CAFOD warns that Investments by UK development finance body have ‘harmed society and environment’

Catholic international charity CAFOD has hit out over a government report published today that has revealed “questionable investments” are being made by a leading UK investment institution.

MPs have warned that the UK’s development finance institution, British International Investment (BII) is using taxpayers’ money for some “questionable investments” including in fossil fuels and a cosmetic surgery firm in India.

BII says it is “at the heart of the UK Government’s international financing offer to emerging economies” and that it invests “to create more productive, sustainable and inclusive economies in Africa, Asia and the Caribbean, enabling people in those countries to build better lives for themselves and their communities.”

Graham Gordon, head of policy at Cafod – the official aid agency for the Catholic Church of England and Wales, said: “An opaque organisation such as BII should not receive any further aid money from the UK Government until it sorts out its serious failings, and should immediately pull out of fossil fuel investments.

“Without stricter oversight of exactly where BII’s investments are going, the UK is losing all credibility in claiming to tackle climate change and poverty.”

Some investments do not have a focus on tackling poverty, are at odds with the Government’s policies or have even “harmed society and the environment”, according to the Commons committee tasked with scrutinising UK aid spending.

The International Development Committee criticised the Foreign, Commonwealth and Development Office’s (FCDO) “hands-off” approach to overseeing BII’s activity.

The FCDO is the sole shareholder of BII, which invests in the private sector in the developing world with the aim of creating jobs and increasing economic opportunity, and thereby reducing poverty.

But the Committee said BII holds some legacy investments that conflict with the Government’s climate goals, including in the development of gas infrastructure in Mozambique.

Nearly 10% of BII’s portfolio by value was exposed to fossil fuels in 2021, and there is no clear timeline for BII to exit those investments, MPs said in their report.

BII also remains invested in Chinese businesses, despite Beijing being deemed as an “epoch-defining challenge” in the integrated review of foreign and defence policy.

The Committee also raised concerns that the body’s investments are not always benefiting the world’s poorest people.

It concentrated 28% – the largest share – of its global portfolio by value in India, a middle-income country, in 2021, and not all of its investments there have clear development links or help the poorest, according to the report.

This has also been the case when BII has invested through financial intermediaries, including where money went to a cosmetic surgery clinic in India and to a wine restaurant chain in south-east Asia.

Also noting alleged instances of fraud and investments that have rewarded intermediary agents in tax havens, the cross-party panel urged BII to exert greater control over intermediary funds and stop subcontracting “its legal, ethical and development responsibilities”.

Committee chairwoman Sarah Champion said: “Evidence to this inquiry has raised the concern that there is not enough oversight from ministers on BII’s investments.

“It is not exerting sufficient control or transparency to ensure value for UK taxpayers’ money, or that outcomes match its remit or UK development goals and strategy.

“We certainly don’t need more business-as-usual investment in fossil fuels or through tax havens. The BII says it’s desperate to get out of dodgy subsidiary investments like a cosmetic surgery firm in India, but the fact that UK taxpayers’ money found its way there in the first place shows how poor control has been.”

She said that cuts to the aid budget mean that “pressure is on to target development assistance towards the poorest and most marginalised groups”.

The Committee called for the FCDO to increase its oversight of BII and take a non-voting seat on its board.

Bond, the UK network for international development organisations, said BII’s governance must be “radically reformed”.

Policy and advocacy director Gideon Rabinowitz said: “It is unacceptable that BII is de facto exempt from the UK’s climate commitments on aligning all new UK aid with the Paris Agreement by the end of 2023 and has no clear timeline to exit fossil fuel investments.

“BII should be a trailblazer in development finance leading the way and role-modeling sustainable, transparent, accountable investment with a clear development impact. When climate change is felt in all corners of the world, there should be no ifs or buts about ceasing financing carbon-intensive ventures.

“Coherence of BII’s investments with the Government’s own commitments on fossil fuels, climate, sustainable development goals, or poverty reduction will never be possible with the Government’s current hands-off approach.”

A spokesperson for BII said: “We are pleased the Committee recognises the substantial contribution that development finance makes.

“BII is one part of the overall government toolkit. Our investments alleviate poverty by creating jobs and generating positive economic, social and environmental outcomes. Recent investments include a project to provide electricity for the first time to 9 million people in Burundi.

“We constantly strive to enhance our investment approach. We welcome the Committee’s detailed recommendations and will consider them alongside FCDO.”

A Foreign Office spokesman said: “The FCDO works closely with BII’s board to ensure the investment’s portfolio is in line with our objectives, including reducing poverty and supporting a just and fair green transition.

“Under its governance arrangements the FCDO regularly holds meetings with BII’s board, executive management and shareholders, and continuously engages with BII at a working level.

“This allows us to hold BII to account on its decision making and raise concerns where necessary.”