European Investment Bank: Financial Arm of European Union

International financial institutions (IFIs) around the world have been required in recent years to accept reforms, in order to improve their performance, transparency and accountability. Many have made a concerted effort to do so, although to mixed reviews. One important exception is the European Investment Bank (EIB), the rather secretive bank of the European Union (EU). While other IFIs are taking steps to address these policy issues, the EIB has demonstrated a resistance to change.

The EIB was established in 1958 as the funding arm of the European Economic Community (the predecessor of the European Union). It was originally set up to finance physical infrastructure linking the national economies of the member countries, and to provide investment in less-developed regions. Since then its missions and areas of operation have grown substantially. With a current portfolio of investments in more than 150 countries, today more than 18% of the EIB's total lending is outside the European Union. Its investments are in Africa, Asia, Eastern Europe, Balkans, Middle East, and Latin American.

Since 1990, the EIB has provided loans to Bulgaria amounting to almost EUR 1.1 billion so far for projects fostering the countrys integration into the EU.

Not only has its sphere of activity expanded, but its lending power as well. The EIB's resources consist of capital from EU Member States and funds borrowed on the world's capital markets. Because of the strength of the EIB's Member State shareholders, it holds a "AAA" credit rating, enabling it to borrow "cheap" and offer substantially lower interest payments and fees than those charged by other international financial institutions.

Major priorities:

• Regional development and economic and social cohesion within the Union;
• Implementation of the "Innovation 2000 Initiative";
• Environmental protection and improving the quality of life;
• Preparing the Accession Countries for EU membership;
• Community development aid and cooperation policy in the Partner Countries.

Alongside its main priorities, the COP also defines policies for:

Structure

Shareholders:

The shareholders of the European Investment Bank are the 15 Member States of the European Union.

Governing Bodies:

Board of Governors
The Board of Governors consists of Ministers nominated by each of the Member States, usually Ministers of Finance, Economic Affairs or the Treasury. They represent the Bank's shareholder Member States. The Board of Governors:

• Lays down general directives on credit policy;
• Authorises Bank activity outside the Union;
• Receives the report of the Audit Committee and approves the financial statements, including the balance sheet and profit and loss account, and the annual report;
• Decides on capital increases;
• Appoints the members of the Board of Directors, the Management Committee and the Audit Committee.

Board of Directors
The Board of Directors consists of 25 Directors and 13 Alternates appointed by the Board of Governors. The Member States nominate 24 Directors and 12 Alternates, while the European Commission is represented by one Director and one Alternate. The Board meets once a month, and its members:

• Ensure that the Bank is managed in keeping with the European Treaties, the EIB's Statute and the directives laid down by the Governors;
• Approve the granting of loans;
• Authorise the conclusion of guarantees and borrowings;
• Recommend changes in the Bank's credit policy to the Board of Governors.

The Board of Directors is chaired by the President of the Bank, or, in his absence, by one of the Vice-Presidents, fellow members of the Management Committee.

Management Committee
The Management Committee is the Bank's full-time executive body. Under the authority of the President and the supervision of the Board of Directors, it collectively oversees day-to-day business at the EIB. It recommends decisions to the Board of Directors, notably borrowing and lending decisions, and ensures that these are implemented. Its members are responsible solely to the Bank, and are appointed by the Governors, on a proposal from the Board of Directors, for a period of six years.

Problem areas

Whenever major projects are funded for infrastructure, energy, or transport, inevitably there are significant and long-lasting environmental impacts for the region. By agreeing Article 6 of the Amsterdam Treaty, which calls for a high level of environmental protection and integration of environmental concerns into other policies, the European Union recognised the importance of "sustainable development" and indeed has made it the framework for all its actions. The EIB is supposed to follow EU legislation in its activities both in and outside EU, at least in the Accession countries, but does not seem to do so.

Lack of standards: Despite EU requirements, the EIB has not established adequate policies for various sectors and environmental procedures for different types of projects. However, while EU policies may provide sufficient guidance for activities in EU member states, they may not suffice outside the EU where such policies are not always appropriate, especially in developing countries that may have different development priorities. Moreover, in many cases national standards of non-EU countries are often inadequate or even nonexistent, and there are no clear guidelines that describe whether or how the EIB should implement relevant EU policies or legislation.

Absence of public accountability: Provisions of the Aarhus Convention on access to environmental information as well as the EU directive on Environmental Impact Assessment state that the public must be given access to documentation and information related to any proposed project, as well as given the opportunity to express an opinion before it is initiated. Yet often the EIB refuses to disclose vital information even to the groups or communities that will be most impacted by the projects it finances. The EIB maintains that confidential information is restricted to internal use only.

Inadequate staff size and expertise: The number of EIB staff totals about 1000 employees, with very few full time environmental experts to review its entire lending portfolio and to ensure compliance with relevant policies. This is in stark contrast with the World Bank, with about ten times the number of employees and more than 300 environmental experts.

Low threshold of environmental protection: The EIB leaves the responsibility for compliance with environmental standards to the project promoters receiving financing, often resulting in them being disregarded or not being met (See EIB Fact Sheet 4: The European Investment Bank and the Environment). Moreover, the EIB Environmental Policy does not focus on proactive environmental protection lending, such as recognising the threats posed by financing projects that affect climate change. Rather they tend to direct lending for technological 'fixes' to existing environmental problems (See EIB fact sheet 6). The EIB is playing virtually no role at all in helping the EU live up to its Kyoto Protocol promises.

Unsupervised global loans: The EIB provides Global Loans through national or local banks, also known as intermediaries, with which the Bank has entered into partnerships. Such intermediaries are often unwilling to share information about environmental standards, and it has been impossible to learn if EIB or EU policies are being followed by them. NGOs have been denied access to documentation relating to the relationship between the EIB and the intermediaries and what the loans are actually used for.

Part time leadership: EIB Directors serve part time, generally meeting less than one day a month, and they lack the staff necessary to oversee projects. This nonresident Board, has hardly ever rejected a loan application brought to its attention, and it annually reviews more than 300 projects at 10 meetings a year. The approval process lacks a thoroughness and rigour that is standard in other International Financial Institutions, which has lead to the implementation of many projects with adverse social and environmental consequences.