehicles can result in UK taxpayers’ money being used to reward intermediary agents in low-tax jurisdictions. In some cases, the onward investments made by intermediaries have rewarded businesses with weak or questionable links to development. (Paragraph 82)

16. To ensure that poverty reduction is central to BII’s investment decisions and to prioritise investments that are critical to recipient countries’ development needs, BII must:

(a) take responsibility for where its money is invested by exerting greater oversight and control over the activities of financial intermediaries who invest UK taxpayers’ money.

(b) ensure that its investments reduce inequality by targeting investments that generate tax receipts in the country of operation rather than channelling money through low-tax jurisdictions that ultimately promote tax savings for those intermediary agents.

(c) rigorously monitor all its intermediated investments to ensure that it can intervene before its money is invested in companies whose values are not aligned with the International Development Strategy. (Paragraph 83)

17. While the Abraaj example suggests that BII’s internal control flagged suspected fraudulent activity, in light of other reports we are forced to conclude that BII’s internal control failed to identify and prevent some investments that appear to have harmed society and the environment in low-income countries. In those cases, BII was slow to investigate and to act in response to alleged wrongdoing by investee companies. (Paragraph 94)

18. The FCDO must hold BII accountable for its due diligence and ongoing monitoring of its direct and indirect investments. To that end, FCDO must audit BII’s investment portfolio over a rolling five-year period against a set of environmental, social and governance (ESG) and development impact standards to validate BII’s internal assessments. (Paragraph 95)

Accountability and Transparency

19. BII must ensure that its entire portfolio is aligned with the UK Government’s development agenda. With a diminished ODA budget there is more pressure to target development assistance towards the poorest and most marginalised groups: consequently, there is a greater responsibility for BII to actively manage its portfolio. It should place a greater emphasis on the impact delivered with the money it controls. (Paragraph 103)

20. To deliver accountability and transparency and to operate in lockstep with the International Development Strategy, BII must assess the impact of its portfolio under previous strategy periods and actively manage its portfolio. BII must perform annual assessments of the impact delivered by all of its portfolio investments, including those businesses that are invested in through financial intermediaries. BII must divest from those investments that do not have a clear development objective and do not align with the International Development Strategy. In conclusion to these concerns expressed by the Committee and some that submitted evidence, we recommend the Minister maintain closer scrutiny on the whole budget and the proportion of the ODA budget allocated to BII. At a time of limited availability of the development budget, the taxpayer needs assurance that Official Development Assistance is used to support the world’s poorest people in the most effective way. (Paragraph 104)

21. BII needs to work towards greater transparency of its investment data. As BII has stewardship over taxpayers’ money, there is greater responsibility to ensure propriety over its investments by annually publishing performance data. We welcome BII’s steps towards improving its transparency by creating a new role for a Transparency and Disclosures Officer. We note however that there is scope for considerable improvement in BII becoming a more transparent institution. (Paragraph 115)

22. BII must prioritise the monitoring and reporting of investment activity and transparently report its financial and impact data. This should include, but not be limited to:

(a) the number and type of jobs created,

(b) types and value of capital mobilised,

(c) the 2X Challenge assessment of its portfolio according to the five 2X Challenge criteria,

(d) how the 2X classification has improved an investee company above employment levels currently found in the market for a given country.

BII must also adhere to publishing a full annual listing of its investments in coal, oil and gas so an external assessment can be made on its progress against its Climate Change Strategy and a net zero portfolio, as previously recommended within our 2021 report on UK Climate Action and International Development around COP26. The data should be complete for all BII’s investments, published in a timely manner and allow for comparability over time. Where investments have not achieved their planned annual impact outcomes, BII should disclose the reasons for any short-comings and set out its plan for recourse. (Paragraph 116)

23. BII should use Publish What You Fund’s DFI Transparency Index as a roadmap to increase the transparency of its operations and public disclosures. (Paragraph 117)

Formal minutes

Tuesday 12 September 2023

Members present

Sarah Champion, in the Chair

Mr Richard Bacon

Theo Clarke

Mrs Pauline Latham

Nigel Mills

Rt Hon David Mundell

Draft Report (Investment for development: The UK’s strategy towards development institutions), proposed by the Chair, brought up and read.

Ordered, That the draft Report be read a second time, paragraph by paragraph.

Paragraphs 1 to 117 read and agreed to.

Summary agreed to.

Resolved, That the Report be the Ninth Report of the Committee to the House.

Ordered, That the Chair make the Report to the House.

Ordered, That embargoed copies of the Report be made available (Standing Order No. 134).

Adjournment

Adjourned till Tuesday 17 October at 2.00 pm


Witnesses

The following witnesses gave evidence. Transcripts can be viewed on the inquiry publications page of the Committee’s website.

Tuesday 24 January 2023

Graham Gordon, Head of Policy, Catholic International Development Charity (CAFOD); Paul James, Senior Research Officer, Publish What You Fund; Anna Marriot, Health Policy Adviser, Oxfam; Daniel Willis, Policy Researcher and Campaign Manager, Global Justice NowQ1–50

Tuesday 07 March 2023

Samantha Attridge, Senior Research Fellow, Overseas Development Institute; Joe Dharampal-Hornby, Public Affairs Manager, Impact Investing InstituteQ51–91

Mr Stuart Bradley, Managing Partner, Phatisa Group Limited; David Kuijper, Public Investment and Blended Finance Manager, FMOQ92–147

Tuesday 25 April 2023

Diana Layfield, Chair, British International Investment; Nick O’Donohoe CMG, Chief Executive Officer, British International InvestmentQ148–261

Tuesday 06 June 2023

Rt Hon Andrew Mitchell MP, Minister of State for Development & Africa, Foreign, Commonwealth & Development OfficeQ262–387


Published written evidence

The following written evidence was received and can be viewed on the inquiry publications page of the Committee’s website.

BII numbers are generated by the evidence processing system and so may not be complete.

1 3one4 Capital (BII0055)

2 60 Decibels (BII0001)

3 Aavishkaar Group (BII0061)

4 Accountability Counsel (BII0065)

5 ActionAid UK (BII0090)

6 Acumen (BII0076)

7 Adlam, Tom (Independent Consultant on Impact Investment, Self-employed) (BII0057)

8 Advans International (BII0068)

9 Agora Global (BII0101)

10 Apis Partners LLP (BII0085)

11 Apollo Agriculture, Inc. (BII0015)

12 Ayana Renewable Power Pvt. Limited (BII0029)

13 BANK OF AFRICA (BII0037)

14 Blended Finance Taskforce (BII0070)

15 BlueMark UK Ltd. (BII0009)

16 BluePeak Private Capital Fund (BII0026)

17 Bond (BII0092, BII0107)

18 British International Investment (BII0075, BII0099, BII0105, BII0109)

19 CAFOD (BII0089)

20 Christian Aid (BII0073)

21 Commercial Bank of Ceylon Plc (BII0056)

22 Convergence Partners (BII0038)

23 Corner House (BII0108)

24 Counter Balance (BII0088)

25 Criterion Africa Partners (BII0041)

26 Divercity Urban Property Group (BII0049)

27 Dolma Impact Fund II (BII0033)

28 EDFI Association (BII0082)

29 Ecom Express Limited (India) (BII0043)

30 Edwards, Dr T. Huw (Senior Lecturer in Economics, Loughborough University); Douch, Dr Mustapha (Lecturer in Business Economics, University of Edinburgh Business School); Landman, Professor Todd (Professor of Social Science and Pro Vice Chancellor, University of Nottingham); and Mallick, Professor Sushanta K (Professor of International Finance, Queen Mary University of London) (BII0060)

31 Endeavor Energy Holdings LLC (BII0067)

32 FMO (BII0084)

33 FSD Africa (BII0011)

34 Foreign, Commonwealth & Development Office (BII0079, BII0103)

35 Fourth Partner Energy Private Limited (BII0022)

36 Frontier Energy (BII0046)

37 GEF Capital, South Asia (BII0072)

38 GOGLA (BII0032)

39 Global Justice Now (BII0014)

40 Gridworks Development Partners (BII0030)

41 Gryphon Holdings Plc (BII0095)

42 HealthQuad Fund II (BII0059)

43 Helios Investment Partners (BII0051)

44 Hunter, Dr Benjamin (Lecturer in International Development, University of Sussex) (BII0002)

45 INOKS Capital (BII0077)

46 Impact Investing Institute (BII0081)

47 Incofin Investment Management NV (BII0050)

48 Kenny, Charles (Senior Fellow, Center for Global Development) (BII0102)

49 Kranck, Lucas (Managing Partner, Ascent) (BII0066)

50 Lightsmith Group / Global Adaptation and Resilience Investment Working Group (GARI) (BII0028)

51 LoadShare (BII0078)

52 Lok Capital (BII0034)

53 MaxAB BV (BII0018)

54 MedAccess (BII0021)

55 Medical Credit Fund (BII0020)

56 Medikabazaar (Boston Ivy Healthcare Solutions Pvt. Ltd.) (BII0044)

57 Metier (BII0031)

58 Mintoak Innovations Private Limited (BII0045)

59 Novastar Ventures (BII0025)

60 ODI (BII0086, BII0097)

61 ONE and CGD (BII0106)

62 Oxfam GB (BII0104)

63 Oxfam; ActionAid; Africa Network Campaign on Education For All -ANCEFA; Right to Education Initiative; Education International; Eurodad; Global Campaign for Education; Global Initiative for Economic Social and Cultural Rights; Global Justice Now; and National Education Union (UK) (BII0074)

64 Pembani Remgro Infrastructure Managers (Pty) Ltd (BII0039)

65 Phatisa Group Limited (BII0054)

66 Polish University Abroad (BII0006)

67 Publish What You Fund (BII0063, BII0100)

68 Pula Advisors AG (BII0024)

69 Reinsberg, Dr Bernhard (Reader in Politics and International Relations, University of Glasgow); and Heinzel, Dr Mirko (Postdoctoral Research Associate, University of Glasgow) (BII0003)

70 SPE Capital (BII0013)

71 STOPAIDS (BII0035)

72 Sahel Capital Agribusiness Managers Limited (BII0058)

73 Standard Chartered Bank (BII0047)

74 TAKURA CAPITAL PARTNERS (BII0071)

75 The ONE Campaign (BII0080)

76 Time Partners (BII0053)

77 TradeDepot (BII0042)

78 Turtleshell Technologies Private Limited (Dozee) (BII0069)

79 Tyson, Dr Judith (Research Associate, ODI) (BII0094)

80 Unicaf Ltd (BII0004)

81 Westcott, Dr Nicholas (Director, Royal African Society) (BII0048)

82 Worldlink Communications Ltd (BII0064)

83 Zambia National Commerical Bank (BII0010)

84 iMerit Technologies (BII0016)

85 pi Ventures (BII0008)


List of Reports from the Committee during the current Parliament

All publications from the Committee are available on the publications page of the Committee’s website.

