International Development Select Committee

Investment for Development: the UK’s strategy towards development finance institutions

Written submission made on behalf of Bond, February 2023


  1. About Bond

1.1.  Bond is the UK network for organisations working in international development and humanitarian aid. It unites over 400 organisations, ranging from small specialist charities to large international non-governmental organisations (INGOs) with a worldwide presence. Bond has convened its members to engage with BII (formerly CDC Group) since 2018 and has had a dialogue on various aspects of BII’s work including gender equality, decent work, climate, responsible investing, development impact etc.



  1. What are the British Investment Partnerships (BIPs) and what are their objectives? What role does British International Investment (BII) play within them?


2.1.  According to the International Development Strategy, the UK Government will seek to offer new finance, helping countries to “pursue resilient and sustainable economic growth” (p.9). The main vehicle for this, mostly in the form of loans or equity, will be British International Partnerships (BIPs), which includes the Clean Green Initiative, British International Investment (BII), British Support for Infrastructure projects (BSIP), MOBILIST programme, Private infrastructure development group (PIDG), UK guarantees and UK export finance.

2.2.  However, as per the Strategy, there is very little clarity on how exactly these elements of BIPs, including BII, will contribute to the international development agenda and how BIPs will be aligned with broader frameworks - Paris agreement, SDGs, Leave no One Behind promise etc. Moreover, there is a lack of clarity on how much ODA will be channeled through BIPs, what is the rationale for various modalities (grants, loans, equity, debt, guarantees, etc) used and how coherently their development impact will be measured. It is also not clear how these different instruments will work together ensuring complementarity within BIPs as well as coherence with broader UK Development agenda and delivering maximum value and impact. So far BIPs instruments have been benefiting from generous UK ODA payments/ commitments:  BII since 2016 - around 3.7billion GBP, BSFP - 500 million GBP between 2020 - 2036 and PIDG - at least 846 million since 2012, however, most of the actual funding given to LMICs is/will be in the form of (concessional) loans, guarantees, equity etc not grants. Considering the broader debt crisis especially in LICs, it is crucial that the right form of finance is chosen to prevent deeper indebtedness.

2.3.  Our concern is that BIPs will accelerate a shift to a predominantly market-based approach to solve international development challenges relying on the ‘trickle-down’ effect. This risk undermining the role of financially and physically accessible basic public goods which are the backbone of any healthy, peaceful and prosperous society through, for example, direct budget support, strengthening health, education and social protection systems and governance. Moreover, as Bond highlighted in its analysis of the Strategy, the new narrative signals a shift away from poverty reduction and tackling inequalities, which in the context of significant ODA spending by BIPs is highly problematic.

2.4.  The Strategy fails to mention some critical areas, where BIPs through trade and economic investment really could bring genuine benefits. There is no mention of things like easier technology transfer to help deal with climate change, fixing international tax avoidance loopholes or taking action at the WTO level to help LMICs to deal with turbulent global supply chains and international trade challenges. It emphasizes British interests (“investments abroad will generate export opportunities in the UK, creating jobs right across the country”) which can undermine shared international solidarity, consensus and responsibility. There are few reflections on trade and climate and the critical changes that must be made to the trade system to implement, for example, the Paris Agreement. We are pleased to see ‘local ownership’ in the Strategy, so it is crucial that BIPs do not function only as a gateway for international investors and large companies to capitalize on economic opportunities offered by the green transition in LMICs. Instead, they should nurture and support local entrepreneurs so that this green and just transition becomes their springboard to local prosperity, resilience, economic independence and more sustainable development.

2.5.  We need huge investment to achieve SDGs and build decarbonized economies, but high volumes of foreign investment do not necessarily guarantee sustainable development and direct improvements for the poor. It can also undermine sustainable development and increase inequality, resulting in forced displacement, unaffordable public services, exploitative working conditions, privatisation of public services, violence against human rights defenders, environmental and climate damage, tax avoidance using offshore jurisdictions, and a lack of corporate transparency or accountability. All of which have gendered dimensions and impacts. Moreover, investments tend to be concentrated in a few selected sectors, including extractives (including oil and gas), telecommunications, financial services, and real estate. In addition, investment flows into Africa are unevenly distributed benefiting MICs more than LICs, which really lack any significant investment (only 9.2% of BII’s investments in 2020 went to LICs; and overall, only 3% of total current BII portfolio is in LICs).

