Following the release of Swedfund’s 2016 Integrated Report outlining the development finance institution’s method of aligning investment with global impact objectives, Jack Aldane spoke to Anna Ryott, Swedfund’s CEO.
What is Swedfund’s strategy for mobilising private capital towards sustainable development in its target regions in 2017/18?
We have three sectors of focus. One is renewable energy, the second one is financial institutions – when we do an investment in a financial institution, we earmark our money in SME lending, because we believe it is here where we can make the most impact – and third, manufacturing services. This can be different depending on what a country needs. We were created in 1979, and through our experience and knowledge we have developed a business model that is closely linked to the sustainable development goals (SDGs) through three pillars. The first is impact on society, for which the number one priority is job creation. We know there is a very strong correlation between creating jobs and reducing poverty, and especially with the first SDG being to eradicate extreme poverty, having more inclusive growth that targets women is extremely important. The second pillar is sustainability. It’s not enough that we create jobs; we must create decent jobs. The third pillar is financially viability, which covers most of the traditional key performance indicators. We go through each of these for each investment to make sure they’re equally measured and equally taken into account.
Could you describe the specific instruments or funds Swedfund is using to reduce risk for investors?
So, we use equity, loans and funds and that’s the way we reduce the risk for investors. We are always minority owners and we always needs to attract other partners to invest with us. Having said that, its not just these three instruments; its also knowing where the gaps in the market are, knowing where there is not enough private capital. One example is looking at renewable energy. In the market right now, when a project is already bankable in some African countries, there is a lot of capital available. Therefore, we’ve decided to invest more in developers and platform structures to make more projects bankable. In this part, there isn’t much private capital. The more development finance institutions that invest this way, the more we can show that this is a business model that is actually financially viable. Then we can attract more private capital. We’re also using technical assistance aligned with the creation of decent jobs, gender equality and climate-friendly investments.
You identify tax revenue generation in developing countries as among several objectives Swedfund aligns with the sustainable development goals. How are you working with governments to achieve this?
I think one of the most important things you can do as a development finance institution is leading by example. When I attended the finance for development conference in Addis Ababa in 2015, two things became very clear. One was that, if we are to succeed to deliver in the SDGs, it is absolutely critical to bring the private sector on board, and that we have to increase tax income in the countries that need it the most to able to deliver on those goals. We have been pushing this point at these types of conference, and have been in good collaboration with civil society organisations. We’ve had a number of different dialogues with civil society organisations, which are really pushing for better reporting on tax by companies in developing countries. We’ve decided that we should be doing land-by-land reporting on tax income, which is a more transparent way of reporting on individual firms in specific countries rather than our portfolio as a whole. That is important because not all organisations are doing that today. So this has helped us to not only push the point, but to show that even if you are fund with a very complex portfolio and are investing in very difficult countries, its possible to do by land-by-land reporting on tax and so others should be doing it.
Swedfund’s 2016 Integrated Report mentions that a development finance institution can treble the amount of financing on a project using the Interact Climate Change Facility created by EDFI, the European Investment Bank and Agence Française du Développement. What examples of this can you share with us?
Yes, we and other European institutions decided to created this common facility into which to pool our resources, both financial and technical, so that when one of us has a good project, we can very quickly attract more capital to it. We’ve done this with many renewable of projects in both Africa and Asia. One example is the Lake Turkana, one of the largest wind farms in Africa, located in Kenya. In these huge types of renewable energy projects, you should of course know that there are a lot of risks and a lot of challenges, so you need long-term capital that can both have that time horizon but also use the knowledge of all the different development finance institutions. At conferences, there is a lot of talk about innovative financing and innovative facilities, but actually this facility, which has been around for a while, is a very efficient way of pooling resources for renewable projects.
How does Swedfund ensure it makes responsible exits from each development project in its target counties?
Ever since the millennium goals and sustainable development goals, we are always trying to push ourselves to develop. I think that, to answer that question, we are much better today at thinking through the exits as thoroughly as when we enter. The three pillar business models ensures we go through everything we wanted to achieve and include the things we decided on in our ESG action plan, but which we also have in our legal agreements with the portfolio companies. We ask whether these things are fulfilled or not, and can we do something with technical assistance if the exit leaves a question hanging. Every time we enter an investment, we always spend a lot of time making sure we have the right partners with us. That’s best done during the exit, when we think about whether the buyer or the partner will be able to continue the work that we’ve been doing. That’s one way of defining a partner that we believe can continue to invest in sustainability.
How successfully have the values of impact investment been communicated to investors in Sweden?
I think that we have having been communicating that more and more, especially in latest our integrated report. What gets measured gets done, and if we are able to show that its possible to do this kind of investment with a good financial return – for each investment in different sectors, not just the total portfolio – and at the same time have a huge impact on the SDGs and with great sustainable, we can attract more companies and institutions. We are part of Team Sweden, created by the Swedish government, whereby all the different actors from the export industries and companies are on one team. On this team, we talk very openly about how we can push the sustainability agenda further.