The Millennium Development Goals were formulated, mostly, by UN bureaucrats behind closed doors; not that they necessarily wanted to be secretive, but the public interest was limited. Since the MDGs were agreed, there has been much development progress. But also, the interest in development has expanded enormously. The Sustainable Development Goals agreed at the end of 2015 were formulated in broad consultation. And there are now surveys (MyWorld, Afrobarometer) that show citizens priorities amongst those goals.
The private sector has come to play an important role in this global development practice. As Gerhard Pries, founder and CEO of Sarona Asset Management, mentioned at a public debate in Waterloo on sustainable agriculture, business is no longer seen as a problem, and corporations are increasingly taking responsibility for public goods. While official aid flows have been almost stagnant, private flows have become increasingly important. They come in different forms: philanthropic, remittances, trade and investment, and ‘impact investment’ or ‘inclusive business’.
‘Impact investors’ are among the newest actors in the field. They are not entirely new, but are receiving a lot of attention, in part because the public aid flows remains stagnant – while the estimates of resources needed to achieve the SDGs have increased enormously – and development agencies are increasingly looking to leverage private actors’ efforts and funding. Impact investors (and similarly blended finance), put simply, combine profit motives with a desire to have beneficial impacts on environmental and social goals.
How much do we know so far about this new terrain? In a paper that I first presented at ISS in The Hague, I trace the various concepts and their origins. The new practices are making very important contributions: apart from additional finance, they shift the focus of development practice from ‘charitable’ to seeing poor countries citizens as contributors to development. Shared value approaches are an opportunity of infusing business practices with commitment to equality and diversity. Instruments like impact bonds help to strengthen the focus on results.
At the same time, we need to deepen our understanding of this new field, and development studies have a role to play but has not engaged much. It is commonly asserted that the supply of investment is much larger than what can be absorbed: the number of ‘bankable projects’ is generally thought to be limited. Regulatory environments are key in the promotion of inclusive business. Measurement of results is still in its infancy, despite a number of initiatives, and for example what constitutes ‘pro-poor’ products remain inherently difficult to assess. Development agencies need to better understand additionality (and distortive effects), and be able to compare and situate collaboration with business. Finally, while impact investment has a strong focus on ‘emerging markets’, the experience so far suggests that it tends to focus on certain sectors and countries; this brings us back to the question of the role of (pure) public investments, for most marginalized groups in least developed countries.