How the Largest Multilateral Development Bank Finances Conflict

The European Investment Bank (EIB), the financial arm of the European Union (EU), claims to promote sustainable development and uphold high environmental and social standards. However, a closer examination of the EIB’s investments in Israel reveal systemic issues, particularly concerning its human rights due diligence and compliance with international law. Despite its policies and principles, the EIB’s funding decisions may make it complicit in human rights violations against Palestinians, raising questions about its commitment to international obligations.

This concern has gained urgency following the International Court of Justice's (ICJ) landmark advisory opinion on Israel’s actions in the Occupied Palestinian Territory (OPT). The ICJ determined that Israel’s occupation, settlements, and annexation of Palestinian territories are unlawful, and that its policies and practices in the OPT constitute racial segregation or apartheid. The court ruled that all states must acknowledge Israel’s unlawful presence in the OPT, end any aid or assistance that supports these violations, and differentiate in their dealings with Israel between its own territory and Palestinian territories. This opinion was issued amid an ongoing ICJ investigation into genocide in Gaza, which has led to the deaths of at least 39,445 Palestinians,* despite the ICJ’s order to Israel to prevent genocide and allow the entry of aid. In light of the ICJ's opinion and the ongoing genocide investigation, the EIB must urgently revise its practices and investments in Israel to avoid complicity in human rights violations. 

EIB's role in Gaza and shift towards military financing

There is a disconnect between the EIB’s stated values and its financial practices, particularly regarding its funding of companies supplying weapons to Israel. This support may contribute to severe human rights violations and potential atrocity crimes–genocide, war crimes, and crimes against humanity–being committed in Gaza. The EIB’s recent policy change to fund defense projects raises critical questions about its commitment to international law and highlights systemic issues in its investment decisions. 

The EIB’s policies commit to respecting human rights in line with the EU Charter of Fundamental Rights and other international instruments. Frameworks, such as the UN Guiding Principles and the OECD Guidelines, emphasize the importance of human rights due diligence, requiring businesses to actively identify and address any potential or actual negative impacts on human rights arising from their operations and business relationships. This is particularly crucial in conflict-affected areas, where this need for human rights due diligence is heightened. However, an examination of the EIB’s loans suggest misalignment with its international obligations, and raises questions about whether the EIB is conducting the necessary enhanced human rights due diligence.

EIB’s complicity in potential atrocity crimes in Gaza

Research from July 2022 identified Israel as a high-risk destination for the supply of weapons due to its history of using arms to enforce its occupation of Palestine. This risk has increased with the recent assault on Gaza. An April 2024 report, "Anatomy of a Genocide," by the UN Special Rapporteur on the situation of human rights in the Palestinian territories, highlighted extensive destruction in Gaza:

After five months of military operations, Israel has destroyed Gaza. Over 30,000 Palestinians have been killed, including more than 13,000 children. Over 12,000 are presumed dead and 71,000 injured, many with life-changing mutilations. Seventy percent of residential areas have been destroyed. Eighty percent of the whole population has been forcibly displaced. Thousands of families have lost loved ones or have been wiped out. Many could not bury and mourn their relatives, forced instead to leave their bodies decomposing in homes, in the street or under the rubble. Thousands have been detained and systematically subjected to inhuman and degrading treatment. The incalculable collective trauma will be experienced for generations to come.

In conclusion, the Special Rapporteur found reasonable grounds to believe that Israel’s actions may constitute genocide. The ICJ’s January 2024 and March 2024 orders put both states and companies involved in financial engagements in Israel on notice of the genocide risk, obligating them to act responsibly to mitigate potential complicity. On 20 June 2024, 32 UN experts reiterated their demand for an end to weapon transfers to Israel, highlighting financial institutions’ responsibility and complicity when funding companies that send weapons, parts, components or ammunition to Israeli forces:

Failure to prevent or mitigate their business relationships with these arms manufacturers transferring arms to Israel could move from being directly linked to human rights abuses to contributing to them, with repercussions for complicity in potential atrocity crimes.

Despite these concerns, the EIB has continued to invest in companies that supply weapons to Israel, demonstrating a clear need for enhanced human rights due diligence.

