Ensuring high standards of ethics and integrity compliance in development financing 

International Finance Institutions (IFIs) play a pivotal role in driving economic growth, promoting sustainability and alleviating poverty across the globe. For example, the European Bank for Reconstruction and Development’s (EBRD) Green Cities Initiative aims to address environmental challenges faced by cities in EBRD’s regions of operation. To ensure such funds are allocated efficiently, ethically and transparently they must be managed to the highest standards of integrity compliance. However, as the landscape of development finance evolves, so do the challenges and opportunities surrounding integrity compliance. So what are the current expectations of best practice, what is starting to emerge and how might these practices become embedded and rolled-out at scale? 

The current landscape of integrity compliance in IFIs  

Integrity compliance refers to the measures and processes put in place within an organisation to ensure that its operations, practices and conduct adhere to high ethical standards, legal requirements and organisational values. It encompasses measures to prevent corruption, bribery, fraud and other unethical behaviours as well as mechanisms for detecting and addressing any instances of misconduct that may occur.  

It requires a commitment to upholding high standards of integrity and ethical behaviour throughout the organisation, from senior leadership to frontline staff, and often involves ongoing monitoring, training and risk assessments to ensure compliance with applicable laws and regulations. It also involves fostering a culture of integrity, transparency and accountability throughout the organisation. 

Many IFIs have established robust integrity compliance frameworks and mechanisms, including due diligence processes and anti-corruption measures. Despite these efforts, IFIs face unique challenges in navigating the complex environments in which they operate. The diverse geographies, cultures and regulatory landscapes present inherent risks, such as bribery and corruption, fraud and human rights violations. Moreover, the complex nature of IFI investments requires that a robust integrity compliance framework is in place to ensure risks are appropriately managed. Such a framework would be needed to ensure the effective management of funds by the EBRD, European Investment Bank and the World Bank to help build institutional capacity in Ukraine due to the vast financing that reconstruction will require.  

Other leading IFIs also serve as exemplars, having successfully introduced a number of integrity compliance initiatives which help to mitigate risk and protect the organisations’ reputation. For instance, the International Finance Corporation (IFC) seeks to identify the ultimate beneficial owners of its potential counterparties that have a 5 percent or more stake in the investment, which is considerably lower than the typical 20-25 percent industry standard.  

Emerging best practice in integrity compliance 

IFIs have made significant strides in advancing integrity compliance. We are also seeing increased co-operation in debarment regimes and other shared initiatives. Forums such as the G20 see institutions such as the International Monetary Fund, World Bank and regional development banks working together to develop policies for global economic stability. The Organisation for Economic Co-operation and Development’s Global Anti-Corruption and Integrity Forum (see here for GoodCorporation’s summary) encourages IFIs to share best practices on anti-corruption efforts. By leveraging collective expertise and resources IFIs can better develop innovative solutions to complex integrity risks and amplify their impact on sustainable development outcomes. These efforts towards enhanced coordination and knowledge sharing to address common integrity challenges collectively should continue.  

However, IFIs must also continue to refine their methodologies for assessing and managing integrity risks, particularly in high-risk environments. This includes investing in capacity-building initiatives, strengthening third-party due diligence processes (see here for GoodCorporation’s services in anti-corruption due diligence support) and fostering a culture of integrity and accountability within their organisations and among their investees. 

The growing prominence of environmental, social and governance (ESG) and factors such as deglobalisation also require a proactive approach. Developing an ESG strategy is increasingly seen as a vital component of risk management. Similarly, by equipping employees with the necessary knowledge and tools to identify, prevent and report unethical behaviour, IFIs can fortify their defences against integrity risks. Building staff capacity through targeted training and awareness programmes is therefore essential for embedding a culture of integrity within an organisation.  

Due to factors such as ESG and growing shareholder concerns around investments, IFIs are mandating the organisations in which they invest to put functioning compliance programmes in place. Where organisations do not have appropriate controls in place (e.g. an adequate ABC programme) they are increasingly being required to take steps to improve their programme and evidence the measures they have taken. Certain Multilateral Development Banks provide direct assistance to recipient organisations to establish effective compliance programmes. This approach facilitates capacity building within partner institutions, fostering a culture of integrity and risk management that extends beyond individual projects to encompass broader organisational practices. Such collaborative efforts not only mitigate risks but also enhance the effectiveness and sustainability of these investments, ultimately contributing to the long-term success of these initiatives.  

GoodCorporation has worked with a number of IFIs to assess the maturity of a counterparty’s corporate governance and internal compliance controls, to help provide the assurances needed that appropriate compliance programmes are in place. Where organisations lack sufficient controls, GoodCorporation works with them to help build internal capacity. Ensuring these measures are firmly in place helps highlight the funding institutions’ commitment to embedding ethical practices and accountability which, in turn, helps guarantee appropriate and beneficial usage of the finance provided.  

Adopting digital platforms and tools also enables IFIs to further mitigate risk. For instance, by conducting digital assessments on its material ESG topics, organisations can manage complex supply chains in a cost-effective way. Moreover, the growing demand for transparency and accountability from stakeholders underscores the importance of IFIs embracing innovative solutions to uphold the highest standards of integrity in their operations. 

As stewards of public funds and agents of sustainable development IFIs must prioritise integrity at every stage of their operations. While significant progress has been made there remain critical areas for improvement. By embracing these challenges and committing to continuous improvement IFIs can reinforce their position as trusted partners in advancing inclusive and sustainable development worldwide.  

To understand how GoodCorporation can help you in this area, please contact our team.