Session 2022–23

Number

Title

Reference

1st Report

Racism in the aid sector

HC 150

2nd Report

Food insecurity

HC 504

3rd Report

From Srebrenica to a safer tomorrow: Preventing future mass atrocities around the world

HC 149

4th Report

(Fourth Report of the International Development Committee) - Developments in UK Strategic Export Controls

HC 282

5th Report

Extreme poverty and the Sustainable Development Goals

HC 147

6th Report

Aid spending in the UK

HC 898

7th Report

Debt relief in low-income countries

HC 146

8th Report

UK aid for refugee host countries

HC 426

1st Special Report

Afghanistan: UK support for aid workers and the Afghan people: Government response to the Committee’s Fifth Report

HC 152

2nd Special Report

Food insecurity: Government response to the Committee’s Second Report

HC 767

3rd Special Report

UK aid to Pakistan: Government Response to the Sixth Report of the Committee

HC 829

4th Special Report

From Srebrenica to a safer tomorrow: Preventing future mass atrocities around the world: Government response to the Committee’s Third Report

HC 992

5th Special Report

Racism in the aid sector: Government response to the Committee’s First Report

HC 956

6th Special Report

Extreme poverty and the Sustainable Development Goals: Government response to the Committee’s Fifth Report

HC 1177

7th Special Report

Aid spending in the UK: Government response to the Committee’s Sixth Report

HC 1367

8th Special Report

Debt relief in low-income countries: Government response to the Committee’s Seventh Report

HC 1393

Session 2021–22

Number

Title

Reference

1st Report

Assessing DFID’s results in nutrition Review: report from the Sub-Committee on the Work of ICAI

HC 103

2nd Report

Global Britain in demand: UK climate action and international development around COP26

HC 99

3rd Report

The UK’s approach to tackling modern slavery through the aid programme: report from the Sub-Committee on the Work of ICAI

HC 104

4th Report

International climate finance: UK aid for halting deforestation and preventing irreversible biodiversity loss: report from the Sub-Committee on the Work of ICAI

HC 730

5th Report

Afghanistan: UK support for aid workers and the Afghan people

HC 919

6th Report

UK aid to Pakistan

HC 102

1st Special Report

The humanitarian situation in Tigray: Government Response to the Committee’s Tenth Report of Session 2019–21

HC 554

2nd Special Report

The UK’s Support to the African Development Bank Group: report from the Sub-Committee on the work of ICAI: Government Response to the Committee’s Ninth Report

HC 555

3rd Special Report

DFID’s results in nutrition Review: report from the Sub-Committee on the work of ICAI: Government response to the Committee’s First Report

HC 780

4th Special Report

Global Britain in demand: UK climate action and international development around COP26: Government response to the Committee’s Second Report

HC 1008

5th Special Report

The UK’s approach to tackling modern slavery through the aid programme: report from the Sub-Committee on the Work of ICAI: Government response to the Committee’s Third Report

HC 1021

Session 2019–21

Number

Title

Reference

1st
Report

Humanitarian crises monitoring: the Rohingya

HC 259

2nd Report

Effectiveness of UK aid: interim findings

HC 215

3rd Report

The Newton Fund review: report of the Sub-Committee on the work of ICAI

HC 260

4th Report

Effectiveness of UK aid: potential impact of FCO/DFID merger

HC 596

5th Report

Humanitarian crises monitoring: impact of coronavirus (interim findings)

HC 292

6th Report

The Changing Nature of UK Aid in Ghana Review: report from the Sub-Committee on the Work of ICAI

HC 535

7th Report

Progress on tackling the sexual exploitation and abuse of aid beneficiaries

HC 605

8th Report

Covid-19 in developing countries: secondary impacts

HC 1186

9th Report

The UK’s support to the African Development Bank Group: report from the Sub-Committee on the Work of ICAI

HC 1055

10th Report

The humanitarian situation in Tigray

HC 1289

1st Special Report

Follow up: sexual exploitation and abuse in the aid sector: Government Response to the First Report of the Committee

HC 127

2nd Special Report

Humanitarian crises monitoring: the Rohingya: Government Response to the First Report of the Committee

HC 658

3rd Special Report

The Newton Fund review: report of the Sub-Committee on the work of ICAI: Government response to the Committee’s Third Report

HC 742

4th Special Report

Effectiveness of UK Aid: Interim Report & Effectiveness of UK Aid: potential impact of FCO/DFID merger: Government Response to the Second & Fourth Reports

HC 820

5th Special Report

Humanitarian crises monitoring: impact of coronavirus (interim findings): Government Response to the Committee’s Fifth Report

HC 1160

6th Special Report

The Changing Nature of UK Aid in Ghana Review: report from the Sub-Committee on the Work of ICAI: Government response to the Committee’s Sixth Report

HC 1198

7th Special Report

Progress on tackling the sexual exploitation and abuse of aid beneficiaries: Government Response to the Seventh Report of the Committee

HC 1332

8th Special Report

Covid-19 in developing countries: secondary impacts: Government Response to the Eighth Report of the Committee

HC 1351


Footnotes

1 For further information on these points see paragraphs 39, 51, 69, 81 and 109

2 Further details on BII are included within Chapter 2.

3 Foreign, Commonwealth and Development Office (BII0079), para 12

4 Q148 [Nick O’Donohoe]

5 Foreign, Commonwealth and Development Office (BII0079), para 11

6 Q63 [Samantha Attridge]

7 Q63 [Samantha Attridge]

8 For example, FinDev, the Canadian DFI, launched its Climate Change Strategy in 2021 where it aims to increase its climate-related investments to at least 35 per cent of its portfolio by 2025 (FinDev Canada, Climate Change Strategy, October 2021, P9). DEG, Germany’s DFI, is working to make its portfolio ‘climate neutral’ by 2040 (DEG, Promoting Private Sector Development in Emerging Markets: DEG’s pathway to higher SDG contributions and a GHG neutral portfolio, 10 February 2022).

9 The 2X Challenge is a global initiative to provide opportunity and support to women in the workforce. DFI investments qualify as 2X-aligned if they meet at least one of the five metrics in areas that cover entrepreneurship, leadership, employment, consumption and intermediated investment. The thresholds range from 30 per cent to 51 per cent and would be classed as 2X qualified if 51 per cent of a company’s ownership are women or 30 per cent of women are in senior management. [2X Challenge]

10 2X Challenge, Global gender finance initiative exceeds target, raising US$ 16.3 Billion in two years, 23 May 2023

11 BII publishes good practice guidance for its investee companies and financial institutions in its ESG Toolkit. ESG topics range from animal welfare, supply chains and waste management. Business integrity topics include corporate governance, anti-money laundering, anti-corruption, whistleblowing and sanctions.

12 Melina Heinrich of the Donor Committee for Enterprise Development suggests that, to prove additionality, an agency must establish that the company is (a) unable to self-finance the project; or (b) does not have the knowledge or skills to implement the project activities alone; and/or (c) is unwilling to implement the project without support. Further, the agency should establish that (d) the firm cannot obtain this finance, knowledge, or support from a private provider and that no other private firm could deliver the project without support. (Charles Kenny and Todd Moss, CGD Notes, What to Do When You Can’t Prove DFI Additionality, 26 March 2020)

13 Crowding-out is a process where an increase in government spending leads to a fall in private sector spending. Crowding-out is also the terminology used when a DFI is considered to be competing with private sector investors.

14 Charles Kenny and Todd Moss, CGD Notes, What to Do When You Can’t Prove DFI Additionality, 26 March 2020

15 Q95 [David Kuijper]

16 Centre for Global Development, Policy Paper, Taking Stock of MDB and DFI Innovations for Mobilizing Private Capital for Development, 25 April 2023

17 OECD, COVID-19 crisis threatens Sustainable Development Goals financing, 10 November 2020

18 HM Government, Integrated Review Refresh 2023, March 2023, P26

19 Q273 [Andrew Mitchell]

20 Capital mobilisation is a concept where capital is attracted from the private sector.

21 Foreign, Commonwealth and Development Office (BII0079), para 30

22 HM Government, Integrated Review Refresh 2023, March 2023, P26

23 Each DFI has its own investment products, which can include any of the traditional tools (equity investments and debt financing), or new products, such as blended capital and guarantees. Blended finance is concessional finance or grants, deployed to attract commercial capital to projects that contribute to sustainable development. FMO states that blended finance helps adjust the risk profile of the investments. A financial guarantee is an agreement that a debt will be repaid to a lender by another party if the borrower defaults.

