The European Union (EU) must coordinate its fragmented development finance system into a single institution to deliver better development impact.

That’s the conclusion of nine economists, or Wise Persons, in their independent report released in October 2019. The Council of the EU established and charged the group to assess the challenges and opportunities for improving the European development financial architecture. “Europe in the World: The future of the European financial architecture for development” offers three options for consolidating the current system into a single development institution — a move similar to the one the US recently undertook.

Consolidating development financial tools to strengthen capabilities led to the formation of the U.S. International Development Finance Corporation (DFC) in 2019. But consolidation and revamping development financial capabilities, especially with an eye toward more private sector development, seems to be where the similarities end in the proposed European structure and its U.S. counterpart.

Findings and Recommendations

The Wise Persons report has determined that climate change is the single most important global challenge and has the largest impact on communities, especially in developing countries and Africa. As a result, the impact of climate change forms the basis for all their recommendations o restructure the European development financial system. These include:

The report’s assessment of the current European development financing system finds that it is

  • fully committed to the UN global agenda which drives its policy formation.
  • fully committed to the UN 2030 SDGs; Paris Climate Agreement; Addis Ababa Action Agenda; and Convention of Biological Diversity.
  • embedded in a global system.
  • in need of a strong policy center.
  • lacking in strategic coordination between main EU financial actors of the system, chiefly the European Investment Bank, the European Bank for Reconstruction and Development (EBRD), and various independent international financial institutions (IFI).

Based on their assessment, the report makes the following recommendations:

  • Create a strong policy center in the EU to strengthen the role of the European Commission at the center of EU development financial architecture.
  • Create a single, well-capitalized development entity, The European Climate and Sustainability Development Bank, alongside the European Commission in its role of a policy center.
  • Provide conditions for private-sector finance in collaboration with European developments financial institutions.

The report offers three options to create the European Climate and Sustainable Development Bank:

U.S. Foreign Policy, Not Climate Change, Drives the DFC

The United States government, like the EU, also identified a fragmented development finance system with overlaps, prompting the U.S. to create as single coordinated development finance agency with a strong, single policy. Yet the key policy rationale underpinning the creation of the DFC lacks an emphasis on climate change or adherence to the UN or other global agendas. Rather, it was created as

  • a response to China’s Belt and Road Initiative and China’s growing economic influence in developing countries.
  • a part of the U.S. National Security Strategy of 2017, stating the new entity will modernize U.S. development financing as a priority to advance U.S. global influence.
  • a means to advance U.S. global influence by increasing private investment as an alternative to a state-directed model.
  • a shared-value vehicle to advance U.S. businesses.
  • a modern mechanism to increase the efficiency and effectiveness of U.S. development finance functions and improve cost savings through consolidation.

While private-sector coordination was an important aspect of the European system, it was a defining policy driver of the U.S. system, with a preference to benefit U.S. businesses.

The proposed European Climate and Sustainable Development Bank is based on the premise that climate change is the single largest challenge for development prompting an emphasis on development work in Africa. The report recommends that the EU remains embedded in a global coordinated system supporting the UN 2030 SDGs.

The U.S. International Development Finance Corporation, on the other hand, is a government agency created to enhance U.S. foreign policy objectives that include countering China’s growing influence around the world. It aims to reduce violent extremism in and migration from developing countries by fostering U.S. private sector development.

More Alike than Different

Yet the differences aren’t as stark as they seem. Both models seek the creation of sustainable communities through enhanced private sector financing. And both strive to create more efficient and effective methods of delivering development finance through consolidation.

Additionally, most U.S. enterprises operating overseas factor in climate change in their business models. And the UN and other global development entities seek to decrease violent extremism and the factors that drive migration, including poverty and unemployment, in their agendas.

While the premises and policies may vary, the end goals of the proposed European Climate and Sustainability Bank and the U.S. Development Finance Corporation remain the same: create and support sustainable communities in the most efficient manner possible — especially through private sector engagement — and make an impact.


Washington Business Dynamics (WBD) is a veteran-owned management consulting firm specializing in procurement, strategic advisory, and international development. The United States Agency for International Development (USAID) has awarded a contract to WBD to manage its new Private-Sector Support Mechanism. The five-year, $33 million contract will support USAID in implementing its flagship Private Sector Engagement Policy, announced by Administrator Mark Green in December 2018.

Washington Business Dynamics

Written by

Washington Business Dynamics (WBD) is a veteran-owned management consulting firm specializing in procurement, strategic advisory, and international development.

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