Recent research shows that the EIB has loaned over €1.23 billion to companies supplying weapons to Israel, such as Leonardo and Rolls-Royce, ranking it among the top 20 financiers of these firms. Additionally, the EIB has also financed BNP Paribas, a bank that has invested more than €5 billion in companies that supply military equipment to Israel. Notably, BNP Paribas is the only European bank that continues to finance Elbit Systems, a weapons manufacturer that supplies drones, munitions, and hand grenades to the Israeli army. 

The EIB claims that its loans to these companies are not used for developing weapons but instead finance research and development programs for helicopter, defense electronics, and security business areas, amongst other areas. However, funding  specific projects within these companies indirectly supports their overall operations, potentially freeing up resources for weapons production. UN experts caution that such financial ties to arms suppliers increase the risk of severe human rights violations and genocide, and may implicate financial institutions in atrocity crimes. 

The Financial Exclusions Tracker, a public dataset launched by a coalition of NGOs in 2023, already identifies Leonardo, Rolls-Royce, BNP Paribas, and Elbit Systems as companies listed on exclusion lists by numerous financial institutions due to links to weapons and human rights issues. In light of these risks, the EIB should review its funding portfolio and exclusion list, and enhance its human rights due diligence processes which should have alerted it to the risks associated with funding these companies. 

EIB’s shift towards military financing

At a time when the EU should be aligning its policies with international law and reviewing its funding practices in conflict zones, the EIB has instead chosen to support the military industry financially. Responding to pressure from EU member states, the EIB recently revised its lending policies to "support Europe’s defense production." In May 2024, the EIB’s Board of Directors approved an updated definition of dual-use goods and infrastructure eligible for financing, removing the requirement that dual-use projects derive more than 50% of revenues from civilian use. Additionally, the EIB will facilitate financing for small and medium-sized enterprises (SMEs) in the security and defense industry, including in areas such as research, innovation, cybersecurity and military mobility. 

This commitment to "defense financing" is evident throughout the EIB Group. In June 2023, the EIB expanded its security and defense funding; in January 2024 it launched the Defence Equity Facility to support private investments in European companies; and in July 2024 it partnered with the NATO Innovation Fund to expand funding for defense and security start-ups, SMEs and midcaps. The Security and Defence Office, operational since 1 May 2024, now offers EIB support for European businesses and innovators with projects that "keep Europe safe." The EIB Group’s new strategic priorities for 2024-2027, devised without public consultations, prioritize increased public investments in Europe’s security and defense industry.

While the EIB’s policy shift towards financing defense projects is aimed at bolstering Europe’s defense, it affects international dynamics due to the global operations of defense companies, which often supply military equipment and technology worldwide. Despite concerns about a development financial institution (DFI) funding military projects and the fact that investments in ammunition, weapons and military equipment cause harm, the EIB maintains that it will uphold the "highest environmental, social and governance standards."  Like other DFIs, the EIB has standards committing it to sustainable and inclusive development, and principles that limit its financing to projects that respect human rights, restricting it from financing projects that "give rise to conflicts or intensify existing conflicts." Other multilateral development banks have bans on weapons financing since it has historically been seen at odds with the development mandates of these institutions.

These principles stand in contrast to the change in policy, and to EIB’s investments in companies supplying military weapons to Israel, raising questions: Why is the EIB investing in military projects when other development banks have an express prohibition against this? How can the EIB claim that it will meet its own standards and principles in future investments in the military industry, when its current investments may make it complicit in human rights violations? How will communities harmed by this policy change be able to seek accountability for harm caused by military investments? 

Despite the EIB’s claims of upholding high standards, it is not  ready to be accountable for the impacts of its military financing. Even within its core development mandate–such as infrastructure and energy projects–communities have filed numerous complaints to the EIB’s independent accountability mechanism. These complaints highlight significant issues, including a lack of due diligence (44% of complaints), environmental harm (40%), and physical and/or economic displacement (32%) [See Figure 1]. Furthermore, communities have raised allegations of violence related to past EIB-funded projects. Given this track record, funding weapons is likely to directly contribute to further harm and violence. 

As such, the EIB should reverse its expansion of lending to the defense industry and redirect its resources to projects that are environmentally and socially beneficial, addressing public needs and development objectives. 

