Country systems and environmental and social safeguards in development finance institutions. Assessment of the Brazilian System and ways forward for the New Development Bank

This report discusses the use of country systems by Development Finance Institutions (DFIs), focusing on social and environmental systems. It presents a brief history of the emergence of the country systems approach and the building of a global consensus on the need for greater use of country systems, within an agenda of development effectiveness. The study compares the country systems approach in social and environmental safeguards of seven DFIs: six multilateral banks and a national development bank. For each of the analysed institutions, the study sought to unravel their commitment to make greater use of country systems for the assessment and mitigation of social and environmental impacts, as well as the objectives, governance and instruments for the integration and strengthening of such systems. The study also focuses on the system of a specific country: Brazil. The current status of Brazilian social and environmental governance was assessed based on five case studies, encompassing different types of projects in the energy and transportation/logistics sectors. The analysis comprises rules, policies and practices applicable to each case. Lastly, following the lead of the young institution set up by the BRICS, the New Development Bank (NDB), the study discusses challenges and opportunities for greater use of country systems by the entity and how it could improve the design and implementation of innovative solutions for the strengthening of social and environmental country systems under a South-South Cooperation (SSC) perspective. The analyses concluded that initiatives aiming at the use and strengthening of social and environmental country systems by DFIs have yielded unsatisfactory results due to the presence of four big challenges: i) Inadequacies between the planning/financial instruments and the measures for the strengthening of national systems; ii) Limitations in the process for dealing with setbacks in the national system; iii) Failures in the methodologies for measuring the benefits and results of the use of country systems; and iv) Incoherencies and additional risks in situations in which there are financial intermediaries. The biggest challenge for the NDB is to not confine itself in a restrictive view of its own potential role, as a development partner, of ensuring a high level of social and environmental protection, in proper balance with the principles of sovereignty and horizontality. In this sense, the unique characteristics of NDB, such as its “lean” policy framework and its commitment to sovereignty, are, at the same time, points of concern and a unique opportunity for the development of innovative methods and instruments for the assessment of the capacity of clients to abide by their own commitments, and to put in motion effective solutions to overcome weaknesses in order to enable a development based on projects capable of creating transformational changes and that are truly sustainable.