DEVELOPMENT IMPACT

    IFU IS DRIVING CHANGE

    By providing risk capital to commercially viable companies, IFU is driving the change towards more sustainable societies

    Development aid cannot stand alone. In order to create sustainable societies in the developing world, private capital and investments are vital. This is also the conclusion in the new Sustainable Development Goals (SDGs) set forward by the UN to end poverty, fight inequality and injustice, and tackle climate change by 2030.

    IFU is addressing the effect on society in all projects and only if a project is deemed commercially viable and has a positive development impact, we decide to enter.

    Creating jobs and paying taxes

    Commercial viability secures that the business is making a profit on invested capital and can continue to operate; creating jobs, producing important goods and services and paying taxes to society.

    The spin-off is increased income for workers, transfer of knowledge, company sponsored employee training, interaction with local business as well as funding for the public sector in the host country, which can be used for education, healthcare and investments in e.g. important infrastructure.

    Aktivitetshjul

    HOW IFU MEASURES DEVELOPMENT IMPACT

    IFU considers a project's development impact in all investment decisions, as well as in the annual monitoring and final evaluation reports

    IFU has tracked the development impact of its investments since 2002. This approach has most recently been updated after a review of IFU’s work with development impact in 2015. The new approach has been labelled as IFU’s Development Impact Model (DIM).

    The DIM will enhance IFU’s ability to track the development impact of its investments. It will help track IFU’s contribution to the new global Sustainable Development Goals, adopted by the United Nations in 2015. It will also help track outcomes that are particularly relevant for the new funds where IFU is fund manager, in particular the Danish Climate Investment Fund (DCIF) and the Danish Agribusiness Fund (DAF).

    With the DIM, IFU will continue to track selected development outcomes and strategic indicators:

    Development outcome indicators:

    • General outcomes: indicators that track outcomes related to employment and tax contributions across all projects
    • Sector-specific outcomes: indicators that track outcomes that are specific to projects in selected sectors (climate, energy, agribusiness, microfinance)

    IFU strategic indicators:

    • Additionality: tracks whether the project addresses underserved geographies and gaps in technology and skills, and whether IFU makes a special contribution to project development and governance
    • Catalytic effect: tracks IFU’s success in mobilising capital from other investors
    • Project sustainability: tracks the project’s commercial sustainability and the application of responsible business practices

    An overview of all the DIM indicators can be found in the download box to the right together with our updated rating methodology.

    All projects must track all general outcomes and IFU strategic indicators. Only projects in selected sectors are required to track sector-specific outcome indicators. Data collection is typically required ex-ante, actual annual and ex-post.

    IFU INVESTMENTS SUPPORT THE SUSTAINABLE DEVELOPMENT GOALS

    IFU's mission is in line with the Sustainable Development Goals (SDGs) as set forward by the UN General Assembly in 2015

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    When IFU invests in sustainable development in developing countries through public-private partnerships (Goal 17), we are supporting the achievement of a range of the SDGs. Creating jobs and economic growth help to end poverty (Goal 1+8), investing in agricultural projects reduces hunger (Goal 2) and erecting wind farms and producing solar energy reduce CO2 emissions (Goal 7).

    Moreover, IFU’s investments have a positive direct and indirect impact on a number of the other SDGs.

    Below you can read more about how IFU’s investments support specific SDGs.

    Employment alleviates poverty

    One of the most important development effects is employment because it provides opportunities for people to escape poverty and improve their standard of living by increasing their earnings, giving them higher purchasing power and the possibility to invest in their future.

    In each project, IFU estimates the expected direct employment effect. When a project becomes operational, it has to report its actual number of employees to IFU on an annual basis until IFU exits the project.

    Direct employment is only part of the development effect. According to UN research, every direct job created creates one or
    two additional jobs – for instance in local supply chains or with service companies.

    Counting both direct or indirect jobs, projects under IFU and IFU managed funds have in total contributed to creating and preserving
    close to 570,000 jobs in developing countries.

    Investments create economic growth

    IFU projects also benefit the economy in host countries by implementing new technology, training employees and paying taxes.

    New technology implemented

    Transfer of technology plays an important role for developing economies. Implementing modern technology helps enable developing countries to create more advanced products and services. It makes the countries more competitive and cost efficient, which also leads to higher incomes for individuals, companies and society.

    Implementing modern technology will normally also benefit the environment, because it is less polluting and more energy efficient.

    Training enhances skills

    In countries where formal vocational education is scarce, company-
    sponsored employee training is essential. This will contribute to boost the general level of education and enhance the skills of people in poor countries. Consequently, people receiving such training will be better qualified and more employable in the labour market.

    Sound business pays taxes

    IFU and IFU managed funds only invest in project companies presumed
    to be economically viable. In most cases, the companies succeed in creating positive revenue, which is a condition for having a lasting development impact in relation to, for instance, securing and increasing the number of jobs, buying from sub-suppliers, and not least, paying taxes in the host countries.

    Since 2013, IFU has collected information on corporate taxes reported by the projects in the active portfolio. These figures do not include taxes paid by employees and VAT.

    In 2015, IFU project companies paid DKK 372m in taxes to host countries.

    Greenfield projects have a high impact

    The vast majority of investments under IFU and IFU managed funds are so-called greenfield projects. These types of projects are
    often seen as having the highest development impact because they introduce new business into the host country.

    On the other hand, greenfield projects normally involve higher risk, making it essential to obtain risk sharing and co-investments
    from external institutions like IFU when setting up such projects.

    Climate investments reduce greenhouse gas emissions

    The Danish Climate Investment Fund (DCIF) invests in projects that reduce greenhouse gas emissions.Development-goals-7-13

    The aim of DCIF is to reduce CO2 emissions in developing countries and emerging markets.

    Read more about the DCIF here.

    New agribusiness fund to combat hunger

    For several years, IFU has invested in agribusiness projects in developingDevelopment-goal-02 countries. In early 2016, IFU launched a new agribusiness fund that will invest in agribusiness projects along the entire value chain from farm to fork.

    In the coming years, IFU will report on the development effects related to these investments.

    Read more about the Danish Agribusiness Fund here.