How can responsible private investment contribute to the SDGs?

Photo: CDC. AU Financiers.

 

Emerging markets private equity investment reached its highest level in 2014 since the Financial Crisis, with investors committing $33.75 billion to 1,246 deals compared to $26.77 billion and 1,058 deals a year earlier, according to the Emerging Markets Private Equity Association.  Sub Saharan Africa in particular has attracted record amounts of private investment, attracted by the potential of a young population, a growing middle class and increased macro-economic stability.

The key role of private investment in driving economic growth and job creation is increasingly emphasised by governments and donors.  The Financing for Development Summit, taking place in Addis Ababa in mid-July and aiming to secure the means for implementing the Sustainable Development Goals, highlights the key role of private investment.   At the same time, it also emphasises the need for investors to adopt principles and reporting standards for socially and environmentally responsible business, which includes good health and safety, constructive community relations, preventing pollution, protecting workers rights and biodiversity, preventing and fighting corruption, illicit financial flows and tax evasion.

As CDC, the UK development finance institution and among the largest players in emerging markets private equity, launches its updated ESG Toolkit for Fund Managers, this online series will examine how improvements in responsible investment practice can improve business performance and development outcomes. 

Key questions to address include:

  

1. How can responsible investment practice contribute to improved business performance in developing countries?

 

2. Where are we seeing the most progress in managing environmental, social and governance issues in developing countries, and where do the greatest barriers remain?

 

3. How can the adoption of responsible business practices in developing countries amongst local firms improve their competitiveness and opportunities to access global supply chains; and how can large companies play a role in supporting local firms to improve ESG performance?

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Thanks Jim.  Where can people find out more?

Jim Turnbull said:

I have been an international development consultant for over 40 years, working worldwide on donor funded projects and for the  private sector. In 2008/09 a group of us realised that an new approach was needed to achieve sustainable enterprise development. We established a company  in the UK in 2009 and raised over half a million pounds in impact investment from 23 private individuals. This has been invested  in a social enterprise in Transylvania, but our approach could  be replicated anywhere in the world. Our enterprise is small, in the so called missing middle and unsuitable for institutional funding, we are small with only eight employees but the largest employer  in town. We sustainably wild harvest from the forests and have over 1000 of the poorest members  of the community collecting - our social impact is considerable.

It would  be a great help if institutional  lending could somehow support pump priming activities in this area of the missing middle - which is where many of the opportunities to address the Sustainable Development Goals can be found.

Jim Turnbull, CEO, Food Development Company Ltd

 

Welcome, Andrew! It would be great if you could share any relevant resources that ICC has put together on this topic.

Andrew Wilson said:

Hi everyone, I'm Andrew Wilson from the International Chamber of Commerce. ICC is the world's largest business association with more than 6.5 million members in 130 countries. We work to promote open markets and responsible business conduct through a mix of advocacy and stand-setting activities. Our members include many of the world's biggest companies through to SMEs and local business associations. 

I'm really looking forward to today's discussion and sorry to be a bit late joining-- we've had a few IT problems!!

It's vital that investors send the right signal to companies  - that they recognise its in their long term economic interests for returns on investment.

The 'how' part lies around demanding a level of accountability & transparency - asking how their businesses are contributing to the SDGs.

To give a bit of colour to my previous comment. An example from among CDC’s investments is Vlisco, a company which designs, manufactures, distributes fabrics across West Africa, has made a strategic decision to build a sustainable and localised supply chain, with good labour and health and safety standards. On the business side – this has improved its operational efficiency and reduced costs. On the development side – there has been a positive effect on local communities as the company has provided employment opportunities to underprivileged women and delivered training to local communities.

 
Dr Sam Lacey said:

There is growing evidence across industry sectors that when environmental, social and governance aspects are proactively managed by a business, they generate opportunities to improve business performance. This of course benefits both the business itself, and also in time, the investor.

 

There are opportunities for improved business performance in a range of different areas of environmental, social and governance. Examples include: improvements in labour practices – if you treat employees well, protect their safety, improve their livelihoods and economic well-being, you have a more productive and committed workforce. Other examples are efficient use of resources, e.g. energy and water use or reducing the cost of doing business, e.g. by eliminating bribes and facilitation payments



Zahid Torres-Rahman said:

Ok - let's kick off with the first question:

Question 1: How can responsible investment practice contribute to improved business performance in developing countries?

Responsible investment requires strong ethical approach to business and this  is in fact the only way to succeed where corrupt practices might  be the norm - setting an example and building a professional relationship with the authorities.

Social and environmental considerations are really at the core of best business pracice

Peter - I agree with your comment regarding the SDGs. However, what is your view on where we have got to on Financing for Development agenda with the conference in Addis next week. In your view is the outcome doc going to create the kind of change to financial markets that ensures that capital is directed to sustainable activity and away from unsustainable? If not (which I think is the view of many) - what systemic changes would you be advocating for?