24 The Millennium Challenge Corporation and the United States Agency for International Development are planning to use $80 million in grant funding to attract $1 billion in private-sector investment. Devex says that the initiative will expand the technical tools available to enable the use of green bonds and other blended finance products, starting in Indonesia, Mozambique and Zambia. (Devex, New US climate finance initiative aims to mobilize $1B private capital, 11 November 2022)

25 Devex, Development finance institutions grapple with their growing role, 19 March 2019

26 The Organization for Economic Cooperation and Development (OECD) describes multilateral DFIs as private sector arms of international financial institutions that have been established by more than one country, and are subject to international law. Their shareholders are generally national governments but could also occasionally include other international or private institutions. Examples include the International Finance Corporation (IFC), which is part of the World Bank Group and the European Investment Bank. Bilateral DFIs are either independent institutions or part of larger bilateral development banks. Examples include the Netherlands Development Finance Company (FMO) and the German Investment and Development Company (DEG), which is part of the German development bank KfW. (OECD, Development finance institutions and private sector development [Accessed: 19 June 2023])

27 Devex, The Growth of Development Finance, P4, November 2022.

28 The DFC had a portfolio that was valued at $32.8 billion in 2021. (Devex, The Growth of Development Finance, November 2022, P5)

29 Wholly owned Government entities include the DFC, which is part of the US Government, and Norfund, which is wholly owned by the Norwegian Government’s Ministry of Foreign Affairs. FinDev is wholly owned by Export Development Canada (the Canadian Government’s export credit agency) and Proparco is the private sector financing arm of Agence Française de Développement Group (France’s AFD Group). DEG is a Limited Liability Company that is wholly owned by Germany’s KfW. KfW is 80 per cent owned by the German Federal Government, with the remaining 20 per cent owned by Lander). FMO also has a diversified shareholding, such that the Dutch Government is its majority shareholder at 51 per cent, while the remaining shares are held by private sector entities such as Dutch banks, employers’ associations and trade unions. (Foreign, Commonwealth and Development Office (BII0079), paras 64–65)

30 Foreign, Commonwealth and Development Office (BII0079), paras 64–65

31 ARIC is an international partnership of DFIs working together to accelerate and scale up private investment in climate adaptation and resilience in developing countries. (Adaption & Resilience Investors Collaborative, G7 Progress Report: Adaptation & Resilience Investors Collaborative, May 2023)

32 ARIA is a collective of DFIs that have the aim to unlock investment opportunities that otherwise would not have existed in frontier markets in Africa. (ARIA, ARIA [Accessed: 19 June 2023] / Foreign, Commonwealth and Development Office (BII0079) para 63.)

33 Q262 [Andrew Mitchell]

34 Oral evidence taken on 29 March 2022, HC (2022–23) 1177, Q45 [Nick O’Donohoe]

35 The disclosure cites: “This investment was made when British International Investment was named CDC Group” and is located on the investment webpage for each investment that was made prior to the re-branding to BII.

36 Oral evidence taken on 06 December 2022, HC (2022–23) 148, Q450 [Andrew Mitchell].

37 We have further explored BII’s ability to mobilise private sector capital in paragraphs 67–69.

38 BII, Investment Policy, P21

39 For example, CDC Group geographic mandate expanded to China, which is no longer an eligible country. Consequently, there are active legacy investments in Chinese businesses within BII’s investment portfolio.

40 The Prime Minister and Foreign Secretary announced BII would be allocated up to £250 million of new capital to support the reconstruction of Ukraine. This would support private sector investment in Ukraine’s major infrastructure projects, energy markets, financial services and agriculture, and would be drawn upon from 2024. (FCDO, UK boosts Ukraine’s recovery at major London summit, 21 June 2023)

41 Minister Mitchell defined “pioneer capital” as investment that goes to the hardest and most difficult places and that shows what the private sector can do to elevate the social and economic conditions of people in the developing world. He defined “patient capital” as capital that does not require a full market return and is able to operate alongside other elements of the private and multilateral sectors, to deliver real impact on the ground. (Q262 [Andrew Mitchell])

42 The Foreign, Commonwealth and Development Office (BII0079) stated that taking on equity investments in a company, rather than debt, helps to build a company’s resilience to economic shocks without the pressure of debt servicing, which makes it a higher risk, high impact development finance instrument. The FCDO stated that 70 per cent of BII’s portfolio is in direct and fund equity, in comparison to 21 per cent for Proparco, 44 per cent for DEG (Germany’s DFI), 34 per cent for FMO and 3.5 per cent for DFC. The FCDO also told us that BII focused on the poorest and most fragile markets, which saw BII make 72 per cent of its investments in Africa during 2021. This compared to 21 per cent of investments by DEG (Germany’s DFI) and 53 per cent by Proparco. While Africa received the largest regional share of BII’s investment in 2021, it is however noted that India remains BII’s largest recipient country within its investment portfolio, which amounted to 28 per cent in that same year. [Source: BII, BII Key Data, Accessed 19 June 2023]

43 Q342 [Andrew Mitchell]

44 Department for International Development, Technical note: The Reporting of Official Development Assistance from Development Finance Institutions [Accessed: 19 June 2023]

45 Prior to the consultation, the UK Government scored CDC’s equity investments as ODA. Where CDC took an equity stake in an enterprise, the purchase of the investment was recorded as positive ODA. When CDC sold the stake, the value of the sale was recorded as negative ODA. This meant that profitable equity investments, where the value of the sale exceeded the value of the initial purchase, resulted in an overall negative impact on UK ODA over the lifetime of the investment despite the positive benefit. At the time of the 2014 consultation, reporting practices for scoring investments into DFIs as ODA varied among OECD Development Co-operation Directorate (DAC) member countries. (Department for International Development, Statistical Consultation, 19 December 2014)

46 CGD blogpost, ‘Solving the private sector aid imbroglio’, 02 October 2017 / CGD blogpost, ‘How should UK development finance count as aid’, 18 October 2018

47 The policy for responsible investing focuses on the E&S (Environmental and Social) and Business Integrity (BI) practices that it expects of its investee companies and provides guidance on emerging E&S and BI themes.

48 The investment policy also drills into the detail of where and how BII can invest. For example, it lists the eligible sectors and countries where BII can invest.

49 The 2022–26 technical strategy has set a target for 30 per cent of its new commitments to be in climate finance. There is a new target for 25 per cent of new investments to meet the gender lens investing criteria, as outlined by the 2X Challenge. (BII, 2022–26 Technical Strategy, P52). BII has indicated that it expects the proportion of power generated by renewables in its energy portfolio to increase from 32 per cent to 70 per cent, however this target is not stated within BII’s strategy documents. (BII, CDC Group to invest over £3 billion over the next five years to combat the climate emergency, 01 November 2021)

50 The 2022–26 technical strategy sets a rate of return of 2 per cent across its portfolio. (BII, 2022–26 Technical Strategy, P47)

51 BII Annual Accounts 2021, P10

52 The 2022–26 technical strategy stipulates an Aggregate Impact Score, which is a weighted average of individual impact scores for all investments committed to from 2022 onwards. This is expected to range between four and eight during the 2022–26 period. (BII, 2022–26 Technical Strategy, P47)

53 This is set out in its 2018 Transparency and Disclosure Policy.

54 HM Government, Global Britain in a competitive age, March 2021, P22: HM Government, Integrated Review Refresh 2023, March 2023, P20

55 BII, Our Approach to Investing into the Indo-Pacific Region, 20 April 2022

56 Statement of Srini Nagarajan, Managing Director and Head of Asia, BII: UK Foreign Secretary visits Singapore to underscore partnership with region - Euro Weekly News, 29 September 2022

57 BII, 2022–26 Technical Strategy, P44

58 BII, 2022–26 Technical Strategy, P44

59 We were told that CDC/BII had 47 employees in 2010 but this has grown to 600 employees today (Q262 [Andrew Mitchell])

60 BII selected Singapore because it is the regional financial centre of Southeast Asia and claims this is consistent with its regional hub-office approach within Africa. Both Foreign, Commonwealth and Development Office (BII0079) and British International Investment (BII0075) stated that BII has offices in the following regional financial centres: Egypt (North Africa), Kenya (East Africa), Nigeria (West Africa) and South Africa (Southern Africa). Other BII regional offices include India (Mumbai, Bengaluru), Pakistan and Bangladesh. Both BII and FCDO claimed no investments would be made in Singapore.

61 Foreign, Commonwealth and Development Office (BII0079)

62 Q314 [Andrew Mitchell]

63 Foreign, Commonwealth and Development Office (BII0079) / Q313 [Andrew Mitchell]

64 Q184 [Diana Layfield]

65 Q178 [Nick O’Donohoe]

66 Q178 [Nick O’Donohoe]

67 Qq190–191 [Diana Layfield]

68 Dr Bernhard Reinsberg (Reader in Politics and International Relations at University of Glasgow); Dr Mirko Heinzel (Postdoctoral Research Associate at University of Glasgow) (BII0003); Q62 [Samantha Attridge]

69 Q62 [Samantha Attridge]

70 MedAccess (BII0021) also supports local African manufacturers.

71 Worldlink Communications Ltd (BII0064)

72 HM Government, Global Britain in a competitive age, March 2021

73 Assets with a valuation of £605 million had exposure to fossil fuels in 2021. The value of these assets has reduced from £665 million in 2020 (12.6 per cent of BII’s portfolio by value). BII has not published the figure for 2022 within its accounts due to commercial sensitivities. (BII, Annual Accounts 2022, P32).

74 Qq252–254 [Diana Layfield]

75 Global Justice Now (BII0014)

76 Qq250–254 [Diana Layfield]

77 Qq347–349 [Andrew Mitchell]

78 It should be noted that BII has a Climate Change Strategy in place that sets out its commitment to financing in line with 1.5 degrees aligned transition plan and to reach net-zero greenhouse gas emissions at the portfolio level by 2050. Its Task Force on Climate-related Financial Disclosures in BII’s Annual Accounts 2021 stated that it was working to deliver on this commitment by developing a portfolio net-zero methodology as a tool for informing portfolio construction.

79 Qq347–348 [Andrew Mitchell]

80 Global Justice Now (BII0014) told us that “BII has committed an estimated £100 million to the development of the Temane CTT gas power project in Mozambique, currently under development by Globeleq (in which BII has a 70 per cent stake). Mozambique was previously ranked 14th in the Climate Risk Index for the years 1999–2018, and has suffered the impacts of major extreme weather events including Cyclone Idai and Cyclone Kenneth. The UK Government recognises these challenges and has previously contributed UK aid to programmes seeking to build climate resilient infrastructure and respond to extreme weather events in Mozambique.”

