BANGKOK — A new fund to boost smart affordable housing options in Bangladesh is one of the first major announcements from the UNDP’s SDG Impact Finance initiative — an enterprise that took UNDP’s David Galipeau four years to convince the U.N. it needed.
On the sidelines of the 72nd United Nations General Assembly in New York, U.N. Development Programme chief Achim Steiner and Bangladesh Prime Minister H.E. Sheikh Hasina together unveiled an impact fund that aims to raise $100 million from private investors willing to back housing and other ventures in the country.
The larger initiative that will house the Bangladesh fund can be traced back farther — to a 2013 conversation between Galipeau, now the chief impact officer for U.N. Social Impact Fund, and his hedge fund manager friend, who was looking for higher risk investment opportunities at the time. The talk turned to social enterprises, “and I said the U.N. should create a [venture capital] fund to start investing in these enterprises itself,” Galipeau told Devex. “Everyone laughed at me.”
Still, he took the idea to his bosses — who encouraged him to explore it — and then to the U.N.’s legal team to see it if was viable. The SDG Impact Finance initiative was officially born in November 2016, with the aim to act as a facilitator for venture philanthropists and government stakeholders seeking to identify large-scale investment projects with the potential to include social elements. It now lives under Galipeau’s UNDP team based in Bangkok, where Devex caught up with the fund leader at the CSR Asia Summit.
The past few years — and what has been a long road to realizing the initiative’s existence — have illustrated what Galipeau considers an “educational divide” that separates an organization like the U.N. from the private sector: “Most people in the organization don’t understand what I’m doing because they don’t understand financial markets, they don’t understand investing.”
Despite those doubts, UNDP-UNSIF is moving forward, having already signed a memorandum of understanding with the European Investment Fund to incentivize capital market investments in the SDGs, and inked an MoU on enhancing the economic and social impact of special economic zones in Cambodia.
Now Galipeau is calling on his background in commodity trading and corporate finance — and what he still feels is his “outsider” status at the U.N. — to convince the 97 percent of investors who aren’t yet impact investing to enter the space, and why they should allow UNDP to facilitate the deal. At the same time, he’s busy persuading U.N. colleagues that the private sector is officially in the development driver’s seat.
Galipeau was originally thinking smaller, such as investing in high-potential social enterprises to help them scale. But he’s realized that investing in larger infrastructure projects will allow for longer term secondary investments in social enterprises at the same time.
Public comments at UNGA from those involved were favorable toward the initiative, which Steiner called “a bold leap forward in how to proactively engage capital markets to create positive social impacts.”
Reaz Ahmed Khan, chairman of UNSIF partner Build Bangladesh, called it a “humble beginning of a dream of attracting local and global investors through innovative partnerships” and thanked the UNDP for its “outside the box” thinking.
In reality, the initiative looking to channel capital market investments into hybrid development projects is unpopular within the U.N., Galipeau told Devex. The resistance to his work, he said, “has been incredible.”
“What UNSIF really means to the organization is change, and people are resistant, which I understand because if you have, say, 20 years of doing something a certain way… this represents a lot of change,” he said.
But the U.N. predicts that achieving the SDGs worldwide by 2030 will require an investment of about $3.3 to $4.5 trillion a year, while official development assistance in 2016 amounted to $142.6 billion.
The UNSIF is a direct response to the Addis Ababa Action Agenda, which underscored the importance of aligning private investment with sustainable development — and where everyone “realized they couldn’t afford the SDGs,” Galipeau said.
It is also a response to the rapidly growing trend of using profit-seeking capital to tackle challenges of global sustainability — with nonprofits and even the Catholic Church entering the space alongside traditional investors in recent years.
Vantage Asia Holdings Limited, an investment company headquartered in Beijing, recently invested in Refugee Talent, an Australia-based technology start-up that connects highly skilled refugees in Australia with employment opportunities.
“It’s not our core business, but we do things aligned with our values, things that are socially impactful,” Jason Yat-Sen Li, chairman of Vantage Asia, told Devex at the CSR Asia Summit.
It’s exactly what Galipeau wants to see more of — though he wants to see it start happening in developing nations. He sees UNDP’s role in the space as multifaceted: de-risking the relationships between governments and investors, while also acting as an adviser for wealth managers who don’t yet know “impact.”
Hong Kong investors normally might not trust the environment in Bangladesh, for example, but “if we are partners, it helps to facilitate a lot of FDI to come in,” Galipeau said.
“You get a lot of wealth managers, like UBS, who are getting a lot of demand off their clients’ balance sheets for impact investments,” he said. “When you talk about depth and reach, UNDP is in more than 160 countries … we basically are business intelligence in 160 countries.”
It solves the issue so often at the core of public-private partnerships, Galipeau added: the conflict that can ensue when the profitability driver is on one side of the table, while the public good driver is on the other.
But what the initiative represents more than anything is a shift from project-based development funded by grants to market-based development based on capital markets — a transition perhaps best represented by China’s investments in education, special economic zones, and infrastructure to tackle their urban poverty over the past 30 years.
“I see government simply as impact investors,” Galipeau said. “They have a lot of money and they should be investing for economic growth and social nets, most are just bad at it. And it’s only because they’re stuck in a legacy organizational structure that doesn’t make sense for today’s world.”
Everyone in development is going through something of an identity crisis right now, he added — the U.N. included. But he hopes the organization can let go of an “artificial separation of development and economic growth” and embrace the potential of market-driven development.
“A lot of people think that we should not be ‘getting in bed,’ as they call it, with the private sector,” Galipeau said. “But the problem is, we should all be in bed with everybody. The U.N. is no bigger and better than government, than private sector, than civil society. We should all work together — and to do that we simply have to understand each other.”
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