2.6.  If the Strategy is to use investment as a tool to boost genuine development and leave no one behind as per UK’s promise made in 2015, it should guarantee and incentivise transfer of labour skills, technology and management practices, the fostering of innovation, training local workers, nurturing local entrepreneurship, protection of human rights and internationally agreed labour standards, strengthening of local and regional supply chains, and sourcing inputs locally. Without such conditions, foreign investment will fail to adequately build national linkages, strengthen local economic and financial ecosystem, generate decent employment, or increase wages. Alignment with SDGs, Paris Agreement, “leave no one behind”, and better integration of business and human rights would be required to make it work for marginalised people, but assurances on this are missing from the Strategy.

2.7.  Too often, free trade agreements and bilateral investment treaties limit or prohibit the very policies developing countries need to fight poverty and inequality, and build a just and sustainable world, while at the same time expanding the rights of investors. To support the flourishing of local economies, decision-making on investment and resource ownership should be made as close to the relevant communities as possible. This would also mean an end to all policies and programmes that remove local ownership and accountability over the economy, for example, through the promotion of public-private partnerships and privatisation of public services.


  1. How does the BII’s strategy align with the FCDO’s development agenda?

3.1.  We have asked FCDO if there is a plan to have a proper BIPs strategy (similar to the forthcoming Women and Girls Strategy, and the current UK Humanitarian Framework)  but we have not received a clear answer. Such a strategy should detail BIPs’ theory of change, the roles and objectives of each of the instruments, governance mechanisms needed to ensure high level of transparency, accountability, effectiveness and maximum development impact. A BIPs strategy should explain how it will be resourced, and what the contribution, additionality and justification of ODA would be. We strongly believe that such a strategy is necessary to clarify how these various elements of BIPs will function in a complementary, coherent way to address the greatest challenges of international development - inequality, systemic causes of poverty, climate adaptation, mitigation and resilience, and just transition to sustainable, net-zero economies etc.

3.2.  We do not think there are great contradictions between BII’s strategy and FCDO’s strategy. BII’s strategy is based on 3 overarching objectives - inclusion, sustainability and productivity, which complement the narrative of the FCDO’s Strategy. However, the current International Development Strategy is problematic from international development perspective because:

           Development becomes more like a tool of foreign policy;

           The focus is on prosperity rather than poverty reduction;

           Trickle-down approach dominates;

           Greater focus on promoting British economic interests. 

3.3.  BII’s strategy is similarly problematic, raising doubts about the true development impact of investments.  The shift in foreign policy towards the Indo-Pacific in the FCDO Strategy is also reflected in the BII strategy, which is also planning to invest in this region. We are concerned this means an increasing focus on geopolitics rather than poverty-reduction and moving away from fragile and low-income countries, predominantly located in Africa, which lack investment.

3.4.  One example of misalignment we could highlight is around ownership. The Strategy is talking about giving chances to “countries to take control over their future”. However, with regards to BII investments, the majority of them are ultimately owned by foreign individuals or companies. By providing profitable opportunities for foreign capital in low and middle-income countries we are not maximizing development impact; economic resilience and “taking control over their future” must go beyond job creation and production, but should include skills and knowledge transfers, genuine local ownership and alignment with national development strategies.


  1. How does BII’s strategic outlook compare with that of other comparable overseas institutions?

4.1.  On a practical level, according to the recent PWYF Transparency index, BII is falling behind many of its peers in terms of transparency and thus accountability. BII has not published complete information about investments made since August 2021, despite commitments in FCDO Strategy and BII’s own recent report on business integrity published in July 2022, stating that “high levels of transparency should be the norm”. This is unacceptable for a publicly owned institution and contradicts its own commitments made in its Transparency statement (2018).

4.2.  Regarding the size and budget, BII has one of the fastest growing portfolios (from 4.2bn $ in 2012 to 8.3bn $ in 2021) and in 2021 BII was the 5th largest DFI in terms of its portfolio size - almost as large as its French peer institution, Proparco. As per the new Strategy, BII has an ambition to become one of the largest climate investors in Africa. That comes with an additional responsibility to lead by example and drive a race to the top in terms of sustainability, contribution to climate resilience, building local ownership and shaping resilient local markets. However, here BII should be careful about using ‘climate finance’ to describe its pro-climate funding activities because reflows spent by BII cannot be counted towards UK’s international climate finance.


  1. How effective are the governance structure and internal oversight mechanisms of BII (e.g., oversight over direct investments, fund investments, BII controlled companies)?