EIB's contribution to unlawful Israeli policies and practices

The ICJ's July 2024 advisory opinion examined Israel’s actions in the West Bank, East Jerusalem and Gaza, uncovering multiple violations of international law. It concluded that Israel’s occupation of Palestine and the establishment and expansion of settlements in the OPT are unlawful. The opinion also highlighted Israel’s excessive exploitation of natural resources in the OPT, which breaches the Hague Regulations and violates the Palestinian people’s right to sovereignty over their resources. 

Although the EIB asserts that its financing contracts exclude projects that support illegal Israeli settlements and adhere to the EU Guidelines regarding the OPT, a closer look at EIB’s investments in Israel tells a different story. In light of the ICJ’s findings, the EIB’s investments in Israel must be thoroughly reviewed. Enhanced due diligence is essential to ensure these investments are not masking harm to communities or the environment. 

EIB’s role in water control and conflict 

Since the 1980s, the EIB has provided over €2.3 billion in loans to Israel, often labeled as green investments. However, these projects frequently support human rights abuses and environmental harm under the guise of sustainability. For example, the EIB funded a number of Israel’s desalination plants, two of which were financed recently in December 2023 and April 2024. In discussing these investments, a former EIB president noted that "Israelis know that water scarcity can easily lead to new conflicts. They want to develop greater desalination capacity so that they can potentially trade water for clean energy." While these projects may address water security for Israel, they obscure policies that restrict Palestinian access to water, and may support illegal settlements and resource exploitation.

The Mekorot Ashdod desalination plant, financed by the EIB in December 2011, exemplifies this issue. While the plant may not fall within the OPT, enhanced due diligence should have alerted the EIB that this project would support illegal Israeli settlements due to its link to a problematic actor. For years, Amnesty International and other organizations have reported on the human rights violations committed by Israel's state-owned water company, Mekorot. The company systematically drills wells and taps springs in the occupied West Bank to supply water to Israeli settlements, while restricting Palestinian access. This forces Palestinians to rely on expensive trucked water. The ICJ noted in its July 2024 opinion that Israel has exploited natural resources on Palestinian land since the beginning of its occupation, transferring authority over water resources to Mekorot. 

Investing in Israel’s water infrastructure, such as desalination plants, can indirectly support Israel’s violations against Palestinians. A 2017 Amnesty International report highlights that while Israel continues to develop its own water infrastructure and network for the use of Israelis and settlers in the OPT, it restricts Palestinian access to water--a policy the ICJ found to be used to forcibly displace Palestinians. By funding Israeli desalination projects, the EIB may be supporting discriminatory policies and distribution practices, resulting in Israeli water consumption being at least four times that of Palestinians in the OPT. Additionally, this water infrastructure may support illegal settlements or be used to irrigate unauthorized agricultural land in the OPT, furthering Palestinian loss of land and reinforcing Israel’s unlawful control over these areas. 

International funding from the EIB can also lend legitimacy to Israeli water management policies that result in human rights violations against Palestinians. Israel’s restrictive measures on Palestinians’ access to water are longstanding. Military Order No. 158, implemented in 1967, requires Israeli approval for Palestinians to drill new wells – approval that is almost impossible to obtain. Additionally, Israeli authorities consider rainwater to be state property, preventing Palestinians from collecting it – a policy that further restricts access to water, in violation of international humanitarian law. 

By damaging Palestinian water infrastructure, including through bombing desalination plants, water reservoirs and water wells in Gaza, Israel leaves Palestinians facing extreme water shortages. Israel’s control over Gaza’s water extends to the repair and maintenance of bombed water infrastructure, requiring Israeli approval for materials allowed to enter the besieged territory. This control led to Gaza’s own desalination plant shutting down in October 2023, as a result of Israel stopping fuel from entering Gaza. Today, amidst the ongoing bombing and blockade, clean water is unavailable in Gaza. 

The EIB should also consider whether its support of ‘green’ projects within Israel effectively obscures environmental crimes committed by Israel. At the same time that the EIB is investing in a project promoting cooperation between Israel and the EU in reducing water pollution, Israel’s destruction of waste management facilities in Gaza has led the UN Environment Programme to estimate that at least 100,000 cubic meters of sewage and wastewater are being dumped daily onto land or into the Mediterranean Sea. Solid waste is being dumped where hazardous substances can leach into the soil and aquifer. When considering loans to Israel, the EIB must keep in mind the potential for projects to obscure violations of human and environmental rights. 