Thanks

Mike

Peter McAllister said:

I'm Peter McAllister, Executive Director at the Ethical Trading Initiative (ETI), a leading alliance of companies, trade unions and NGOs that promotes respect for workers' rights around the globe.
To open, my interest lies in the way the the SDGs have moved us on from the MDGs by recognising the value of economic growth and the role of business.

Hi everyone.  Caroline Rees here from Shift.  We're a non-profit organization and experts in the UN Guiding Principles on Business and Human Rights.  We work with companies, governments and civil society to put the Guiding Principles into practice.

So we focus on the people part - the most acute environmental, social or economic impacts that companies can have on people through their operations and value chain.  And of course for businesses understanding these risks to people and managing them effectively is central to contributing to the SDGs.  It's of limited benefit for companies to pursue social investment or philanthropy to advance development if their core operations are - often unwittingly - having the opposite effective.  

Investors have a key role to play in bringing this holistic understanding to companies.  More on that shortly.  I'm happy to join the conversation!

We completely agree Peter. Investors can play a number of roles. There is a place for hands on investors to roll up their sleeves to help willing companies to improve their environmental and social performance, even if from an initially low base. There is also a place for large investors who do not want to "get their hands dirty" to screen out the worst performing companies to send a signal to the market that bad E&S performance makes it harder to attract capital.
 
Peter McAllister said:

It's vital that investors send the right signal to companies  - that they recognise its in their long term economic interests for returns on investment.

The 'how' part lies around demanding a level of accountability & transparency - asking how their businesses are contributing to the SDGs.

Thanks for joining, Caroline.  Please do share any reports or other toolkits that you think could be helpful to those participating in this discussion.

Caroline Rees said:

Hi everyone.  Caroline Rees here from Shift.  We're a non-profit organization and experts in the UN Guiding Principles on Business and Human Rights.  We work with companies, governments and civil society to put the Guiding Principles into practice.

So we focus on the people part - the most acute environmental, social or economic impacts that companies can have on people through their operations and value chain.  And of course for businesses understanding these risks to people and managing them effectively is central to contributing to the SDGs.  It's of limited benefit for companies to pursue social investment or philanthropy to advance development if their core operations are - often unwittingly - having the opposite effective.  

Investors have a key role to play in bringing this holistic understanding to companies.  More on that shortly.  I'm happy to join the conversation!

That's a great example, Sam.  It shows how respect for human rights is a key part of the picture and supports both development and successful business.  We did research looking at the costs to extractive companies of conflict with the communities round their operations.  The figures are quite impressive once you start to understand how many costs arise when you get these relationships wrong - security, senior staff time, permitting, operations disruption, opportunity costs and so forth.  One major company worked out it had lost $6.5billion over two years.  So getting this stuff right - and paying a bit up front to do so - really pays

Dr Sam Lacey said:

To give a bit of colour to my previous comment. An example from among CDC’s investments is Vlisco, a company which designs, manufactures, distributes fabrics across West Africa, has made a strategic decision to build a sustainable and localised supply chain, with good labour and health and safety standards. On the business side – this has improved its operational efficiency and reduced costs. On the development side – there has been a positive effect on local communities as the company has provided employment opportunities to underprivileged women and delivered training to local communities.

 
Dr Sam Lacey said:

There is growing evidence across industry sectors that when environmental, social and governance aspects are proactively managed by a business, they generate opportunities to improve business performance. This of course benefits both the business itself, and also in time, the investor.

 

There are opportunities for improved business performance in a range of different areas of environmental, social and governance. Examples include: improvements in labour practices – if you treat employees well, protect their safety, improve their livelihoods and economic well-being, you have a more productive and committed workforce. Other examples are efficient use of resources, e.g. energy and water use or reducing the cost of doing business, e.g. by eliminating bribes and facilitation payments



Zahid Torres-Rahman said:

Ok - let's kick off with the first question:

Question 1: How can responsible investment practice contribute to improved business performance in developing countries?

Ok - let's move on to question 2:

Question 2: Where are we seeing the most progress in managing environmental, social and governance issues in developing countries, and where do the greatest barriers remain?

Peter and Sam - completely agree. How though do we go about doing this at greater scale? Where are the levers and pressure points in the system which will beging to bring this about at scale? There's lots of initiatives - PRI, sustainable stock exchange initiative, UNEP FI etc  - which of these - or all  - or none should we be backing??? Thanks, Mike

Dr Sam Lacey said:

We completely agree Peter. Investors can play a number of roles. There is a place for hands on investors to roll up their sleeves to help willing companies to improve their environmental and social performance, even if from an initially low base. There is also a place for large investors who do not want to "get their hands dirty" to screen out the worst performing companies to send a signal to the market that bad E&S performance makes it harder to attract capital.
 
Peter McAllister said:

It's vital that investors send the right signal to companies  - that they recognise its in their long term economic interests for returns on investment.

The 'how' part lies around demanding a level of accountability & transparency - asking how their businesses are contributing to the SDGs.

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