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Philanthropy and Social Investment in Financing for Development – A “Trust Mechanism” for Longer Term Development Success

4 May

Editor’s Note:  This piece from journalist Lia Petridis Maiello explores some of the hopeful and difficult conversations taking place at UN Headquarters on Financing for Development. How and how much to engage private sector investment in fulfillment of Sustainable Development Goals? How should such investment be regulated?  As Lia knows, getting this right has implications for trust across UN policy sectors, including core peace and security concerns. 

In 2013, I went to the annual World Leadership Forum, organized by the Foreign Policy Association in New York City, and witnessed a rapprochement of political interest from the private sector into matters of sustainable development and climate change.  This was still somewhat of a novel endeavor at the time, despite  a high level, inter-sessional meeting on the business case for sustainable development convened by the United Nations in 2012.

Today, as a result in part of enhanced, global media coverage which enabled that novel dialogue to permeate beyond expert circles, the subject at hand has less of an exotic, and more of a common sense character. “The role of philanthropy and social investors in financing for development,” was discussed recently at the United Nations, describing new as well as approved ways to involve private capital in financing the global, multi-stakeholder, sustainable development mission. All parties involved seemed to labor under the apprehension that the level of available resources, as well as the level of cooperation is currently still far from sufficient to meet the investment needs for achieving sustainable development.

Going in, Ambassador Sebastiano Cardi, current Chair of the Second Committee and the Permanent Representative of Italy to the UN promised “concrete ideas by the end of this meeting,” which turned out to be more than a catchphrase.

“Impact investment” is experiencing a renaissance in the context of sustainable development as a form of investment with a social conscience–the “beneficial social impact, alongside a financial return.” These are practices that firms such as Rockefeller & Co. have been successfully carrying out since the 1970s, and that are now growing in global significance. While resources for development are shrinking, the world’s population is growing and so are seemingly the needs and desires of consumers in the developed, as well as the developing world. The Forum for Sustainable and Responsible Investment (USSIF) in its 2014 Report on US Sustainable, Responsible and Impact Investing Trends, noted that nearly $7 trillion in U.S.-domiciled assets employ at least one socially-responsible investment (SRI) strategy. This represents a 40 percent increase from $3.7 trillion in 2012. These SRI strategies include: incorporating environmental, social and governance (ESG) factors into investment decision making; shareholder advocacy; direct investing for measurable impact; or some combination of strategies.

While the emphasis on private capital as an additional means of financing sustainable development was mentioned by all speakers at the event, most of them also pointed out that the (often larger) stream of public money available for development needs to remain constant, if not increase.  Moreover, government must cultivate and/or retain its financial oversight responsibilities.

Mirza Jahani, CEO of the Aga Khan Foundation, USA, explained how his organization impacts the development of a fragile state – Afghanistan — with a combination of social and economic initiatives. While the country is clearly “lacking sustainability,” according to Jahani, “we created an investment vehicle, a fund of about $30 million, and we are persuading investors to forego a portion of their profits to support a trust mechanism for longer term development.” Jahani described these people as investors who are “also in it for social returns.” USAID for example, contributed $7.5 million and is thereby encouraging other investors.

The need for a stronger focus on collaboration with local governments and the “focus on what governments can’t achieve by themselves” was acknowledged by Don Chen, Director of the Ford Foundation. “The foundations love to talk to each other, but there is a need to align with government priorities.”

How the foundation, Fundacion Mario Santo Domingo, bankrolls affordable housing through micro financing in the urban areas of Colombia, was explained by Director Juan Carlos Franco Villegas. “Seventy six percent of Colombians live in urban areas, but affordable housing is not really doing the developing work.  We intend to move from communal development to real estate development to be able to build prosperous communities.” He counts over 35 public/private alliances in Colombia but also reports the need for a lot more “social trust building.”

There are many names that could be ascribed to this movement: “investment banking with a soul,” as Frederic Sicre, Managing Director of Abraaj Group suggested at the UN; “the invisible heart of markets,” as UK Prime Minister David Cameron calls his taskforce for impact investment; or simply “the will to invest in good causes for profit.” The growing understanding of the urgent need to create private/public initiatives with both proper oversight and high financial leverage for the greater global good is a most hopeful development.

Lia Petridis Maiello