5.1.  There is clear evidence that oversight of investments through financial intermediaries is weaker than of direct investments, which makes it hard to measure the impact or even know where exactly the funding goes and what sort of businesses and initiatives are supported. We are aware of various operational tools BII has produced to support fund managers in ensuring good governance, implementation of ESG standards etc, but how truly legally binding these activities are, what are the consequences in case of non-compliance, is not fully clear. There is clearly a way to ring fence such investments, but it is not clear if and how often such an approach is used.

5.2.  Over the recent years BII has increased its presence in countries where it invests, but it is not sufficient to oversee and spot any risks. There have been a number of examples when issues reported by civil society regarding poor practice by the BII investees were not known to BII. This suggests that not enough time and capacity is invested to truly monitor and assess their direct and indirect investees and act when risks or issues are identified.


  1. How is BII’s budget determined? How does the budget inform BII’s programme of work and to what extent can BII scale up or scale down on its investment activity?

6.1.  BII is in receipt of an increasing portion of UK Official Development Assistance (ODA). Previously the CDC largely self-financed its work by reinvesting returns from its portfolio into new investments. Since 2015, the UK Government has regularly injected Official Development Assistance (ODA) into CDC/BII, providing £650 million in 2020/21 and a projected £646 million in 2021/22. In June 2022, the Government said no decision had yet been made on funding to BII in 2022/23. In 2022, the BII had net assets of £7.5 billion and plans to make £9 billion of new investments over the next five years. Since 2016 BII has received about 3.7bn GBP in total from UK ODA funding.

6.2.  BII is also mobilizing private investment, however there is not enough clarity about who the private investors are. Between 2016 and 2021 BII has mobilised about 5.8 billion USD additional private capital. That means, every 1 GBP of UK ODA has helped to mobilize just over 1 GBP of additional private finance.

6.3.  We would like to note here that since 2014 BII has not been reported via the statistics for international development but rather - any payments to BII are included in total FCDO ODA spending. There could be greater transparency separating these ODA transfers.


  1. How are the decisions of BII’s management scrutinised? What transparency is there over BII’s performance monitoring and reporting?

7.1.  Bond has been leading our members’ engagement with BII since 2017 which has mostly been done through a series of dialogues on specific topics such as decent work, gender strategy, development impact, responsible investing, climate finance, response to Covid etc. It has been useful for civil society actors to have a dialogue about various aspects of BII work, performance, impact and discuss any concerns.

7.2.  However, there also have been instances when we would have expected more public, inclusive and meaningful consultations.  With regards to BII’s new Code for Responsible Investing, several Bond members and allies were looking forward to a consultation as the Code was being revised. Having been reassured that genuine consultation would take place, we were frustrated that BII were unwilling to share any draft amendments to the Code and, although BII requested comments from our members on the existing Code, there were no assurances as to how feedback will be acted on. This lack of open and transparent engagement with a wide range of civil society organisations and unions, we believe, undermines attempts to formulate robust policies. Requesting late stage comments on a strategy that is already a fait accompli does not, we believe, amount to sufficient consultation on such an important document.

7.3.  On a number of occasions, BII has emphasized that it is a public limited company and that it is “not a government department, and therefore does not undertake formal public consultations”. Given the large amounts of public money and increasing proportion of the reduced UK aid budget that BII has been entrusted with, we find this a concerning position that reinforces concerns about BII’s unsatisfactory levels of transparency, accountability and development impact. Moreover, it is hard to find much on BII’s website about civil society as a valuable stakeholder. In comparison, the Africa Development Bank has a Civil Society Committee, for example. There are more things BII can do to recognize social stakeholders, both in the UK as well as in the partner countries, and engage in open consultations about its decisions, ways of working and impact.

7.4.  In contrast, the impact investing sector is advancing very rapidly, including their engagement with key stakeholders. As a publicly owned institution, BII should lead the way and be ahead of private investors in recognizing the role of voice of civil society, trade unions and other social stakeholders to obtain its social license and increase its accountability. Its profit-making aspect does not make BII less accountable to the British public and people they are expected to serve in partner countries. Therefore, BII should have clear and transparent mechanisms for engagement with civil society, trade unions and other social stakeholders at all levels, from HQ to the community level where their investees operate.

7.5.  Regarding BII’s accountability to its shareholder, we are not clear what oversight FCDO has over BII’s decisions, operations, performance and impact, considering consistent remarks about BII’s independence in its own decision making and FCDO’s own remarks about trusting BII to do its business.