EIB’s role in illegal Israeli settlement expansion

Despite the EU’s stance that Israeli settlements in the OPT are "illegal under international law [and] constitute an obstacle to peace" the EIB continues to fund projects with contractors complicit in expanding or benefiting from illegal settlements. This underscores systemic issues within the EIB, reflecting a disregard for international law and human rights standards. 

A notable example is the EIB’s recent approval of €250 million for the Tel Aviv Green Line light rail project. This project involves contractors like Alstom S.A. and Electra Ltd., both listed in the UN database for companies benefiting from Israel’s illegal settlements (UN database). By funding these companies, the EIB is actively contributing to the normalization and permanence of the settlements in the West Bank, contrary to the EU and international law stance, and arguably makes itself complicit in these violations of international law. 

The EIB has also considered financing the Great Sea Interconnector (formerly known as the EuroAsia Interconnector), a submarine power cable connecting Greece, Cyprus, and Israel. This project plans to link up with both Israel and its illegal settlements in the West Bank, entangling it in yet another project that could make the EIB complicit in Israeli breaches of international law. 

Beyond direct loans, the EIB has funded Israeli banks that are complicit in illegal Israeli settlement expansion. For example, in February 2023, the EIB signed a strategic cooperation agreement with Bank Leumi, providing it with a €500 million credit line, despite Bank Leumi being listed on the UN database for its direct involvement in the development, expansion, and maintenance of illegal Israeli settlements. This is not the first instance; in 2006, the EIB also funded Bank Hapoalim, another bank complicit in Israel’s illegal settlement expansion. 

For an institution claiming to uphold the highest environmental, social, and governance standards in its spending, even a simple Google search would have alerted the EIB that this funding could make it complicit in a violation of Article 49 of the Fourth Geneva Convention. The EIB’s indirect support for illegal Israeli settlements through these financial intermediaries highlights a significant policy inconsistency and a troubling lack of human rights due diligence. 

EIB must prioritize human rights in its financing practices

The EIB’s financial support for companies involved in funding weapons in Gaza, its investments in projects and actors supporting Israel’s illegal settlements and discriminatory policies, and its shift towards financing defense projects suggests systemic issues in its investment practices. This calls for a thorough review and overhaul of its portfolio, policies, and processes, to urgently align its operations with international law. Without addressing these issues, the EIB risks perpetuating harm and future complicity in human rights violations. 

Twenty-two civil society organizations, including Accountability Counsel, have urged the EIB to align its financing practices with its human rights obligations by taking the following actions. 

• 1. Review its financing portfolio to Israel: Address potential human rights impacts highlighted by the recent ICJ findings and international law.
  
  
  • Evaluate and suspend projects in Israel if there is a risk of complicity in international law violations, fragmentation of the OPT, or displacement of Palestinian communities.
    
    
  • Divest from companies involved in illegal activities, including those selling military equipment to Israel, and companies that benefit or support settlement construction, security operations, or resource exploitation in the OPT.
    
    
• 2. Reassess lending to Israel: Ensure all financing is compliant with international law by:
  
  
  • Strengthening enhanced human rights due diligence processes.
    
    
  • Implementing regular audits of existing investments to ensure compliance.
    
    
  • Creating and implementing a comprehensive divestment policy to align EIB investments with international law and standards. 
    
    
• 3. Revise defense industry funding: Reverse the expansion of lending to the defense industry and redirect resources to projects that are environmentally and socially beneficial, addressing public needs and development objectives. 

As the world’s largest multilateral financial institution, the EIB must prioritize transparency, accountability, and adherence to international laws and standards. By ceasing funding that perpetuates injustices, the EIB can play a transformative role in sustainable development. Failure to act risks tarnishing the EIB’s credibility and undermining its mission to promote economic development through responsible financing practices.  

ENDNOTES

* According to a study from the Lancet, it is "not implausible to estimate that up to 186,000 or even more deaths could be attributable to the current conflict in Gaza", being 7.9% of Gaza’s total population.