Guest Blog Post written by Ellen Wheeler during TBLI CONFERENCE™ NORDIC 2015. Views and opinions are that of the writer and are not the official views of TBLI CONFERENCE™.
The Inter American Development Bank (IDB), like many DFIs define its development impact with intentionality. Ellen Wheeler sat down with IDB’s Senior Development Effectiveness Specialist, Maria Kronsteiner, to understand their view of sustainability and impact investing going forward.
How does impact investing play a role in IDB?
With deliberateness in mind, IDB’s impact projects follow a strict mandate and project management process in working with SMEs in Latin America gain long-term investments. Its role is to provide solutions in circumstances where commercial banks cannot support investments due to their risk factor. A continuously growing gap that DFIs, like IDB, aim to fill.
The Inter American Development Bank works through financial intermediaries to support SMEs. Roughly 32-percent of their business is directly with SMEs or larger companies that have values chains with SMEs. Their alternative approach is to provide investors with capital to invest in SMEs, with an understanding that there are certain objectives they have to meet, for example environmental and social impacts. IDB provides support in how to go about mitigating risks. IDB aims to ensure that the initiatives they work with are effective and achieve IDB’s objectives. Targets are put in place to measure performance throughout the project. It is important that the projects, while having an environmental and social impact, are also financially viable.
What about sustainability in your work?
Sustainability is an important aspect of IDB’s work, as they look into long-term sustainable companies, even beyond their financing. In regards to sustainability, the IDB considers a holistic approach, incorporating economic, social and environmental factors. The companies they work with need to adopt certain standards, involving various elements such as employees, and corporate governance. Many of the companies IDB works with such as smaller, family-run businesses need assistance with their business planning and logistics. IDB can support these needs such as helping with succession problems and financial issues. As IDB aim to be long-term partners with such companies, they equip SMEs with tools that will make them investment-attractive for others.
Where do you see sustainability and impact investing heading?
Scaling is the focus in the future. The challenge of this lies in the implementation. Everyone is involved with scaling, but the standards are not so clear. What are the standards and how do companies efficiently scale are two questions that need to be asked. In that sense, the Inter American Development Bank can help due to their role as a development institution. IDB has strong accountability, and uses public money wisely and responsibly. IDB has metrics and measurement systems that allow the organisation to have decision power and act as a mediator.
Challenges of scaling?
There are challenges with scaling, in the sense of combining forces. There is a need to concentrate resources, and not to disperse them. The IDB is under an umbrella organisation, and can co-finance with other financial institutions. They can, for example mitigate political risk given their leverage with governments. Overall, they can help mitigate risk in the private sector.
The needs of scaling are infinite. IDB needs private investors and impact investors to team up with them and provide additional resources, as they have limited financial resources. IDB are looking at what the public priorities are, and while they have the expertise and the network, they need the private sector. There are so many little initiatives, but there is a challenge of how to bring them together. Each initiative is good and complimentary, and the IDB are trying to harmonise them.
Thoughts on the TBLI CONFERENCE™ NORDIC 2015?
The TBLI CONFERENCE has been an interesting experience as it has allowed for a broad overview to be obtained. It is interesting to see how different forces come together, and for the concept of impact investing to spread and be understood from various angles. It’s great to see who is involved, what is the discussion about, what are the topics reveal.