How is the private sector thinking about development?

Many in the aid sector feel that the era of development led by governments may be fading — and increasingly, the private sector is being asked to step into the fore. It’s something that development leaders have spent years calling for — and to be clear, their ambitions are still far from reality. In 2023, multilateral development banks and development financial institutions mobilized a record $87.9 billion in private capital, according to a joint analysis prepared by those groups — that is, attracting that capital by offering guarantees, co-financing deals, and providing incentives that make private investors more willing to invest in projects they might otherwise avoid. And while that figure was 24% higher than the cash raised in 2022, it was far from the trillions that the world had hoped for a decade earlier. Despite that, the private sector showed up in full force at the Fourth International Conference on Financing for Development, or FfD4, in Sevilla, Spain. Rooms were packed with those from traditional banks, investment firms, and social enterprises, many of whom came with a portfolio of solutions to share. Here are some of the most interesting ideas we came across, and a look into how the private sector is thinking about development today. Renewable infrastructure investing: ‘An enormous opportunity’ Among those private sector representatives was Lucy Heintz, the head of energy infrastructure at the investment firm Actis. For more than 20 years, Heintz has worked on renewable energy investments in emerging markets — and throughout that time, she’s noticed a glaring mismatch between where infrastructure capital is most needed and where it’s actually going. “Right now, growth markets account for 15% of all energy investment, infrastructure investment, globally — outside of China,” said Heintz, speaking to Devex at FfD4. “That’s a pretty small number when you think about the enormous opportunity.” As lives become increasingly electrified and populations expand, the demand for reliable, clean power is surging, Heintz said. But even so, the capital hasn’t followed. Heintz attributed that disconnect, in part, to perceptions of risk, particularly in countries that haven’t yet put the right enabling policies in place to build investor confidence. One country that’s flipped the script, Heintz said, was India. In just two decades, the country has changed from being viewed as a high-risk bet to the world’s third-largest infrastructure market, with a national target of 500 gigawatts of renewable energy by 2030 — more than the country’s current installed power capacity. Heintz credits five key elements of India’s success. The first, she said, was having a bold, nationwide plan. The second was creating clear procurement frameworks — those that enable projects to secure better agreements, and reach commercial scale. The third was cultivating a supportive regulatory environment, one that would allow producers to sell power beyond state utilities and directly to corporations. The fourth was a heavy investment in transmission infrastructure. And the fifth was adapting for intermittency, enabling agreements that combine wind, solar, and storage to drive reliable power throughout the day. Of course, there’s also the fact that India is a massive country with a massive market — making it attractive to the private sector. “[These factors] are part of what we observe as a blueprint for success,” Heintz said. “There’s been a strong hand of policy and regulation behind the market development, which has now endured for 10 years plus. And it’s that kind of combination — and that kind of longevity — that means investors will build confidence in the market.” Drilling down on outcomes Marisa Drew, the chief sustainability officer at Standard Chartered Bank, has spent years thinking about how to drive development through the private sector — including through the use of social impact bonds. These financial instruments are outcome-based, pulling in three groups of partners to deliver a program: impact investors who can provide upfront funding with no guarantee that they will get it back, such as a philanthropic organization; implementing organizations to deliver the program, for example, a nonprofit group; and one or more outcomes funders who can pay the investor if the project achieves the right outcomes, often with a return for the financial risk they took on, such as a bilateral donor, government, pooled fund, or another foundation. “It’s a nice expression of somebody saying, ‘I’m prepared to win if you win,’” Drew told Devex. Drew has architected such programs in the past, including the “Rhino Bond” — a five-year, $45 million financial instrument that became the world’s first wildlife conservation bond. Created by the Zoological Society of London and Conservation Capital and sold by the World Bank, investors agreed to receive their original investment and interest payout depending on how well rhino populations grew in two South African reserves. “Institutional investors knew that because of [the World Bank’s] triple-A rating, they’d at least get their money back if it all failed, but they were loving the idea that their capital could be catalytic to drive this more systemic outcome for these animals,” said Drew, who advised the Rhino Bond project when she was at Credit Suisse. “We only just completed that a few years ago, but now they’re talking about doing it for other endangered populations — and it doesn’t have to be animals,” she added. “It can be used for other outcomes that you’re trying to achieve where otherwise, philanthropic capital alone wouldn’t be as effective.” Bank-based advisory firms Five years ago, J.P. Morgan created its own development finance institution, which provides advisory services to clients and connects them with impact-focused investors. It aims to catalyze $2.5 trillion for sustainable development financing in 10 years, and it does so in two ways: assessing the development impact of J.P. Morgan’s existing transactions, and acting as a development finance structuring agent to help clients communicate impact and attract new investors. “We can leverage J.P. Morgan’s existing reach into over 100 countries, and a subset of that are developing countries,” said Arsalan Mahtafar, the head of the Development Impact Advisory at J.P. Morgan. He added that the institution helps clients attract 10-20% additional investor demand than they would otherwise be able to attract. “We have bankers that cover those markets, and cover clients in those markets, and are there day-to-day to see which one of those clients needs to raise financing, and which one of them may be raising financing for doing things that have development impact,” he added. One of those clients was DP World, a global port and logistics operator that works across 75 countries. J.P. Morgan has helped the company measure their development impact in Brazil, India, Senegal, Somaliland, South Africa, and Peru, helping the company engage with investors that were interested in supporting its expansion. In Senegal and Guinea Bissau, that resulted in exporting 180,000 metric tons of cashew nuts through a terminal in Dakar, helping local producers sell their products internationally; in Brazil, that meant constructing a new terminal to handle 12.5 million metric tons of grains and fertilizers, facilitating further agricultural exports.