81 HM Government, Global Britain in a competitive age, March 2021, P22: HM Government, Integrated Review Refresh 2023, March 2023, P20

82 The Times, Taxpayer cash tied up in firm linked to Chinese soft power | News | The Times, 24 October 2022

83 HM Government’s Global Britain in a competitive age (March 2021) states the Belt and Road Initiative could have profound implications worldwide.

84 Foreign, Commonwealth & Development Office (BII0103)

85 Correspondence from the Minister for Development and Africa regarding Additional British International Investment (BII) funding in support of Ukraine’s Recovery, 02 July 2023

86 Correspondence from the Minister for Development and Africa regarding Additional British International Investment (BII) funding in support of Ukraine’s Recovery, 02 July 2023

87 The arm’s length approach sets out that the FCDO sets the strategic priorities and BII selects and approves the investments. (Correspondence from the Minister for Development and Africa regarding Additional British International Investment (BII) funding in support of Ukraine’s Recovery, 02 July 2023)

88 This includes partnering with the IFC to provide an unfunded trade guarantee through the Global Trade Finance Program and partnering with the EBRD and other DFIs in the EBRD-G7 DFI-EDFI Ukraine Investment Platform. The Global Trade Finance Program was set up in 2004 to enable IFC to respond quickly to support liquidity in local banks and provide technical assistance (World Bank Group, 2. IFC’s Global Trade Finance Program: Objectives and Design, [Accessed: 10 July 2023]). The EBRD-G7 DFI-EDFI Ukraine Investment Platform is led by the EBRD with DFIs from 18 countries. The platform will increase BII’s investment capacity by building on EBRD’s experience, skills and relationships within Ukraine. The EBRD will be lead manager of the co-investment, structuring and co-ordinating all due diligence. Any new investments - including the approach taken to identification and due diligence - will be made in line with BII’s existing policy on responsible investing.” (Correspondence from the Minister for Development and Africa regarding Additional British International Investment (BII) funding in support of Ukraine’s Recovery, 02 July 2023).

89 The UK Government are shareholders of EBRD and has representation on the EBRD Board. The UK has provided €235 million in donor funds to support EBRD operations, holds 8.52% share capital and holds €30.87 billion of UK-EBRD investments. (EBRD, United Kingdom: EBRD shareholder profile [Accessed: 12 July]; EBRD, The EBRD in Ukraine [Accessed: 12 July 2023]).

90 The World Bank Group has announced that BII and the DFC have agreed to risk-share IFC’s trade finance exposure. BII and the DFC intend to provide $25 million and $50 million respectively. (The World Bank Group, IFC and Partners Announce New Funding and Support for Ukrainian Private Sector, 22 June 2023). Likewise, both BII and the DFC have been listed on the Ukraine Co-investment Platform. The EBRD is the largest institutional investor in Ukraine and it is cited as having the skills, relationships and operational experience in the region that will facilitate its place as the lead Institution for co-investments under the platform. In relation to partner DFIs, it has stated: “Partners, in close consultation with respective governments, will promote measures to address the financing gap for reconstruction, especially by working with the private sector. Their aim will be to contribute to the recovery of the economy, industry and infrastructure and the reconstruction of people’s livelihoods in Ukraine as well as stability in the international community.” (EBRD, EBRD and DFIs establish Ukraine Co-investment Platform, 21 June 2023)

91 Those Government officials represent the other departments that have a role in development. The US Department of State, US Agency for International Development, US Department of the Treasury and US Department of Commerce all have representation on the DFC Board. (DFC, Board of Directors [Accessed 27 June 2023])

92 Q308 [Andrew Mitchell]

93 International Development Committee, Fifth Report of Session 2010–11, The Future of CDC, P43 Recommendation 23.

94 The FCDO DevCap focuses on equity investments in small and innovative businesses, and on green infrastructure. ICAI has claimed that it would expect close collaboration to be beneficial to both DevCap and BII, given their distinct approaches. However, ICAI saw limited evidence that the two portfolios were being managed to identify and develop synergies between them, leading to a range of missed opportunities. ICAI expected both entities to look for opportunities to collaborate when working on different parts of the same market ecosystem. For example, young and innovative businesses that were supported by FCDO DevCap with early-stage equity investments could move on to larger-scale loan finance from BII when seeking to expand. ICAI considered that the FCDO’s strong relationship with the Indian Government should make it well placed to support BII’s wider, market-building objectives. ICAI also noted some duplication of function as both the FCDO and BII are required to maintain similar capacities. It found no signs that they had explored sharing functions to encourage cost saving, such as on risk management and financial controls. (ICAI, UK Aid to India, March 2023, Pvii)

95 AgDevCo is a specialised investor in Africa’s agriculture sector that is funded by DFID/FCDO, BII and other donors. ICAI states that it found instances of missed opportunities for coordination, even when this had been built into business cases. There were few incentives for information sharing and joint action in-country. The lack of effective operational coordination between BII and the FCDO hampered, for instance, the UK’s ability to engage effectively along agricultural supply chains. (ICAI, UK aid to agriculture in a time of climate change, June 2023, Pv)

96 ICAI, UK aid to agriculture in a time of climate change, June 2023, Pv

97 Foreign, Commonwealth and Development Office (BII0103)

98 As part of our inquiry visit to Nepal we observed a BII-funded project for fibre broadband. We observed that the owner of that project was very keen to get women involved as engineers but was very aware of the cultural resistance to that. On his own he could not do much to challenge the culture but, because BII had such a close working relationship with FCDO, some of their education projects around women’s and girls’ training opportunities meant that the two could build on each other’s successes. (Q309 [Chair])

99 Qq309–310 [Andrew Mitchell]

100 Q177 [Nick O’Donohoe]

101 Q177 [Nick O’Donohoe]

102 Foreign, Commonwealth & Development Office (BII0103)

103 Foreign, Commonwealth & Development Office (BII0103)

104 Agora Global (BII0101)

105 The principal parameters include the geographic footprint, the proportion of investments that qualify under BII’s Catalyst Portfolio, the proportion of investments in climate financing and the proportion of new investments that meet the gender lens criteria. The catalyst portfolio is to encourage competition, replicate a business model, demonstrate success, develop skills and capacity and improve the enabling environment [BII, Our approach to enhance development impact, P9, November 2022]. The 2022–26 technical strategy outlines three impact objectives: (1) Productive: Addressing constraints to economic growth and catalysing markets, including through digital transformation; (2) Sustainable: Financing a cleaner, greener planet, with climate finance to be greater than 30 per cent of all new commitments; (3) Inclusive: Investing to support more marginalised groups, with gender lens finance to be greater than 25 per cent of all new commitments.

106 This includes quarterly and annual shareholder meetings that are chaired by the Director General with oversight for BII and the Permanent Secretary. The Chair meets annually with the Secretary of State and quarterly with the Minister for Development. Topics that are covered in these meetings include: (i) progress against the financial and development impact targets set within BII’s investment policy; (ii) BII investment activity, including commitment pace, disbursements, and realisations, and the status of the investment pipeline; (iii) BII’s cash position relative to commitments, Net Asset Value of its portfolio, and future commitment levels; (iv) Budget and recruitment; (v) Development impact; (vi) Risk and risk management; (vii) ESG and Business Integrity issues.

107 BII’s Annual Review shows that 28 per cent of BII investments qualified for the 2X Challenge in 2021. This exceeded the target outlined in BII’s 2022–26 technical strategy of 25 per cent. (BII Annual Review 2021, P18).

108 BII obtained 50 per cent of new commitments qualifying under the 2X Challenge for the 2022 period, which is significantly above the 25 per cent target. (BII Annual Review 2022, P31).

109 ODI (BII0097)

110 Both capital mobilised and the number of jobs created are included within BII’s key data online and they are often cited by BII when demonstrating the impact of its work. (BII, 2022–26 Technical Strategy, P47 / BII Key Data [Accessed: 16 June 2023]).

111 SMART refers to a set of criteria to track objectives and metrics. SMART stands for “Specific, Measurable, Achievable, Realistic, and Timely”.

112 Q150 [Nick O’Donohoe]

113 Q334 [Andrew Mitchell]

114 “Highest need” is determined by BII’s measurement of development impact and those corresponding metrics, such as poverty alleviation, gender impact or financial return. (Qq155–157 [Diana Layfield])

115 It is noted that the ONE Campaign flagged there is no threshold for rejecting an investment based on the impact score. A project could score 0 out of 5 for inclusivity or sustainability but still be approved. The ONE Campaign (BII0080)

116 ICAI, UK Aid to India, March 2023

117 Since giving evidence BII has released its results for 2022. Its key data shows that, for 2022, India made up 26 per cent of BII’s portfolio. Egypt and Nigeria were BII’s joint second largest investee countries and each amounted to 8 per cent of its portfolio. (BII Key Data / World Bank Data on country classifications [Accessed: 20 July 2023])

118 Correspondence from the Minister for Development and Africa regarding 2022 Provisional Statistics on International Development, 14 June 2023

119 ICAI, UK Aid to India, March 2023

120 Correspondence from the Minister for Development and Africa regarding Additional British International Investment (BII) funding in support of Ukraine’s Recovery, 02 July 2023

121 2X Challenge [Accessed 27 June 2023]

122 Nick O’Donohoe reported that BII’s gender action plans are an integral part of the environmental and social action plans in every investment that BII makes. These action plans relate to everything from board memberships to how many women are represented at a management table, to how many women are represented in the workforce, the quality of those jobs, how they are treated and the products themselves. (Q257 [Nick O’Donohoe])

123 BII also uses a gender toolkit to guide its investees to implement 2X across their businesses and provides a gender-smart investing guide for fund managers to implement those values across their own firms and operations. (BII, 2022–26 Technical Strategy, P16; BII, Gender-smart investing [Accessed 27 June 2023])

124 The International Women and Girls Strategy also cites the British Investment Partnerships for growing new partnerships with donors, middle-income and lower-income countries, the private sector, civil society, and philanthropic organisations, to invest in innovative financing instruments and delivery mechanisms. (FCDO, International women and girls strategy 2023 to 2030, 08 March 2023, P24–25)

125 The DFC plans to support 15 million women and girls by targeting low-income women, rural women, older women and women with disabilities, single mothers, refugees, and indigenous women who are less likely to have access to high-quality employment opportunities, credit, affordable housing and other essential services. Improved financial resilience for women is an example of a targeted outcome for the DFC and a key metric used includes sector-specific metrics where relevant that are disaggregated by gender (e.g., number of students enrolled, patients, loans are disaggregated by sex). (DFC, Impact Theses for DFC’s key development sectors and strategic initiatives, October 2022, P5)

126 Minority groups include the more marginalised and disabled people, as well as people living in rural and remote areas.

