Off to a rough start: FinDev’s partnership with M-KOPA Solar in Kenya
In March 2018, FinDev announced its first investment worth US$10 million in M-KOPA solar, a private fintech company based in Kenya and run by Canadian businessman Jesse Moore. At the time it was selling cell phones and solar-powered appliances door-to-door, and according to Paul Lamontagne, FinDev’s first CEO, “M-KOPA is exactly the kind of entrepreneurial company FinDev Canada wants to support” (FinDev Canada, 2018).
On paper, this partnership looked promising: M-KOPA was expected to create jobs, stimulate market development, contribute to women’s economic empowerment, and mitigate climate change. It was not long before controversies emerged.
On the same day that FinDev announced its investment in M-KOPA, a Kenyan newspaper reported that reduced its workforce by 18% to outsource the work elsewhere (The Kenyan Wall Street, 2018). Job loss estimates varied from 150 to 450 workers and (see, for example, Mgobo, 2018; Business Daily, 2018). M-KOPA reported a remarkable financial loss of approximately US$40 million between 2018 and 2020 (Toronto Sun, 2020).
Despite its failure to create jobs and its disappointing economic performance, FinDev announced an additional US$2 million investment in 2020. They claimed it was normal for start-ups like M-KOPA to lose money in the first few years and also that the disbursement was part of the original 2018 deal.
Questions about whether FinDev did its due diligence when brokering the M-KOPA deal started to emerge. According to records obtained by Blacklock’s Reporter (2020), the agreement was orchestrated by Lamontagne before FinDev’s head office was even open, that is, before it appointed an independent board of directors and a chief investment officer (Toronto Sun, 2020). Lamontagne resigned from FinDev only seven months after he was appointed, embroiled in a scandal involving stock price manipulation in a South Africa tech company of which he was the former CEO (FinDev Canada, 2020; York and McClearn, 2020), further calling into question the M-KOPA deal. That Lamontagne was not found guilty in the South African case does not appease concerns about credibility and accountability when the fate of millions of dollars of public money for international assistance was determined by only one individual.
Learning from the Past: FinDev, the Infrastructure Financing InterAmerican Cooperation and the Hidro Santa Cruz Dam Project in Guatemala
The Organization for Economic Cooperation and Development’s (OECD) Development Assistance Committee (DAC) stresses that blended finance should be guided by key principles, including transparency and accountability. FinDev is still in the process of creating and refining their accountability mechanisms, having only approved its policy on Independent Accountability Mechanism in June 2023, four years into its operations. As of July 2024, FinDev reported on its website that it has yet to receive an official complaint, but the Mechanism has yet to be tested by communities that are negatively affected by the projects they finance.
Based on the experiences of civil society organizations and communities that have filed complaints to address project harms using similar mechanisms, such as the World Bank Group’s Compliance Advisor Ombudsman (CAO) (Altholz and Sullivan, 2017), these accountability processes should be approached with skepticism. When a complaint is accepted, which is never a guarantee, the process can be slow and rarely results in adequate reparations. It is even rarer for a project to be cancelled.
Blended finance projects are inherently risky and mechanisms to address harms must be robust and not simply retroactive (Capital Monitor, 2022). Indigenous communities must also be able to exercise free, prior and informed consent (FPIC) before a project is initiated. Whether FinDev has drawn lessons from other complaint mechanisms has yet to be seen. However, past complaints filed against one of its partners did not stop FinDev from proceeding to fund their projects.
In 2020, FinDev partnered with the Infrastructure Financing InterAmerican Cooperation (La Corporación Interamericana para el Financiamiento de Infraestructura, S.A.) (CIFI) to support their renewable energy and sustainable development projects.
CIFI is a non-banking financial entity which structures and finances small to medium private infrastructure development projects. Established in 2001, CIFI aims to promote sustainable development in the clean energy, infrastructure, telecommunications, and tourism sectors in Latin America. It financed over 200 projects in 2021, providing US$1.75 billion in direct loans and US$20 billion in capital raised.
