Maximizing the impact of sustainable development investment
Sustainable development assumes long-term well-being, without compromising resources for future generations. The concept urges thinking about balanced development, ensuring economic, social and environmental progress. The implementation of this concept in the business world began with the 1992 Earth Summit in Rio de Janeiro.
Shortly thereafter, the World Business Council for Sustainable Development was created, which proposed the concepts of eco-efficiency, so that what was already called sustainable development would have a business viewpoint. Twenty years have passed since the Earth Summit and still we often find that investment and financing are sharply divorced from the concept of sustainable development.
In February 2018, various IDB Invest colleagues sought the best way to bring together the experience and knowledge of the IDB Group as an instrument within the reach of the private sector in Latin America and the Caribbean; we were therefore seeking to incorporate sustainability in investment decisions.
A project would thus require specific goals:
- Increasing responsible private sector investment on a sustained basis, envisioning the strong transformative effect of private investment for achieving the Millennium Development Goals (SDGs). We put particular emphasis on the results of climate change and inclusion, and in 2018, in line with our climate financing goal, 18 percent of IDB Invest approvals were channeled to climate financing, amounting to more than US$700 million.
- Increasing the additionality and impact of the financing we provide in the region, helping investment teams to introduce relevant sustainability aspects in our value propositions for entrepreneurs. We maintained a pragmatic approach to add value to the results of businesses, increasing their competitiveness and profitability. This allowed our development impact indicator in financial operations, supported with advisory services, to reach a record median value of 9.2.
- Ensuring the viability of advisory services that will make it possible to package and deliver the knowledge and experience of the IDB Group with establishing principles, processes and practices in the search for sustainable business. In this way, capacity was created in the human and institutional capital of private enterprises belonging to the banking, corporate and SME sectors, among both mid- and high-level executive and management staff. Twenty-five percent of all our transactions included the delivery of advisory services, therefore maximizing the added value for the region’s private sector.
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Discussing sustainability and private investment
In 2018 we also began discussions with corporations and mid-sized companies in various fields like agribusiness, energy, infrastructure, technology and financial systems, among others. We found that entrepreneurs in Latin America and the Caribbean are not only interested but eager to invest responsibly. Nonetheless, there is a gap in understanding of how to apply the SDGs, particularly sustainability, climate change mitigation and adaptation, inclusion and gender equality – among others – in daily business operations and how the SDGs should be targeted to produce a direct impact on better business outcomes.
The use of appropriate business language and aligning sustainability with business outcomes have been vitally important for communicating our experience and knowledge, as well as supporting our clients in increasing the impact of their operations when receiving our financing. We have established more than 32 new agreements for the provision of advisory services to corporations and financial institutions in an equal number of new projects where IDB Invest provides Advisory Services, which generate additional value in our financing operations. The subjects vary but they have in common support for improving profitability and competitiveness while maximizing impact by aligning ourselves with the SDGs and climate change mitigation and adaptation goals.
Some of our Advisory Services include:
- Maximizing gender inclusion and scaling up financial programs for women-led businesses, while we create sustainability and climate change mitigation approaches. In 2018, we initiated two new projects using this approach.
- Designing and scaling up financing for sustainability, climate change mitigation and adaptation, including the management of new climate change-related risks, in sectors like efficient social housing, sustainable SMEs, value chains with corporate anchor companies and SME suppliers, financing of corporate energy efficiency programs, sustainable cities, and others. We established 32 advisory services projects in an equal number of transactions.
- Innovating in financial instruments for sustainability and climate financing, both in debt financing, and in capital funds, capital market issues of sustainable bonds aligned with the SDGs, thus breaking the innovation frontier in sustainability financing. To achieve this, we established three new advisory services projects to build experience and capacities in the frameworks and certificates necessary in transactions of this kind in the region’s private sector.
- Finally, creating regional networks that create influence, capacity and dialogue among the region’s business leaders, such as the Think Sustainable Network.
The year 2018 left us with an important series of contributions to the region’s markets and our clients in the private sector. This was achieved by packaging and delivering the IDB Group’s knowledge and experience through our Advisory Services.
The combination of our knowledge and experience with financing, mobilizing and financial instrument structuring capabilities has allowed us to deliver an added value that transcends financial services.■