127 BII has disability inclusion guidance that is designed to help companies familiarise themselves with the topic of disability inclusion and provides steps to become more disability inclusive. Disability inclusion is also included as part of BII’s ESG Toolkit for all fund managers. (Foreign, Commonwealth & Development Office (BII0103))

128 FCDO, FCDO Disability Inclusion and Rights Strategy 2022–2030, February 2022, P34

129 FCDO, FCDO Disability Inclusion and Rights Strategy 2022–2030, February 2022, P25

130 DFC, Impact Theses for DFC’s key development sectors and strategic initiatives, October 2022, P3

131 FCDO, The UK Government’s Strategy for International Development, May 2022, P9

132 UK Government actors in BIPs involve a blend of investment vehicles (e.g., Private Infrastructure Development Group (PIDG)), finance (e.g., UK Export Finance), and technical assistance (e.g., FCDO).

133 FCDO, The UK Government’s Strategy for International Development, May 2022, P9

134 Dr Bernhard Reinsberg (Reader in Politics and International Relations at University of Glasgow); Dr Mirko Heinzel (Postdoctoral Research Associate at University of Glasgow) (BII0003). Minister Mitchell also credits the Private Infrastructure Development Group (PIDG) as being a very important part of BIPs and also making a big contribution. (Q270 [Andrew Mitchell])

135 Future of international development: Minister Andrew Mitchell’s speech, 27 April 2023

136 ODI (BII0086); Bond (BII0092)

137 ODI (BII0086)

138 Written Question 186671, Development Aid, 24 May 2023

139 Christian Aid (BII0073); Bond (BII0092)

140 ONE and CGD (BII0106) told us that the UK Government can claim to have mobilised almost £7 billion of public and private sector finance during 2021 and is expected to reach £9.7 billion for 2022. This has mainly been driven by the issuance of UK guarantees.

141 BII’s investment policy has been in place from 2022 and will cover the strategy period up to 2026.

142 World Bank Blogs, A richer array of international poverty lines, 13 October 2017

143 The Committee session on CDC Group/BII was held as part of the inquiry into “Extreme Poverty and the Sustainable Development Goals” on 29 March 2022.

144 ICAI, UK Aid to India, March 2023.

145 ODI (BII0097); New World Bank country classifications by income level: 2022–2023 [Accessed 03 July 2023]

146 ODI (BII0097) states that while all of these countries do have significant pockets of poverty - often concentrated in marginalised areas, ethnic groups or by gender groups - they also have all achieved significant economic growth in recent years, raising the issue of whether they are worthy recipients of the majority of BII’s investments. This is especially on a comparative basis because in many low-income countries private sector investment is scarce, and its absence is a significant constraint on economic growth.

147 Since the inquiry’s evidence submission, BII has released its results for 2022. Its key data shows that, for 2022, India made up 26 per cent of BII’s portfolio. Egypt and Nigeria are BII’s joint second largest investee countries and each amounts to 8 per cent of its portfolio. Kenya amounts to 5 per cent of BII’s portfolio, with Bangladesh, Zimbabwe and Morocco amounting to 4 per cent each. All countries are lower-middle income, as classified by the World Bank. These six countries (with the exception of India) account for 33 per cent of BII’s portfolio. (BII Key Data / World Bank Data on country classifications [Accessed: 20 July 2023])

148 The World Bank quotes 39 states within its FY22 list of fragile and conflict-affected situations (P1). We do, however, note that BII would not be permitted to invest in some of these states because they fall outside of its designated geographic remit, as defined within its investment policy (BII, Investment Policy, P20).

149 The ONE Campaign (BII0080)

150 Dr Judith Tyson (Research Associate at ODI) (BII0094)

151 The written evidence cited interbank markets, capital markets and well-established and stable deposit bases as examples of the types of finance these conglomerates have access to. (Dr Judith Tyson (Research Associate at ODI) (BII0094); ODI (BII0097))

152 Dr Judith Tyson (Research Associate at ODI) (BII0094); ODI (BII0097)

153 Dr Judith Tyson (Research Associate at ODI) (BII0094); ODI (BII0097)

154 ODI (BII0097) stated that the high returns include the high interest rates charged to the poorest households. It flagged, however, that there are some exceptions to these conclusions in the microfinancing sector. These are in the context of absent social protection (most common in some low-income countries) or in grossly underfinanced sectors with strong links to poverty such as smallholder farming. However, ODI states that BII’s investments are not limited to those niche areas. For example, there is a large allocation to the microfinance sector in India, which ODI says has well-developed financial services and microfinance sectors, with reasonably good public social protection programs.

155 Q328 [Andrew Mitchell]

156 Minister Mitchell said that in 2011–12, then-DFID made changes to how it interacted with India. It was then that a focus was placed on investment in pro-poor industry and technical assistance, which was seen as “the right way in which to walk the final mile with India” on development. (Q327 [Andrew Mitchell])

157 Both investments were made by financial intermediary Amicus Capital Partners (ACP) through the Amicus Capital Partners Private Equity I fund. BII’s website describes ACP as a Bangalore-based private equity firm focused on mid-market investments. Its fund was launched in March 2015 and is an Indian-focused fund, targeting investments in small businesses. The fund is however domiciled in Mauritius. BII invested $25 million to the fund in December 2016. The fund subsequently invested in Wonderchef in June 2018 and mCaffeine in September 2020 among other portfolio companies. There is limited description on what the Wonderchef investment entails on BII’s website. However, our research shows this company is owned by Indian celebrity chef Sanjeev Kapoor and is an ecommerce outlet for cookware and appliances. mCaffeine is described on BII’s website as a producer of personal care products. mCaffeine describes itself as ‘brewed for beauty’ and is an Indian company that produces beauty products.

158 Foreign, Commonwealth & Development Office (BII0103)

159 ICAI, UK Aid to India, March 2023, Pvii

160 Q331 [Andrew Mitchell]

161 ICAI, UK Aid to India, March 2023, Pvii

162 The report also cites one major investment in an Indian bank, intended to expand financial services for the poor, which in fact led mainly to expansion of the bank’s credit card business and corporate lending. (ICAI, UK Aid to India, March 2023, Pvii)

163 This would adhere to the Sustainable Development Goal 10, which aims to reduce inequality among countries. This SDG aims to encourage Official Development Assistance and financial flows, including foreign direct investment, to states where the need is greatest, in particular least developed countries, African countries, small island developing states and landlocked developing countries. (UN Sustainable Development Goals, Goal 10: Reduce inequality within and among countries [accessed 13 June 2023])

164 Witnesses have told us that IFU could be considered to be a comparable institution to BII as it is wholly owned by the Danish Government, overseen by the Danish ministry for development cooperation, and with a mandate to promote sustainable development and green transitions. (Dr Bernhard Reinsberg (Reader in Politics and International Relations at University of Glasgow); Dr Mirko Heinzel (Postdoctoral Research Associate at University of Glasgow) (BII0003))

165 Our predecessors’ 2011 report on The Future of CDC recommended that CDC should aim for a more evenly-distributed portfolio between countries and avoid overconcentration of investment in any middle-income country. CDC should also target the poorest regions or areas of middle-income countries. [International Development Committee, Fifth Report of Session 2010–11, The Future of CDC, P42, Recommendation 20].

166 Q148 [Nick O’Donohoe]

167 Q148 [Nick O’Donohoe]

168 It is reported that this fund holds at least 20 further investments in fossil fuel companies (Open Democracy, UK overseas aid still invested in fossil fuels – two years after climate pledge, 24 November 2022)

169 BII data does not give information on the amount that was invested in Dangote Industries Limited. The data does detail that Dangote Industries Limited is a diversified and fully integrated conglomerate with operations in Nigeria and Africa across a wide range of sectors including cement, sugar, salt, condiments, packaging, energy, port operations, fertilizer, and petrochemicals. This investment was made in December 2019 and was classified as ‘Active’ when BII’s data was viewed in June 2023.

170 Open Democracy, UK overseas aid still invested in fossil fuels – two years after climate pledge, 24 November 2022

171 BII Data shows that the investment was made through Apis Partners in January 2021 (amount unknown) and BII has also directly invested $23.5 million through a direct equity investment in September 2022.

