A new private sector
In his recent annual letter to CEOs, Larry Fink, the founder and CEO of the investment firm BlackRock, called on companies to incorporate both profit and purpose into their business strategies. “Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.”
Coming from the world’s largest institutional investor, this message deepens a transformation already underway in today’s private sector. Companies are realizing that staying competitive and growing now and in the future means looking beyond short-term gains and towards addressing salient social and environmental challenges that affect both their business and society. This also means measuring success in terms of both financial and social returns and looking at value creation through a different lens.
As the corporate world is refocusing its value creation lens, IDB Invest has undergone a transformation of its own. While promoting economic growth and social inclusion have always been at the core of our private sector work, our recent rebranding has provided a prime opportunity to rethink how we can best achieve these institutional objectives and meet the evolving needs of the private sector in Latin America and the Caribbean. This has involved realigning our vision and core values around being client focused, agile, and flexible in our product offerings. And, IDB Invest aims to add value beyond financing, helping our clients to become more competitive, resilient, and sustainable.
Our Development Effectiveness Framework
This notion of adding value beyond financing is the cornerstone of IDB Invest’s reinforced Development Effectiveness Framework, an innovative and comprehensive approach that stands out in the development finance arena.
Achieving development impact requires both the selection of investments that are likely to yield results in priority areas (such as climate change or gender equality), as well as the effective design, execution and evaluation of these investments. Therefore, our framework includes tools to support the investment process from beginning to end, such as a strategic selectivity toolkit with the latest information on sector priorities, instruments to support operation design and monitoring, systems to assess portfolio evolution, and various evaluation approaches, as illustrated below (see our 2016 Development Effectiveness Overview for more details):
Above all, we place an explicit focus on capturing and disseminating knowledge from our projects throughout their lifespans and feeding learning back into the operational cycle, as well as directly to clients who can benefit from our portfolio analyses and insights on a sector and industry trends. This framework not only responds to the need to transparently report to IDB Invest’s stakeholders, but also generates added value through experience-based learning.
Development effectiveness in action
Some investments in our portfolio are selected to pursue deeper learning opportunities through innovation testing. Typically, this is to determine whether a new product or idea is effective and whether it can be improved, replicated or scaled up. This is how we can maximize the value of the knowledge being generated, to the benefit of our partners and clients.
For example, in Ecuador, we are working together with our client Oleana and with Precision Agriculture for Development (PAD) to explore how information and communication technologies can be incorporated into the technical assistance services the company provides to small palm oil producers in order to scale these services more efficiently throughout the value chain and help increase productivity and the adoption of the highest environmental standards.
Data analytics is another way to assess our operations when working with clients. For example, we are collaborating with Waze to layer their real-time data on road incidents and traffic reported by drivers through the app with data from our infrastructure sector clients to better understand the impacts of urban transport investments on road safety and urban mobility.
Understanding the transformational impacts of large investments is also part of our knowledge generation activities. We are currently evaluating the impacts of the Panama Canal expansion, making use of rich historical country-level data on economic activity and private sector investments. Our findings highlight the important catalytic effects that large infrastructure projects can have in the region.
Finally, together with the Multilateral Investment Fund (MIF) and the World Bank, we carried out an evaluation of an alternative credit scoring tool developed by the Entrepreneurial Finance Lab (EFL), and implemented by one of our clients in Peru. Essentially, the results helped us to understand under what circumstances the tool was most effective in determining the creditworthiness of small and medium entrepreneurs, and served to guide the local bank’s application of psychometric screening tools moving forward.
Efforts such as these, coupled with an ongoing drive to strengthen the learning continuum from project approval to supervision, will help to propel IDB Invest forward as a responsive knowledge-based organization that can help our clients respond to this increasingly loud call for action around integrating a purpose focus into their business strategies.
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