Four ways to reimagine public development banks to nurture more equitable, sustainable and rights-based development

Africa’s leaders are meeting this week in Nairobi at the Africa Climate Summit to accelerate progress on solutions to tackle climate change ahead of COP28.

At the same time, more than 500 public development banks have convened at the fourth annual Finance in Common Summit in Colombia to discuss their role in transforming the financial system to support common action for climate change and sustainable development.

Public development banks (PDBs), which include all publicly funded and owned institutions – from the World Bank and IMF to regional banks such as Africa Development Bank, bilateral development finance institutions (DFI) such as British International Investment (BII) in the UK, and national banks such as Brazilian National Development bank – are significant players in global finance. Their total assets are worth US$23tn, and in 2022 alone their new investments totalled US$2.7tn, equivalent to 12% of total global investment and Africa’s total GDP in 2022.

The UK’s DFI – BII is also growing its publicly backed financial muscle, despite ongoing UK aid cuts and growing needs. Between 2024/25 and 2026/27, the FCDO is planning to transfer £3bn UK aid to BII, which would increase BII’s share of total UK aid spending from about 4% to 7%.

It is crucial that PDBs, by design, mandate and ways of working, can spend these trillions wisely so they have maximum impact in reducing poverty and inequality and building green and sustainable economies. However, while PDBs’ rhetoric regarding ultimate goals and commitments contains all the right words and concepts, the reality is a different story.

Moving away from extractive and exploitative models

As it currently stands, the global financial architecture has been designed to reflect and protect the interests of its shareholders and international capital, rather than people and planet, and is often based on an extractive and exploitative model.

This is why calls for the reform of global financial architecture should not only focus on more prominent multilateral banks, such as the World Bank and IMF, but apply to all publicly backed development banks. Development finance institutions (DFIs), such as BII, should be equally challenged to review their mandates, business models and ways of working to shape and nurture more equitable, sustainable and rights-based development.

As the dust settles around both summits, here are four key elements to help reimagine PDBs:

1. The right mandate

PDBs, which are essentially owned by global tax payers, have a special role and responsibility to shape and nurture the economic system by making investments that address society’s broader interests and the needs of people who are the most in need and most marginalised. International PDBs have an especially significant role to play in genuinely supporting transformative, sustainable development in lower-income countries rather than creating opportunities for international capital, establishing economic dominance or guarding geopolitical interests in certain geographies or sectors, all of which smack of neocolonialism.

PDBs must be trailblazers of finance for public good. They need to be long-term partners of low-income countries whose accounting books recognise both financial and non-financial dividends.

2. Adopting the mindsets and business models of social champions and pioneers

PDBs must drive the race to the top, operationalising the commitments made by their shareholders – governments around the world – while bringing along other players in the finance sector.

From delivering the Sustainable Development Goals (SDGs) to alignment with the Paris Agreement, successful implementation of the Kunming-Montreal Global Biodiversity Framework and UN Guiding Principles for Business and Human Rights, PDBs should role-model responsible, transformative investing to spearhead faster and broader market transformation to serve people and planet.

At this point, when climate change is felt in all corners of the world, there should be no ifs or buts about ceasing financing carbon-intensive ventures, or moving away from intensive agribusiness and livestock production to supporting agroecological farming. It is not about filling the gaps of the current market system, but rather about recreating, shaping and changing what markets do and how they function in order to promote more inclusive and sustainable economies.

3. Providing international finance for local economies

Finance of international PDBs is too often linked with the interests of international markets, whereby job creation, economic growth and ability to export are presented as the main avenues for poverty reduction and economic development. But whose growth and development are such investments really supporting? Do PDBs need to finance a multinational company to grow cheap flowers in Eastern Africa for 100% export to Europe while depleting scarce water resources and exposing locals to harmful chemicals? Or funding expats’ multimillion businesses, driven by Western consumers’ appetites, leaving the needs of the local society unmet?

First and foremost, PDBs should focus on nurturing local economies and local entrepreneurs in order to strengthen local economic resilience and serve local needs. It matters who the investees are, how embedded they are in the local social and economic ecosystem, if and where they pay taxes, and how the produced goods and services support local needs.

4. Obtaining a social licence

It is impossible for PDBs to build an image of positive change-makers and gain trust while their decision-making and operations are top down and un-transparent. Many international DFIs have very weak, tokenistic or even non-existent links with local stakeholders, such as civil society, marginalised communities, women’s rights organisations, think tanks and academia, and even government institutions, all of which PDBs should be engaging in meaningful and systematic ways.

Formally recognised, regular, meaningful dialogue with social stakeholders in partner countries is the absolute minimum that should be done to make and assess investment decisions. This is one of the key asks of a declaration co-signed by over 100 civil society organisations around the world. Obtaining a social licence to operate is critical for the success of PDBs and their reputation as accountable and transparent institutions that respect democracy and human rights. Not doing so – and having international, publicly backed investment organisations making decisions about certain communities’ lives without those communities at the table places PDBs firmly within a neo-colonial approach to both development and partnerships.