172 Tyme has an ownership structure that includes layers of holding companies and has also engaged in related party transactions. Tyme’s 2022 financial accounts detail several related party transactions between group companies, such as an annual transaction of R175 million (c.£7.8 million) for outsourced services (Tyme Bank Limited, Annual Financial Statements to 30 June 2022). As of 30 June 2022, Tyme Group had accumulated losses of c.R6 billion, which represent Group establishment and build costs. (Tyme Bank Holdings Limited, Consolidated Financial Statements to 30 June 2022)

173 SDG 10 aims to reduce inequality within countries, which is considered a persistent cause for concern, and Target 10.1 focuses on progressively achieving and sustaining income growth of the bottom 40 per cent of the population at a rate higher than the national average. (UN Sustainable Development Goals, Goal 10: Reduce inequality within and among countries [accessed 13 June 2023])

174 As BII invests ODA funds, its investments should be additional to the investee.

175 Q362 [Andrew Mitchell]

176 BII’s website has not published specific impact information on Dangote Industries Limited as the investment was made through Investec, a financial intermediary. However, the expected impact for the fund was to provide credit to private sector businesses in Sub-Saharan Africa. BII’s website states: “the Investec Fund will typically provide capital to businesses and projects which already support local employment, enabling access to longer term funding. The finance may be used as working capital or to fund expansion, enabling the creation of jobs.” There is no information published on whether this impact was achieved. BII’s website also states that BII worked with the fund manager to contribute to the development and implementation of an Environmental and Social Management System. (BII, Ninety One Africa Credit Opportunities Fund (Investec) [Accessed: 10 August 2023])

177 The FCDO cited the other criteria as including: (a) The strategic rationale and development impact thesis; (b) The additionality rationale for BII finance where BII is providing finance, or other value added that the private sector would not provide; (c) Whether the potential investment partner or investee’s values aligns with BII; (d) The commercial thesis of the investee and ability to execute its business plan; (e) Environmental, social and governance (ESG) and business integrity risks. (Foreign, Commonwealth and Development Office (BII0079))

178 IDC Oral Evidence: Extreme poverty and the Sustainable Development Goals, 29 March 2022

179 IDC Oral Evidence: Extreme poverty and the Sustainable Development Goals, 29 March 2022

180 Tom Adlam (Independent Consultant on Impact Investment at Self-employed) (BII0057)

181 Mintoak Innovations Private Limited (BII0045)

182 Tom Adlam (Independent Consultant on Impact Investment at Self-employed) (BII0057)

183 The reason cited for a lack of strong financial additionality is because India has relatively mature financial markets. (ICAI, UK Aid to India, March 2023)

184 Q164 [Nick O’Donohoe]

185 Agora Global (BII0101)

186 Dr Judith Tyson (Research Associate at ODI) (BII0094) cited secondary impacts such as the mobilisation of private finance or how BII’s investments have accelerated economic transformation.

187 Q343 [Andrew Mitchell]

188 Q343 [Andrew Mitchell]

189 Crowding-in is a term used for when higher government spending leads to an increase in private sector investment.

190 OECD, COVID-19 crisis threatens Sustainable Development Goals financing, 10 November 2020, ODI (BII0086)

191 Acumen (BII0076) further states that these types of transactions, where BII mobilises other financiers, perform a critical role that DFIs are uniquely suited to achieve.

192 Gryphon Holdings Plc (BII0095) claims that the approach of using a private equity model to promote private sector investment in emerging markets has not been successful during the last three decades. Gryphon states that continuing to use this model will not encourage the mobilisation of private sector capital to the levels expressed in the International Development Strategy, of mobilising up to £8 billion, unless BII can change its approach to encourage private sector investment.

193 Q44 [Anna Marriott]

194 Charles Kenny (Senior Fellow at Center for Global Development) (BII0102)

195 Q341 [Andrew Mitchell]

196 ODI (BII0086)

197 Q74 [Samantha Attridge]

198 Oral evidence taken on 06 December 2022, HC (2022–23) 148, Q450 [Andrew Mitchell].

199 This is because of the DFC’s use of guarantees and insurance, which is known to have a higher potential for mobilising capital.[Q76 [Samantha Attridge]]

200 ODI wrote that BII mobilised an average of £0.5 billion between 2018 and 2020. BII’s key data shows that it mobilised $2 billion of private sector capital in 2021. Yet ODI stated that the current overall levels of mobilisation would need to increase eight-fold to meet this ambition, implying some bold changes to the UK Government’s approach [ODI (BII0097)]. Rather, the Blended Finance Taskforce for the Global Goals in 2015 suggested an additional $1.1 to $1.5 trillion in private sector investment in low to low-middle income country infrastructure could be mobilized in a year if $100 billion in aid and multilateral development bank-backed blended finance was leveraged at a 9:1 ratio. (Charles Kenny (Senior Fellow at Center for Global Development) (BII0102)). BII’s 2022 results showed an improvement, such that BII had mobilised $88 for every $100 invested but this was not the ratio needed to meet the ambition of the BIPs. (BII Annual Review 2022, P9).

201 Charles Kenny (Senior Fellow at Center for Global Development) (BII0102) suggested that the UK Government might have greater success in mobilising additional capital by increasing its general capital to the World Bank’s International Bank for Reconstruction and Development (IBRD) instead of channelling this money to BII. While IBRD doesn’t invest in low-income countries or those at the bottom end of the lower-middle-income scale, it is stated that there is considerable overlap with BII’s portfolio, such that BII’s top five investee countries are all IBRD borrowers. This includes India, Nigeria, Kenya, Egypt, Morocco, which amounted to 49 per cent of BII’s portfolio in 2021. The Center for Global Development claimed that channelling BII’s total allocation of £4.9 billion would have directly supported over £20 billion of IBRD-backed investments, which would have helped mobilise over £500 billion in extra public lending backed by other shareholders.

202 The term “funds” includes venture capital funds, credit funds and private equity funds.

203 BII, 2022–26 Technical Strategy, P23

204 BII, 2022–26 Technical Strategy, P23

205 BII, Annual Review 2021, P28

206 Source: BII Key Data, [Accessed 16th March 23]

207 It should be noted that no fees were paid to banks due to the nature of this investment (Q199).

208 Q199 [Nick O’Donohoe]

209 Minister Mitchell outlined the importance of financial intermediaries and said they “enable BII to achieve wider and deeper reach into some markets than solely through its direct investments, to provide smaller levels of financing more effectively through these intermediaries, to raise standards in the wider market, to support the development of local institutions and to mobilise other capital.” [Qq370–371 [Andrew Mitchell]]

210 FCDO Annual Report and Accounts 2021–22, Annex A, P251

211 BII provides guidance and support to these investees on how to do this, including training and capacity building where necessary.

212 Q202 [Nick O’Donohoe]

213 One such example is Pula Advisors, which received a repayable US$5 million from BII. Pula’s business is aimed at smallholder farmers in Africa and claims to offer increased access to agricultural insurance. It offers a “Pay at Harvest” (PAH) product that allows the pre-financing of premiums at the start of the season and repayment by farmers at the end of the season when constraints on cash are less. Pula Advisors AG reported that 75 per cent of farmers expressed their satisfaction with the insurance product and the PAH model. They said the timing of the premium payments allowed the farmers to manage their cash flows better. (Pula Advisors AG (BII0024)).Another example is FSD Africa, a UK aid-funded regional programme that operates in over 30 countries in Africa. The organisation wrote that its programmes have helped to increase access to savings products among women, to boost female digital financial inclusion, and to extend financial services to female business owners. BII have partnered with FSD Africa and acted as an anchor investor in the funds they are both invested in. FSD wrote that in 2022 its investment arm invested £8 million in Nyala Venture, a special purpose vehicle that serves small and growing businesses, particularly those which are led by women or are applying a gender lens investment strategy. FSD Africa stated that it was able to build on the insights and leadership of BII in this area. (FSD Africa (BII0011)).

214 Global Justice Now, Healthcare for all? How UK aid undermines universal public healthcare, January 2021, P11.

215 Global Justice Now (BII0014); Q40 [Daniel Willis]

216 British International Investment (BII0099) claimed that the fund initially invested in Beams Hospital PvT Ltd (Beams), a walk-in day care surgery, in 2010. A new CEO was recruited in March 2013 to turnaround Beams as part of the fund manager’s plan to exit from this investment. In October 2015, Beams was restructured and this led to the transfer of the fund’s interest in Beams to a newly formed company holding Nu Cosmetics. BII said that the turnaround of Beams was not successful, with the Nu Cosmetics division of the business performing much more strongly. BII said that the impact and financial objectives for this investment and the wider fund were not achieved but BII took the learnings from this investment to refine its fund investment strategy. The investment was removed from BII’s website and accounts during 2023 when it received final written confirmation from the fund that it had formally written off the investment in its accounts.

217 BII’s investment database cites that Wine Connection is an investment that was made through Neoma Southeast Asia Fund II in April 2014. It offers affordable, high quality and exclusive wines from around the world through owned food and beverage outlets in Thailand and Singapore.

218 Q5 [Graham Gordon]

219 Q5 [Graham Gordon]

220 Q82 [Samantha Attridge]

221 BII performs a risk assessment on the investments made by those fund managers. BII stated that investments that are potentially off-track against the investment thesis are escalated for discussion with the relevant Managing Director and other BII staff. Specific actions are identified that BII should take in response. BII said that those classified as higher risk or underperforming will be reported to Managing Directors and the CEO, with Board oversight. (British International Investment (BII0099))

222 The BBC Africa Eye reported on concerns of alleged fraud, bribery and “other highly questionable business practices” by two British managers appointed by the private equity fund, ECP Africa Fund II, to run its investee’s Kenyan firm Spencon. BII invested $47.5 million in the fund that later invested in Spencon, Spencon has since ceased operations. [BBC, Spencon: Inside the collapse of an African construction giant, 06 April 2020]

223 Q226 [Nick O’Donohoe]

224 British International Investment (BII0105) told us that in response to the fraud, it reinforced the importance of corporate and risk governance as a prerequisite to achieving effective business integrity practices; it clarified what BII means by business integrity management systems and what controls, at a minimum, BII expects every portfolio company to have in place; it enabled BII to review a fund manager’s approach to business integrity risk management more effectively, including, enhanced access rights. These rights include the ability to see and provide feedback on the first three integrity due diligence exercises completed by the fund manager at portfolio company level following BII’s investment, as well as access to information about high-risk companies in the portfolio; and ensured enhanced fund manager reporting on their business integrity due diligence work, including reporting on any business integrity risks or breaches at the portfolio level.