CIFI was involved in a controversial dam project in Guatemala linked to massive human rights violations. In 2008, CIFI acted as an intermediary between the International Finance Corporation (IFC) – the private arm of the World Bank – and Hidro Santa Cruz (HSC), a subsidiary of the Spanish company Ecoener-Hidralia Energia (Oxfam, 2015; Hopkins, 2020). In 2008, the IFC provided US$20 million in loans and nearly US$10 million in equity to CIFI, which in turn provided HSC with an US$8.2 million loan for the Santa Rita dam project in Guatemala (Oxfam, 2015; Hopkins, 2020).
In order to build the dam, HSC acquired more than 10 hectares of land in Santa Cruz Barillas, in the Huehuetenango region, which is home to the Indigenous Q’anjob’al people (Oxfam, 2015; Intercontinental Cry, 2016). The company lied to the community, telling them that the land would be used to grow products such as cardamom and coffee, even though their intention was always to build a dam (Oxfam, 2015).
In 2015, the communities brought a complaint to the World Bank’s Compliance Advisor Ombudsman (CAO), alleging that protesters were being persecuted for speaking out (Edwards, 2020; Oxfam, 2020). At least two members of the community have been killed. Other community leaders have faced death threats due to their efforts to defend their land and territory (Cuffe, 2015). Indigenous organizers and leaders have also been arbitrarily detained, imprisoned, and then released for lack of criminal evidence (Cultural Survival, 2017; DeLuca, 2017).
CIFI withdrew its financing and the dam project was finally cancelled in 2016 (Edwards, 2020). Although the community has successfully blocked the dam project, CIFI’s bloody legacy in Guatemala has not been forgotten.
In July 2020, FinDev granted CIFI a US$15 million loan to “facilitate green growth lending opportunities” and contribute to “energy projects, job growth and market development” (FinDev Canada, 2020). FinDev’s loan is aimed at promoting solar, wind and biomass renewable energy installation projects.
Perhaps FinDev has learned from the mistakes of the past, channeling its investments towards other forms of renewable energy projects rather than big hydro-dams. Yet wind, solar, and biomass projects come with similar risks (Dolton-Zborowski, 2022; Martinez & Davila, 2014; SELC, 2022).
International investors such as FinDev, CIFI, and the IFC must ensure that Indigenous communities have the right to free, prior and informed consent (FPIC) for projects in the extractive sector. Especially when allocating Official Development Assistance moneys to projects, they are required by law to demonstrate that these projects reduce poverty and uphold international human rights standards.
Shady Business: Tax Havens, FinDev, and Costa Rica
Development Finance Institutions (DFIs) such as FinDev Canada claim to emphasize the importance of tax fairness for inclusive business and positive development outcomes (FinDev, 2020). FinDev outlines its financial accountability strategy as an impact-driven approach, adhering to norms set by the Global Forum, the Organization for Economic Cooperation and Development (OECD), and the United Nations (FinDev, 2020). FinDev also justifies its use of offshore financial centers (OFCs) (including tax havens) as an essential strategy for managing the complexities of cross-border investments (FinDev, 2020).
The OECD characterizes tax havens as jurisdictions in the world economy where there is minimal or no taxation, as well as a lack of transparency and laws preventing information exchange between governments (COHA, 2010).
FinDev’s entanglements with tax havens raises questions about the legitimacy of businesses it partners with in its blended finance deals. FinDev has invested in several projects in Costa Rica, a country that was added to the list of tax havens by the Council of Europe in 2023 (García Pedraza, 2023). In November 2021, FinDev announced its partnership with Banco Promerica Costa Rica, loaning US$15 million to support small and medium-sized businesses (SMEs) (FinDev, 2021).
Tax havens contribute to unfair competition for foreign investments, potentially risking a nation’s economic stability (García Pedraza, 2023). By using tax havens, DFIs inadvertently reinforce offshore industries that hinder developing countries’ tax collection for essential infrastructure and public services and contribute to social and political instability (Herkenrath, 2014; TJN, 2014). The secrecy of tax havens enables criminal networks to operate under the guise of legitimate enterprises (COHA, 2010). Such corruption impedes economic and democratic development, burdening the local population (COHA, 2010).
