UK aid being wasted on fossil fuel investments, CAFOD tells House of Commons Select Committee

MPs were told today (Tues 24th January) that overseas aid is being spent on fossil fuels, taking away money from humanitarian programmes, including those for women and girls.

Graham Gordon, CAFOD’s head of policy, told the International Development Select Committee in an oral evidence session that despite promises in 2019 that fossil fuel investments would cease, there were around £700m (12.6% of the overall portfolio) ongoing direct investments in fossil fuels in 2021 by the UK government’s development finance institution, British International Investment (BII) (what BII calls carbon-related exposure).

BII also admit that they do not know their current exposure to fossil fuels through indirect investments in funds and financial intermediaries, so the real figure will be higher.

This undermines the government’s legal commitments to reach net zero emissions and its “number one foreign international priority to tackle climate change”.  

“If the government is serious about its commitment to preventing global warming of 1.5c, then we must make sure no UK aid is invested in fossil fuels. Because it is currently going in the opposite direction to where we want aid money to go,” said Gordon.

“It’s bad investment and it’s taking money away from essential humanitarian aid, such as education and girls healthcare.”

The Committee were urged to pressure FCDO to close loopholes in BII’s climate change policy and to mandate it to pull out of all legacy fossil fuel investments.

A third of BII’s investments go through funds or financial intermediaries, where BII remains an arm’s length investor. The government’s own documents admit that BII has less control over the investments and therefore there is less information about where UK aid money goes of the impacts the money has.

Due to this lack of transparency, CAFOD recommended that FCDO instructs BII to drastically reduce its investments through financial intermediaries and instead redirects them to companies with an explicit focus on creating decent, green jobs in the poorest countries and communities.

Gordon told the committee that FCDO need to take back control of BII.

 “As the sole shareholder, FCDO have chosen to operate at arms length, while BII then operate at arms length to many of its investments, then they have an even longer arm in terms of where their investments are reaching.”

Given the context of drastic cuts to the aid budget (Overseas Development Aid), Gordon recommended the FCDO should not give any more aid money to BII. Adding that they need to have a much stronger poverty eradication focus.

“BII should have a much stronger poverty eradication focus in line with the International Development Act.

“We have a very clear act from 2002 that all ODA needs to be tackling poverty.

“We have shifted where a lot of our ODA is going, we need to bring it back to be focusing on poverty very clearly, tackling climate change, to focusing on the poorest countries.

“Because we have an ever decreasing pot of ODA at the moment and we need to make sure that is really targeted.”

BII’s assets have more than doubled since 2015 to £8bn, while UK bilateral aid to poor countries continues to be slashed. Any additional funds for BII would be in the context of cuts to emergency response, health, education and women’s economic development.

Question marks were also raised over BII’s transparency.

“Why is ODA that goes through BII particularly through financial intermeddles let off the hook in terms of transparency,” Gordon asked.

Sarah Champion MP, the Committee’s chair added that is exactly why this inquiry is running.

• The full session can be seen here: Parliamentlive.tv – International Development Committee
• Graham Gordon was invited, alongside other NGOs, to provide expert advice on the Government’s investment for development strategy.
• Details on the International Development Committee’s inquiry “investment for development: The UK’s strategy towards Development Finance Institutions” can be found here.
• Details of Terms of Reference for DFID / FCDO evaluation of the Financial Institutions Portfolio of CDC/BII (start date 2019).  Here
• CAFOD is a leading international development charity and is the Catholic Church in England and Wales official aid agency. It operates in over 40 countries around the world.  www.cafod.org.uk