225 Q207 [Nick O’Donohoe]

226 Q207 [Nick O’Donohoe]

227 ActionAid UK (BII0090); Bond (BII0092); Christian Aid (BII0073); Q22 [Daniel Willis]

228 Phatisa itself does not invest in Mauritius but one of its offices is located there, as well as in South Africa, Kenya and Zambia. Rather, Phatisa holds investments on behalf of BII in Kenya, Zambia, Rwanda and South Africa. (Phatisa locations / BII, Pan African Housing Fund LLC / BII, Phatisa Food Fund 2 [Accessed: 10 August 2023])

229 Q114 [Stuart Bradley]

230 Q114 [Stuart Bradley]

231 Q235 [Nick O’Donohoe]

232 BII, Tax strategy and policy on the payment of taxes and the use of offshore financial centres, February 2022

233 Q319 [Andrew Mitchell]

234 Bond (BII0092)

235 Tax Justice Network, Mauritius Profile [Accessed: 16 March 2023]

236 The International Consortium of Investigative Journalists in 2019 also published an exposé over how businesses were registered in Mauritius to take advantage of international double taxation agreements. (International Consortium of Investigative Journalists, Treasure Island: Leak Reveals How Mauritius Siphons Tax From Poor Nations to Benefit Elites, 23 July 2019)

237 Over the course of the inquiry, BII has released its results for 2022. Its key data shows that for 2022 BII’s portfolio increased in value to $8.2 billion. The valuation of the Mauritius portfolio has increased to $23 million, while the valuation of BII’s portfolio in the DRC was $25 million. (BII Key Data [Accessed: 20 July 2023])

238 OECD, DAC List of ODA Recipients, Effective for reporting on 2022 and 2023 flows.

239 BII Key Data shows BII’s portfolio in the DRC had a valuation of $15 million during 2021. [Data accessed: 09 March 2023]

240 World Bank Data [Accessed: 16 March 2023].

241 The due diligence review runs over a period of several months and also includes money laundering, bribery and corruption and sanctions. Due diligence is undertaken by specialist teams. Prior to making an investment to a financial intermediary, BII reviews a fund’s first three environmental and social (E&S) due diligence reviews. Expanded and enhanced ESG and Business Integrity due diligence will be undertaken in situations and sub-sectors which are considered to be high risk, including requiring companies to undertake a compliance assessment of the supply chain. It reviews all due diligence reviews relating to a business’s environmental and social policies and working practices of high-risk companies. (British International Investment (BII0075)). The Foreign, Commonwealth and Development Office (BII0079) stated that the process also includes desk research, surveys, interviews, and site visits.

242 MaxAB BV (BII0018)

243 Apollo Agriculture, Inc. (BII0015)

244 Foreign, Commonwealth and Development Office (BII0079)

245 The Foreign, Commonwealth and Development Office (BII0079) stated that BII routinely carries out site visits before an investment is made and during the lifetime of the investment. Where the investment is made into an investment fund, BII will visit the fund and its investee companies. These visits enable BII to understand the progress and on-the-ground challenges encountered by portfolio companies and fund managers when implementing good ESG practices. They also enable BII to better support and advise investees on how to tackle any challenges they face.

246 Foreign, Commonwealth and Development Office (BII0079)

247 The investment was made when BII was operating as CDC Group. From BII data, it is unclear when BII fully exited the Feronia investment. In November 2020, then-CDC announced that it ceased to be an equity investor in the company but remained a lender alongside other European DFIs. It is unclear whether BII has continued to hold a debt investment in Feronia during this inquiry. [BII Data [Accessed 14 June 2023] / BII, A statement on the completion of the restructuring of Feronia, 23 November 2020]

248 This evidence was submitted to our 2020 inquiry on Effectiveness of UK AID: Human Rights Watch (EUA0060).

249 Ibid.

250 Q136 [Stuart Bradley]

251 Q374 [Andrew Mitchell]

252 During 2021, health related investments amounted to 7 per cent of BII’s portfolio [valued at c.$570 million] according to BII Key data [Accessed 23 May 2023]. Medical Credit Fund (BII0020) claimed that around 50 per cent of all healthcare services in Sub-Saharan Africa are delivered by the private healthcare sector, and with growing populations the demand for quality healthcare services has increased.

253 Qq32–34 [Anna Marriot]

254 Oxfam GB (BII0104)

255 Q240 [Nick O’Donohoe]

256 Global Justice Now, Healthcare for all? How UK aid undermines universal public healthcare, January 2021 / Oxfam GB (BII0104)

257 Foreign, Commonwealth & Development Office (BII0103)

258 Groups raised concerns that private education can undermine the political constituency for investment in quality public schooling in the longer term, and may lead to the creation of an untrained teacher workforce due to reliance on underqualified teachers hired on short-term contracts. Oxfam claimed that where such schools received public funding, they displaced efforts and funding to expand public education, leaving limited alternatives for those children left behind. [Oxfam, ActionAid, Africa Network Campaign on Education For All -ANCEFA, Right to Education Initiative, Education International, Eurodad, Global Campaign for Education, Global Initiative for Economic Social and Cultural Rights, Global Justice Now, National Education Union (UK) (BII0074)]

259 During 2021, education related investments amounted to 2 per cent of BII’s portfolio [valued at c.$163 million] according to BII Key data. [Accessed 23 May 2023]

260 Those concerns related to the quality of education, lack of transparency, poor labour conditions, high-cost relative to family income, and lack of respect for the rule of law in host countries. Following a decision by the High Court of Uganda in 2018, all 63 Bridge Schools in Uganda were closed after they failed to comply with requests from the Ministry of Education to meet its legal and educational standards, including on teacher certification. Concerns were also raised about the company’s model which, the letter claimed, sought to extract profit from the aspirations of poor parents, who might sacrifice other basic needs, or fall into debt, to pay fees for an education of uncertain quality. (Oxfam, ActionAid, Africa Network Campaign on Education For All -ANCEFA, Right to Education Initiative, Education International, Eurodad, Global Campaign for Education, Global Initiative for Economic Social and Cultural Rights, Global Justice Now, National Education Union (UK) (BII0074))

261 This included allegations of violations of labour rights, child sexual abuse involving Bridge International Academy staff and students, and inadequate health and safety measures that led to the death of one child and the injury of another. (Oxfam, ActionAid, Africa Network Campaign on Education For All -ANCEFA, Right to Education Initiative, Education International, Eurodad, Global Campaign for Education, Global Initiative for Economic Social and Cultural Rights, Global Justice Now, National Education Union (UK) (BII0074))

262 BII directly invested $7 million into New Globe Schools in December 2013 and the intermediated investment was made in March 2014 (investment amount unknown). Those investments were made when BII was operating under the name CDC Group. [Data obtained from BII’s Database. Accessed: 23 May 2023.]

263 Q245 [Nick O’Donohoe]

264 Q245 [Nick O’Donohoe]

265 ‘K–12’ is a term given to schools that cater for children attending kindergarten to the 12th grade.

266 BII’s technical strategy states that BII will not prioritise investments in K-12 private education. (BII, 2022–26 Technical Strategy, P21) However, Nick O’Donohoe told us that BII had chosen to withdraw from investing in K-12 private education in Africa (Q246 [Nick O’Donohoe]), whereas Minister Mitchell said that BII no longer invests in primary or secondary education but limits its investments to tertiary education (Q356 [Andrew Mitchell]). Following the evidence session with Minister Mitchell, the FCDO clarified that BII will not prioritise new investments in kindergarten to twelfth grade private education. (Foreign, Commonwealth & Development Office (BII0103))

267 The IFC cited several challenges with these investments as they had the potential to “exacerbate inequalities and have unintended, undesirable spill over into the public sector school system”. (World Bank’s Independent Evaluation Group, An Evaluation of International Finance Corporation Investments in K–12 Private Schools, International Finance Corporation Management Response, (Oxfam, ActionAid, Africa Network Campaign on Education For All -ANCEFA, Right to Education Initiative, Education International, Eurodad, Global Campaign for Education, Global Initiative for Economic Social and Cultural Rights, Global Justice Now, National Education Union (UK)) (BII0074))

268 SPE Capital (BII0013) holds investments in Holged Tunisie, a leading operator of K-12 level education in Tunisia and Holged, a leading K-12 education group in Morocco and Tunisia.

269 The Abraaj Group was a private equity firm founded in Dubai in 2002. It has received investment from the Bill & Melinda Gates Foundation and the development finance arms of governments including the UK, the U.S. and France.

270 Qq219–223 [Nick O’Donohoe]

271 Abraaj’s founder and five former executives of the firm were criminally indicted in 2019 by the U.S. Department of Justice on charges of fraud, theft and attempted bribery. As of March 2023, two of the executives pleaded guilty and the Abraaj CEO lost his challenge to be extradited to the US where he awaits charges of fraud.

272 Qq219–221 [Nick O’Donohoe]

273 Written Question 161301, Development Aid: Fraud, 08 March 2023

274 Qq379–384 [Andrew Mitchell]

275 Qq219–221 [Nick O’Donohoe]

276 Foreign, Commonwealth & Development Office (BII0103)

277 The BBC Africa Eye reported on concerns of alleged fraud, bribery and “other highly questionable business practices” by two British managers appointed by the private equity fund, ECP Africa Fund II, to run its investee’s Kenyan firm Spencon. BII invested $47.5 million in the fund that later invested in Spencon. Spencon has since ceased operations. [BBC, Spencon: Inside the collapse of an African construction giant, 06 April 2020].

278 Tom Adlam (Independent Consultant on Impact Investment at Self-employed) (BII0057)

279 Q379 [Andrew Mitchell]

280 British International Investment (BII0099) wrote that it revised the policy on responsible investing to clarify the definition of business integrity management systems and controls and the minimum that every investee is expected to have in place. Changes to internal processes were undertaken to limit exposure to any single fund manager to ensure risk exposure is precisely managed, and ensure that the financial health, governance and sustainability of the fund manager is a core element of due diligence on any fund.