One such DFI that has been embroiled in controversy surrounding tax havens is Proparco, a subsidiary of the Agence Française de Développement (AFD). Proparco focuses on private sector development (FinDev, n.d.) and partners with FinDev in investments in Costa Rica, a country that was recently classified as a tax haven. In collaboration with FinDev, Proparco provided a portfolio guarantee to the Banco Promerica, a private bank, to support Costa Rican Small and Medium-Sized Enterprises (SMEs) (Proparco, 2022). According to FinDev, its partnership with Proparco will allow for further cooperation in financing ventures favouring climate change mitigation and women’s economic empowerment (FinDev, n.d.). However, we need to ask questions about what else FinDev might learn about the complexities of tax havens.
Proparco has been met with public scorn for investing in luxury and medical tourism companies, including aesthetic surgery clinics, by making offshore transfers to blacklisted countries (Sherpa, 2014). Such revelations created concerns about financial transparency and questions about the criteria used to select projects. Civil society and members of Parliament attempted to introduce amendments to a 2014 law outlining France’s development and international solidarity policy that would require Proparco to assess the impacts and publish the beneficiaries’ list (Sherpa, 2014). However, the French government rejected both initiatives and the secretary of State claimed that it was impossible to disclose all companies receiving financing due to bank secrecy laws (Sherpa 2014; Giradin 2014).
Since then, Proparco claims to have incorporated France’s new development legislation into its financial security policies (Proparco, 2023). Proparco states that no investment funds are registered in one of the eight Non-Cooperative Jurisdictions (NCJs) outlined by the French government (Proparco, 2023; Raindre, 2023). However, the list of NCJs is highly criticized for excluding some of the most critical secrecy jurisdictions, including Costa Rica (Eurodad, n.d.).
FinDev’s commitment to sustainable development and poverty reduction is compromised by its indirect contribution to tax evasion and capital flight, raising broader concerns about the impact of blended finance on recipient communities. FinDev’s involvement in tax havens reduces trust in government both in our partners in the Global South and in Canada.
FinDev can enhance tax fairness by investing exclusively in companies and funds that publicly disclose ownership information about the end beneficiaries and reporting country-specific financial accounts (Vervynckt, 2014; TJN, 2014). In addition, FinDev should prioritize investments in funds registered in the country of operation and provide explicit reasons for any deviation (Vervynckt, 2014). Without publishing vital portfolio details, it is difficult to know if money is being lost through tax avoidance and evasion (Vervynckt, 2014). Lastly, FinDev should refuse to invest in countries listed as tax havens.
Investing with a Conscience? A Critical Analysis of FinDev’s Involvement in EcoEnterprises Fund
In an art exhibit that took place in Montréal in Fall 2023, FinDev showcased Sambazon, a company embroiled in controversy over multiple human rights violations. The exhibit sought to demonstrate the potential of blended finance to positively affect climate action and economic development (FinDev, 2023). Sambazon’s exhibition was an alarming choice, but it also one that exposes some of the key problems of blended finance under which public moneys are use to ‘de-risk’ private investors in complicated deals involving private enterprises and philanthropists.
On May 22, 2019, FinDev, Development Finance Institute of Canada, announced a US$12.5 million investment in EcoEnterprises Partners III (FinDev, 2019), which has established an investment fund, the EcoEnterprises Fund (The Fund). The Fund is a women-led venture fund that uses long-term financing to provide loans and equity investments to small and medium-sized enterprises targeting environmental and social impacts in agriculture, agroforestry, and ecotourism throughout Latin America (EcoEnterprises, n.d.). FinDev has a significant stake in The Fund, accounting for 11.3% of the total capital committed (FinDev, 2019).
