‘Core’ task is poverty not climate, outgoing BII chief tells DFIs

The outgoing head of British International Investment, or BII, has warned development finance institutions not to prioritize climate finance over their “core function” of tackling poverty in the lowest-income countries. In a farewell interview, Nick O’Donohoe pointed to a potential clash between pressure to hike spending on the green transition — where most investment will be in middle-income countries — and the ongoing need to deliver the United Nations’ Sustainable Development Goals. That tension exists in the United Kingdom’s current development strategy, which requires BII to make 50% of its investments in “the poorest and most fragile countries – while also ensuring BII is “a leading DFI on climate finance.” O’Donohoe said the issue would be “the biggest question” facing his successor as BII’s chief executive, the post he will leave in the next few weeks after seven years at the helm, but suggested the answer is clear. “I think it’s really important that development finance institutions stay focused on their core function of development — and that means providing money that will help support livelihoods, create jobs, help to pay tax, build a tax base, in the poorest countries in the world where capital is scarcest and where we can be most additional,” he said. O’Donohoe also argued BII has beaten other DFIs to the punch on a second crunch issue — how to mobilize other capital — by investing 75% of its funds in equity, “the riskiest asset class.” “We take great pride at BII in being more risk-oriented than almost all the other development finance institutions,” he said, adding: “We need more development finance institutions to be willing to embrace risk more, and that is investing more in equity, that is investing more in Africa.” During the interview, O’Donohoe, 67, a former adviser to the Bill & Melinda Gates Foundation, also: • Expressed pride at “putting development at the core” of what BII does — overseeing its transformation from being a minor “funder of funds” to holding an investment portfolio of 1,600 companies in 60 countries, focused on high environmental and social standards, climate impact, gender progress and good governance as well as “will we get our money back.” • Backed the idea at the heart of the development blueprint put forward by the defeated Conservative government — exploiting the financial muscle of the City of London — arguing insurance companies, in particular, have an “appetite for investment” that is not being utilized. • Suggested the new Labour administration will embrace BII’s enhanced role within that strategy, saying: “We’ve had no sense that this government is in a different place” — adding “previous iterations” of Labour were not as private sector-friendly. • Argued DFIs should no longer invest in gas projects in Asia, and only in very limited circumstances in Africa, saying: “We have no new gas projects in the pipeline.” • Acknowledged “robust discussions” with BII critics who have accused it of lacking “a clear poverty focus,” and of inappropriate investments such as in an Indian social media site that hosted videos of women selling sexual services — criticizing their tendency to “take a particular investment and use it as a reason to suggest the whole program is adrift”. • Defended the India investment, saying: “It was a social media platform that was available in multiple Indian dialects, and digital inclusion is one of the key objectives of the World Bank — so we had a difference of opinion on that.” O’Donohoe hailed BII as “the world’s first development finance institution,” reflecting its colorful history from its birth in 1948 as the Colonial Development Corporation, a vehicle to boost agriculture across the British Empire. After intense criticism of a focus on financial success at the expense of development needs, it was — the outgoing CEO suggested — on the road to recovery from 2012, but has been “taken to another level” in recent years. Re-badged as BII in 2022 it now employs more than 600 people in 11 offices across Africa and Asia, up from around 220 people in 2017. “I think I’m most proud of how we’ve managed the growth and increasing sophistication of this organization, and how that’s translated on the ground into a broad portfolio of successful investments,” O’Donohoe said. Fully owned by the Foreign, Commonwealth & Development Office, BII’s capital funding peaked at almost £1 billion ($1.29 billion) in 2019-20, fell sharply as part of the U.K.’s harsh aid cuts, but has bounced back to £420 million in 2024-25. Its recent annual report stated it made £1.31 billion of new commitments in 2023, a nudge up on £1.27 billion in 2022, with 61% of funding going to Africa. Guarantees were up threefold, and $63 of private capital was mobilized for every $100 BII committed. That target to make 50% of investments in the lowest-income countries by 2030 requires a sharp increase from the current 37%, but O’Donohoe described it as “an inevitable direction of travel” — if DFIs stay true to their core task. “The challenge to that, to be quite honest, is how much you want to do in climate finance. DFIs are expected to lead in terms of providing climate finance and accelerating the transition to net zero.” “The greatest amounts of capital needed for that transition are going to be needed in middle-income countries — yet the greatest amount of capital needed to address the SDGs is going to be needed in those lower-income countries.” Describing it as “a balancing act,” O’Donohoe added: “It’s a fundamental part of development that we address climate change, but we’ve got to be careful, as a group of development finance institutions, that we don’t provide capital to countries that are more developed, middle-income countries — and in a way that is distorting to markets, rather than complementary to markets.” Highlighting the danger that the “vast” sums required for the climate transition will “suck up” available funds, he said: “Concessionary capital is precious, and we’ve got to make sure it gets used in the right way.” “DFIs have often been criticized for not taking enough risk. There’s a natural tendency to go where you can deploy large amounts of capital, where the risk is somewhat less, so managing that’s very important.” That “biggest question” is one the next CEO must wrestle with, but O’Donohoe expects to “stay involved in development” in some form. “Technically I’m retiring, but I’m not going to sit on the beach and do nothing and I don’t play golf,” he smiled.