Both the magnitude and the composition of capital flows from rich to poor countries have changed markedly over the past decade. While official flows have stagnated, private flows have mushroomed and portfolio investment and bank lending have grown more rapidly than foreign direct investment (FDI), though with much higher volatility. Given the impact of investment decisions on patterns of resource use (including the environment), what are the implications of these trends?

A bricks–and–mortar investment by a multinational corporation (MNC) requires consideration of environmental impacts in a way that neither a bank loan nor portfolio investment does. The evidence suggests that foreign direct investment (FDI), especially by large MNCs, is not concentrated in “dirty” industries, and where it does go into such sectors environmental performance of MNCs is usually above local standards. For smaller OECD investors, reliance on public–sector investment guarantee and insurance agencies can ...