281 Institute for Government, Accountability in modern government, April 2018.

282 Multiple Authors, Good Policy Paper: Guiding Practice from the Policies of Independent Accountability Mechanisms, 2021

283 British International Investment (BII0099), para 37–38

284 British International Investment (BII0099), para 37–38

285 Accountability Counsel (BII0065); STOPAIDS (BII0035); Publish What You Fund (BII0063); Christian Aid (BII0073).

286 The Accountability Counsel (BII0065) cite weaknesses in accessibility: unlike its U.S. counterpart, the DFC, BII does not appear to require clients to disclose the existence of the mechanism, which undermines communities’ ability to know that the mechanism exists. Additionally, the Reporting and Complaints Mechanism restricts eligibility for complaints that have been investigated by a third party. This is flagged as being contrary to the practice of most IAMs and undermines the mechanism’s ability to ensure compliance with BII’s environmental and social standards.

287 The CAO states the goal of its dispute resolution process is to address the environmental and social issues raised, and help identify solutions that meet the interests of all parties involved. (Compliance Advisor Ombudsman, Dispute Resolution | Office of the Compliance Advisor/Ombudsman (cao-ombudsman.org) [Accessed 15 June 2023])

288 This includes up to two years for sourcing an investment, half a year to one year for the screening and due diligence checks of potential investments, five to 10 years for the life of the investment and between one and two years for exiting the investment. (NAO, Department for International Development: investing through CDC, 25 November 2016, P14)

289 NAO, Department for International Development: investing through CDC, 25 November 2016, P14

290 This can include its capital mobilisation objective.

291 BII, Policy on Responsible Investing, April 2022, P14

292 Q255 [Nick O’Donohoe]

293 Q255 [Nick O’Donohoe]

294 Q346 [Andrew Mitchell]

295 Q143 [David Kuijper]

296 Such as those investments in banking institutions in India. This was reported in ICAI’s 2023 report on UK Aid Spending in India that found much of BII’s India portfolio lacked strong ‘financial additionality’ (given India’s relatively mature financial markets) and did not have a clear link to inclusive growth and poverty reduction. (ICAI, UK Aid to India, March 2023)

297 Q164 [Nick O’Donohoe]

298 Bond (BII0107)

299 Publish What You Fund, Why Transparency Matters [Accessed 01 June 2023]

300 Publish What You Fund, DFI Index [Accessed 01 June 2023]

301 ODI (BII0086)

302 The Foreign, Commonwealth and Development Office (BII0079) said BII was the first DFI to sign up to the International Aid Transparency Initiative (IATI) and has since published numerous sets of data. BII was also one of the first DFIs to make its investment information publicly available.

303 This is set out within BII’s Transparency and Disclosure Policy (01 January 2023) and includes detail on what is included within BII’s database. This captures information on (i) all companies that BII is current invested in; (ii) all companies that BII is no longer invested in, but which received a direct BII investment after 1 January 2021; (iii) all companies that BII is no longer invested in, but were invested in by funds committed to by BII after 1 January 2012 (for a minimum of ten years after the date of the fund’s investment into the company).

304 The EDFI Association (BII0082) is a group of the bilateral European development finance institutions. It supports its members to implement their vision, EDFI serves to inform the public and government stakeholders about their role and contribution to development (EDFI | European Development Finance Institutions). The EDFI Harmonization Initiative on Impact Measurement and Responsible Financing (i.e. the Harmonisation Initiative) aims to deepen members’ cooperation on responsible financing requirements and impact measurement. The Initiative focuses on impacts relating to gender equality, decent work and economic growth, reduced inequality, and climate action, and sets out to facilitate consolidated EDFI reporting of these impacts, including the open publication of many metrics (EDFI Association (BII0082)).

305 Impact Investing Institute (BII0081)

306 The Global Emerging Markets (GEMs) Risk Database Consortium is one of the world’s largest credit risk databases for the emerging markets operations of its member institutions - Multilateral Development Banks and DFIs. The Consortium members contribute anonymised data on their projects’ credit events notably in emerging markets and developing economies. In return, members gain access to aggregate GEMs statistics on observed default rates, rating migration matrices and recovery rates by geography, sector, time-period and various other dimensions.

307 STOPAIDS (BII0035); Global Justice Now (BII0014); Bond (BII0092)

308 ODI (BII0086)

309 Dr Bernhard Reinsberg (Reader in Politics and International Relations at University of Glasgow); Dr Mirko Heinzel (Postdoctoral Research Associate at University of Glasgow) (BII0003); Global Justice Now (BII0014); STOPAIDS (BII0035);

310 The data reported at an aggregate level includes annual portfolio returns, net assets, tax revenues raised, jobs created and capital mobilised. For some measures, this is split by country as part of BII’s key data reporting but there is no information on this by investee. BII’s 2022 data only gives the tax revenues generated for 13 investee countries, whereas the data for a greater number of countries were disclosed for 2021.

311 Dr Bernhard Reinsberg (Reader in Politics and International Relations at University of Glasgow); Dr Mirko Heinzel (Postdoctoral Research Associate at University of Glasgow) (BII0003); Publish What You Fund (BII0063)

312 Project-level reporting is focused on listing the investments with recipients, sectors, and financial data.

313 Christian Aid (BII0073)

314 Publish What You Fund (BII0063) said disclosing disaggregated data would allow stakeholders to ensure that BII is investing in the sectors, industries, and economies where mobilisation is most efficient. The World Bank’s IFC has committed to disclose mobilisation data for all future IDA Private Sector Window investments, the IFC’s programme to catalyse private sector investment to the poorest and most fragile countries. Likewise, Impact Investing Institute (BII0081) told us that sharing data with investors, asset managers and rating agencies could significantly increase the flow of capital to emerging markets.

315 Publish What You Fund (BII0100)

316 Publish What You Fund (BII0100)

317 Q72 [Samantha Attridge]

318 During the inquiry period, BII released its 2022 data that showed an increase to the value of the taxes paid by BII’s investee companies to $1.8 billion, whereas the size of its portfolio increased to $8.2 billion. (BII Key Data [Accessed: 20 July 2023])

319 Qq316–318 [Andrew Mitchell]

320 Publish What You Fund (BII0100) found that in 2019, of the US$3.3 billion of taxes reported by BII, the country with the highest tax contribution was Bangladesh with US$1.1 billion (33 per cent of the total reported amount). Publish What You Fund traced the amount of taxes raised to the accounts of Grameenphone, a company to which BII made a US$25 million loan in 2013.

321 Publish What You Fund (BII0100) reported that this investment to Grameenphone, one of the main mobile phone networks in Bangladesh, sits within the Communications sector, within BII’s data. This sector contributed 42 per cent of the total taxes paid in 2019 despite Communications not being one of BII’s seven priority sectors.

322 BII’s investment database lists its investment portfolio and includes the investment name, description, impact description, environment description, country, sector, start date, amount invested, domicile, investment type, fund, fund manager status (active or exited).

323 Dr Bernhard Reinsberg (Reader in Politics and International Relations at University of Glasgow) and Dr Mirko Heinzel (Postdoctoral Research Associate at University of Glasgow) (BII0003) found the information on funding amounts are often missing at the project level. The number of projects reported in the two databases also differs.

324 For example, the information on BII’s investment to a bank in Nigeria in 2019 states: “CDC’s partnership with Access Bank will enable it to implement its five-year strategy focused on improving its retail banking offering, increasingly supporting local micro, small, and medium-size enterprises, while creating jobs in the Nigerian economy.” This field was blank for all data on investments that started in 2022. [Information accessed 01 June 2023]

325 Q72 [Samantha Attridge]

326 Publish What You Fund (BII0063) claimed that BII was one of only two bilateral DFIs to have out of date disclosure of investment data to be penalised in this manner (alongside the IFU, the Danish DFI). Publish What You Fund stated that best practice includes the early disclosure of investments with significant environmental and social (E&S) risks. Early disclosure involves the disclosure of key details regarding an investment prior to board approval. This practice is commonplace amongst multilateral development banks and has been adopted by the Dutch bilateral DFI FMO. Early disclosure of high-risk investments is an integral part of ensuring stakeholders including project-affected people and the civil society organisations that represent them are able to participate in the investment process.

327 Publish What You Fund (BII0100)

328 Christian Aid (BII0073)

329 Q31 [Paul James]

330 Publish What You Fund (BII0063)

331 Q31 [Paul James]

332 Q31 [Paul James]

333 It should however be reflected that BII scored 2.5 out of 10 for its disclosure of financial intermediary sub-investments in the Publish What You Fund DFI Transparency Index (DFI Transparency Index 2023, P33). This was joint second place behind the IFC for non-sovereign DFIs.

334 The DFI Transparency Index is a comparative measure of the transparency of the world’s leading DFIs. It assesses sovereign (public sector) and non-sovereign (private sector) operations of multilateral and bilateral institutions and seeks to encourage and guide improvement.

335 Publish What You Fund, DFI Transparency Initiative

336 The Index ranked the transparency of 21 non-sovereign portfolios. BII was ranked 12th out of 21 with a score of 26.5 out of 100. Of bilateral institutions, BII was found to be the fifth most transparent out of 12 institutions, ranking below the US International Development Finance Institution (DFC), as well as the French (Proparco), Dutch (FMO) and German (DEG) DFIs (Publish What You Fund (BII0063)). The top multilateral DFI, the World Bank’s International Finance Corporation (IFC), scored 54.4. (Publish What You Fund, DFI Transparency Index 2023 [Accessed 21 June 2023])

337 Christian Aid (BII0073) told us that the types of granular data for analysing impact can include types of jobs created, taxes generated and geographic spread.

338 Publish What You Fund (BII0063)

339 Q114 [Stuart Bradley]

340 FCDO, Future of international development: Minister Andrew Mitchell’s speech, 27 April 2023

341 The Transparency and Disclosures Officer role was created on 03 July 2023 to oversee the regular update and implementation of BII’s Transparency and Disclosures Policy, enhance BII’s overall approach to transparency and deliver best-in-class transparency and disclosures practices. (Devex, Transparency & Disclosures Officer - Compliance | Devex, 03 July 2023)