Tens of billions of euros flow through the European Union’s institutional banks, the European Bank for Reconstruction and Development (EBRD) and the European Investment Bank (EIB) to projects dotted all over the globe. In many cases, these banking giants are shadowy institutions with little national or public supervision of their decisions and a pretty wide remit for their action. We speak to one of the heads of a Prague-based organization dedicated to making the banks take greater account of what they are pay rolling and what the consequences will be.
Of all the European Union’s opaque institutions, few can beat its pair of financial twins, the European Bank for Reconstruction and Development (EBRD) and the European Investment Bank (EIB) for the lack of public understanding of what they do and how they operate. The EIB and EBRD loaned around 80 billion euros in 2013 with the Czech Republic one of the decision makers in the process thought no longer on the receiving end of EBRD funds.
One grouping of non-governmental institutions, Bankwatch, has in recent years tried, with some success, to shed some light on and influence the operations of Europe’s institutional banks and EU funds. The group’s Central European headquarters is based in Prague, ironically overlooking a bank. I asked international affairs director Petr Hlobil what projects it is focused on and to what extent he feels it is making an impact.
“CEE Bankwatch Network is the network of non-governmental organisations from Central and Eastern Europe and we monitor international financial institutions and their investment and we are looking at the environmental, social, human rights and other impact of their investment. As our priority we are looking at EU funds in Central and Eastern Europe but we are also looking at the European Investment Bank, European Bank for Reconstruction and Development, World Bank and other financial institutions. We started in 1996 as a small coalition of organisations who basically recognized that our problems are very similar between counties like the Czech Republic, Slovakia, and Poland. We noticed that if we wanted to address those institutions it does not make sense to look at each individual problem, we need to look at a broader level.
“We started to work on specific projects which these institutions are investing in and then, on the basis of our experience with these projects, we are trying to influence the policies of these institutions. So we are both trying to work with the local NGOs and local communities in the different communities and address their issues. For example, if someone wanted to build a coal-fired power plant next to the village and there is a problem with resettlement, we are trying to assist the local community to deal with those issues. We are also trying to change the policies of those institutions so that they do not, for example, invest in coal and that they rather invest in energy efficiency so that there are more benefits for the people in our region.”
What success have you had so far in changing the way some of these big organisations perceive the environment or human rights or various other issues?
“When we started to work, most of these institutions did not have their own environmental or social policies or human rights policies. Now they are starting to have those polices and they are starting to have their own compliance mechanisms, which we believe is very important because it’s not just an issue of writing the policies but also of making the institution accountable over whether those policies are implemented on the ground. And we can see in the operation of the European Bank for Reconstruction and Development that they now have a mechanism which found, for example, in Croatia that in the case of plans for building one hydro power plant they basically ignored a whole set of environmental requirements of these policies. And when they were actually forced by the compliance mechanism to look, they identified a species that was not known before. So that was very important from the environmental point of view.
“But also on the theme of social issues, we were in Belgrade working with the Roma community who were involuntarily resettled because of the construction of bridges. And we worked with the European Bank for Reconstruction and Development and the European Investment Bank in identifying not only places for resettlement but also opportunities for developing job opportunities for Roma. And they were forcing Belgrade authorities, who we very reluctant to deal with the issues because they felt like, well with those Roma we do not need to care, to take these issues seriously. I think it is significant from the wider perspective that last year both the European Bank for Reconstruction and Development and the European Investment Bank stopped investing in coal, which we believe is an important step for changing the development of the energy sector. Also there was a major shift in the allocation of European funds. There are now far more EU funds in the next budget period allocated for energy efficiency and renewables.”
How bad was it when you started up? Did these big banks take into account a lot of these basic issues at all?
“The organisations, all of them, did not see much need for public consultation. They thought that they had all of the relevant information and all of the relevant technical expertise. Why would they need to consult the public? That was one major issue. I think that another one was that the institutions are run by the bankers and for them any sort of environmental or social issues are seen by them as insignificant or they are complications for their jobs. But, in reality those institutions are paid from public funding and governments have seats on those institutions, so in the end they operate with our taxes. So what happened in the end is that this understanding increased but the situation is still not good because the institutions are expanding.
“The European Bank for Reconstruction and Development two years ago started operating in North Africa and their attention to human rights is actually much lower than in the traditional region, that is the former Soviet Union and the countries of Central and Eastern Europe. And they are still trying to make deals with the current regime in Egypt where there is major oppression against any civil society groups that raise questions about the regime. They are also working with clear dictatorships like Uzbekistan, they partially operate in Turkmenistan and Belarus and obviously the biggest investments are in countries like Russia where we can see both human rights abuses as well as oppression of civil society.”
And, looking forward, obviously there is the situation in Ukraine at the moment, all the European institutions want to invest in Ukraine and we will probably see them throwing lots of money in that direction probably without looking too carefully what they are doing. How do you see this scenario will develop?
“I see it slightly differently, what the EU offered in Ukraine was a repackaging of what they did in the past years. They propose loans from the EBRD. The EBRD is lending in Ukraine, I believe, since 1996. They propose lending from the EIB and there is continuation there also since the EIB was doing business with [former president Viktor ] Janukovych as well as [ former president Leonid ] Kuchma etc, etc. There is not much change. But that is the major concern, I think it’s that the institutions lack a proper public scrutiny where the investment is going. Where we see some of the priorities a lot of them are addressing the problems of the [gas] transmission system in Ukraine. Well, that is partly a Ukrainian issue, but it is also partly addressing Europe’s own concerns about the quality of this transmission through Ukraine. I think it would be more significant if both the EBRD and EIB would start to invest in energy efficiency measures. That would start to address the problem of Ukraine on resources and if anyone went to Ukraine they would see that the energy efficiency potential is absolutely enormous. The quality of the buildings, the insulation, is very low so that there is a major potential. And if this investment is made then it would be of benefit to Ukrainians while if you look at previous projects it was primarily large Ukrainian oligarchs who were benefitting or it was the European companies who were investing in Ukraine but very little money went to benefit the ordinary Ukrainians.”
Overall, is it still the banks and the big companies that are setting the agenda for what sort of projects are thought up and approved?
“Absolutely, while the institutions have some agenda, I think it’s very clear that most of the countries want to use those institutions to expand their business influence and they try to develop opportunities for industry. And I think that it is the large corporations who are able to make sure that the investment is going in the direction they want to see. So we believe that the institutions should be under far bigger public scrutiny both at the level of the countries where the investments are being made but also at the level of the countries which are shareholders in those institutions.”