  1. What criteria does BII use to determine investment decisions and how are financial returns balanced with achieving impact?

8.1.  We understand that it is broadly about 3 principles: productivity, sustainability and inclusion. However, when looking more in detail, there are no red lines (must-have requirements); and a point-based Impact scoring system means that an investment may deliver strongly only on 2 out of 3 principles (for example, an investment bringing good financial return and ranking high on gender equality, but would not contribute to climate resilience). Also, BII’s Impact score translates ‘sustainability’ largely as an environmental issue, leaving out “S” and “G” from the widely accepted ESG concept of sustainability.

8.2.  Moreover, BII is constantly talking about lack of investment opportunities in the LICs, which, in our opinion, is a result of a very high threshold. BII is looking at investments starting at about 10-20 million GBP, which is a huge amount even for the UK context, and thus is targeting well-established companies with significant growth potential. However, this leads to a big investment gap for more nascent, small and medium size companies, which are the backbone of a thriving local socio-economic ecosystem. BII funding should be more accessible to companies and local entrepreneurs in LMICs, especially in the sectors, which address climate resilience and adaptation and are fundamental for sustainable economies - renewable energy, regenerative agriculture, agroecology, etc. Demand for funding to start or grow business is far from met, therefore there is a great opportunity to create and shape the local markets by applying the right incentives to address risks and challenges presented by polycrisis on a local level.

8.3.  BII investing in financial intermediaries without any ring-fencing or targeting or profit / margin ceilings is not effectively addressing this. BII should scale up the use of Catalyst funding taking higher risks and reducing the minimum value of investment to be able to engage with more companies or local partners to support local businesses. We consistently see BII earning higher profits compared to the minimum benchmark, which raises a question if lower profit margins could produce greater development impact.

8.4.  We are not sure how agile and adaptable BII and its strategy are with respect to broader thinking regarding the future of development and reform of global financial architecture, where DFIs such as BII are an integral part of it. In order to address the global polycrisis, we need to radically change how and what we produce, consume and waste. For example, we need shorter food supply chains, small-holder regenerative farming (which is more sustainable than agribusiness), off-grid energy solutions, reforestation etc. Preference for large scale investments may limit BII to become an investor with a truly transformative impact.

8.5.  Ahead of the UK-Africa Investment Summit in 2020, Bond members presented to DFID 10 criteria for investments to deliver true development impact, which we believe are relevant for BII:

  1. Adhere to the highest standards of corporate accountability based on the UN Guiding Principles on Business and Human Rights (UNGPs), the UK Modern Slavery Act and other human rights due diligence laws holding UK businesses accountable on their operations.
  2. Adhere to ‘Do No Harm’ principles, including undertaking robust ex-ante and ex-post gender, human rights and environment impact assessments with sufficient time built in to ensure the findings can inform negotiation and decision-making processes, including for investments made via financial intermediaries.
  3. Ensure that investments do not support further fossil fuel investment as this is incompatible with keeping below 1.5˚C of global warming, and scale up investment in decentralized renewable energy (DRE) and clean cooking solutions as the least cost way of providing universal energy access for the billions still living in energy poverty.
  4. Recognise the special and differential treatment that developing countries require to boost their economic development, enabling them to adopt flexible intellectual-property legislation, exclude essential public services from liberalisation or privatisation commitments, and respect the rights of governments to legislate in the public interest, including protection of environment, human rights and the livelihoods of communities.
  5. Align with local and national development priorities and strategies, and Nationally Determined Contributions (NDCs) under the UNFCCC. Ideally proactively supporting developing countries to make a just transition to zero carbon economic development.
  6. Prioritise the creation of decent jobs, especially for the poorest and women, and respect the rights of governments to support domestic industries and regulate the entry of foreign investors to promote development and the creation of decent employment based on ILO core labour standards.
  7. Ensure mechanisms for extensive participation of all stakeholders in the negotiating process, with full disclosure of relevant information to the public, effective parliamentary scrutiny, independent impact assessments, and a robust dispute settlement scheme.
  8. Prohibit using tax optimisation strategies and tax havens as conduits for their investments into Africa, and ensure any foreign company investing in or trading with African countries pay their fair share of tax in countries where the actual economic activity is taking place enabling national governments to mobilize resources for provision of essential public goods.
  9. Enable meaningful, inclusive and deliberative engagement with civil society in effective policymaking.