The Fundwas launched by The Nature Conservancy (TNC) along with the Inter-American Development Bank (IDB) in 2000 to support sustainable businesses in Latin America (Newmark & Pena, 2011). TNC, the world’s largest environmental group, has been embroiled in controversy. TNC has faced criticism for its partnerships formed with multinational corporations and private equity firms, such as JPMorganChase, Shell, BlackRock, and Nestlé. Environmental groups have criticized TNC for permitting oil drilling on land they pledged to conserve and for endangering local species since 2002 (Gillis, 2014). More recently, a Bloomberg investigation accused TNC of selling carbon offset credits to large companies (JPMorgan, Disney, and BlackRock) as a way for them to claim emission reductions (Elgin, 2020).
One of EcoEnterprises’ investments is in Sambazon, a privately held American company that makes and sells açaí berry products, primarily to an American market. Sambazon preaches sustainability, with a “triple bottom line” that protects people, the planet, and profits. They also advertise that they are “the first certified Fair Trade and Organic açaí company in the world” (Sambazon, n.d.). Due to the nature of the açaí industry, however, these are bold claims for which Sambazon lacks proof to back up.
The açaí industry is one of the most dangerous in Brazil for producers (Kelly, 2023; McCoy, 2021) and heavily relies on hazardous child labour. Harvesters need to climb up to 60 feet above the ground to harvest the trees’ berries, almost certainly without safety equipment. Due to the tree’s thin trunks, this job is often performed by children as the trees easily snap from an adults’ weight. Injuries are a daily occurrence, often leading to hospitalizations and permanent disabilities, paralysis, and death (McCoy, 2021). Further, the selling price of açaí berries is appallingly low; hours of this dangerous work fetches less than $3 / basket (McCoy, 2021). Long complex production chains with many middlemen keep the raw prices low and complicate product chain transparency as a whole (Kelly, 2023; McCoy, 2021). Combined with the high frequency of injuries, children often sacrifice their right to education in order to supplement family income when adult breadwinners are injured or cannot support their family’s needs. The true ‘low’ cost of açaí berries depends on the entrapment of producers in a cycle of poverty.
Despite the dangers of this industry, much of Sambazon’s advertising relies on its supposed sustainable management. Sambazon’s CEO describes the açaí industry as a positive force, “bringing environmentally sustainable income to an impoverished region” (McCoy, 2021). The company flaunts charitable infrastructure investments, such as schools and medical centres, as part of its corporate social responsibility (CSR) (McCoy, 2021). Sambazon claims to “oversee every step” of the açaí production chain (Kelly, 2023). Their packaging flaunts a Fair for Life certification by EcoCert which goes “beyond the inherent concept of fair pricing […] valoris[ing] and protect[ing] exemplary supply chains, where stakeholders have chosen to act responsibly by implementing good economic, social and environmental practices” (Fair for Life, n.d.). Child labour is a deal breaker, yet the seal remains on Sambazon packaging.
Repeated allegations that Sambazon does not practice what they preach have come to light over the past few years. Harvesters and producers have exposed holes within the supply chain and certification process, including vetting against child labour (Kelly, 2023; McCoy, 2021). Merchants have come forward reporting that Sambazon supplies some of its products outside of its registered network of producers (McCoy, 2021). Sambazon officials deny such claims, saying that Sambazon never buys açaí harvested by children or from uncertified sellers (McCoy, 2021). The CEO used the rhetoric that no systems are perfect, but argues that the açaí business they promote is not as bad as other industries, citing Nike sweatshops (McCoy, 2021). But the security of persons from predictable harm and the entrapment within a cycle of poverty for the benefit of corporate profits is not something to be justified because it is less bad than other terrible options.
Despite their attempts to “give back,” Sambazon’s CSR does not make up for the atrocities they rely on for their profits, effectively sidestepping meaningful engagement for marketable schemes. This has culminated in a US court case where Corporate Accountability Lab is suing Sambazon for misleading advertisements that gloss over human rights infringements with their sustainability rhetoric. This case is fighting green-washing, exposing problems with CSR and “certification schemes” (Kelly, 2023).
The Sambazon project appears to be going against EcoEnterprises’s and FinDev’s missions. It brings into question the effectiveness of EcoEnterprises as a whole, and FinDev’s willingness to support it.