Source · Select Committees · International Development Committee
Recommendation 11
11
Deferred
Paragraph: 57
Cap BII investments in middle-income countries to better distribute across different development needs.
Conclusion
BII must better distribute its investment across countries with different development needs and income status by capping the proportion of investments that it holds in middle-income countries, at a percentage determined by the Minister for Development, by 31 March 2025. The rate should be defined within BII’s investment policy and frequently monitored through BII’s published reporting.
Government Response Summary
The government largely deflects the recommendation, describing existing oversight mechanisms and rejecting a 'full rolling audit'. It commits only to reviewing in 2024 whether additional spot checks of BII investments are required, rather than capping investments in middle-income countries.
Paragraph Reference:
57
Government Response
Deferred
HM Government
Deferred
The Government agrees that it should hold BII accountable for its due diligence and ongoing monitoring of its investments. Ministers achieve this through existing corporate governance arrangements, with BII’s Board being both responsible for overseeing BII’s activities and fully accountable to the Government. BII is also authorised and regulated by the Financial Conduct Authority (FCA) with the Board responsible for ensuring compliance with its regulatory obligations. To ensure BII is implementing best practice and to validate BII’s internal assessments, many of BII’s activities are independently verified. For example, BII’s approach to development impact management is verified by BlueMark (a leading provider of independent impact verification) for alignment to the industry best practice “Operating Principles for Impact Management”. BII is currently the only DFI on BlueMark’s Practice Leaderboard demonstrating best-in-class impact management practices. In addition, BII’s annual Aggregate Impact Score is externally assured by EY in line with ISAE 3000 international assurance standard. BII’s processes and investment decisions are also regularly scrutinised by independent reviewing bodies such as ICAI and the NAO. For example, BII worked with ICAI over a three-year period as it implemented a new Impact Framework. On ESG standards, ICAI found BII to be “a leader among DFIs in assessing and supporting environmental, social and governance (ESG) issues” (ICAI, 2019) and that BII “is recognised as a thought leader by other DFIs in some areas, particularly on ESG issues” (ICAI, 2019). In ICAI’s most recent follow-up review it concluded that “the extent of consideration of development impact in investment decisions is now much greater and that aspects of this consideration are often impressive” (ICAI, 2021). In assessing BII’s approach to active monitoring ICAI concluded that, “we also found good evidence that all investments in our sample have been subject to regular assessment of development impact and that there was active ongoing management to improve impact or manage related risks” (ICAI, 2021). As referenced in response to Recommendation 3, independent evaluation is another important aspect of scrutinising BII’s activities. FCDO and BII have an Evaluation and Learning Programme which appoints independent evaluators to assess BII’s development impact and recommend improvements to investment strategies. Lessons from these evaluations are incorporated in BII’s approach. For example, the Financial Institutions evaluation led to a shift towards financial sector investments which target support for specific customer groups and impact objectives (e.g. directed-lending for women owned and led businesses). Given the existing oversight mechanisms in place, Ministers believe a full rolling audit of all portfolio investments would be disproportionate and not deliver value for money. However, as part of FCDO’s commitment to ensure best practice oversight arrangements Session 2023–24 are maintained, Ministers will review in 2024 whether additional spot checks of BII investments by external experts to verify BII’s internal ESG and development impact assessment are required. Accountability and Transparency