'IDB Invest 2.0' strategy centers on mobilization of private capital

IDB Invest is kicking off 2022 with a new strategy and a new model, with a focus on increasing mobilization of private sector capital. The plan is called “IDB Invest 2.0.” The institution, which is the private sector arm of the Inter-American Development Bank, had a record year in 2021 in terms of its own investments and private sector mobilization, IDB Invest CEO James Scriven told Devex in an interview. But what mattered most, he said, was the increased mobilization. IDB Invest mobilized — or spurred through its own investments — more than $3 billion from the private sector in 2021, despite foreign direct investment in the Latin American and Caribbean region dropping about 45%, according to Scriven. He said that surprised him. “We’re a development institution. And what we deliver is not money; we deliver impact.” --— James Scriven, CEO, IDB Invest “We would not be able to deliver if it was only us pushing. It has to be someone on the other side wanting, needing delivery,” he said. And while it may seem “counterintuitive” since multilaterals traditionally aim to deploy their own capital, there is a strong push at IDB Invest to reduce its own investments and “maximize mobilization.” Launched as a new brand for IDB’s private sector operations in 2017, IDB Invest approved 103 projects worth a combined $14.5 billion in 2021, with significant investments in strengthening regional supply chains, addressing climate change, and tackling gender inequality. Last year, for every dollar of its own put toward long-term investments, IDB Invest mobilized a dollar from private investors, Scriven said. And while he was proud of that accomplishment, his goal is to do much better, he said. Setting a new mobilization target that is “multiples” of what IDB Invest achieved last year will be discussed at the institution's annual meeting, which starts next month. Scriven would not commit to an exact target before the board approves the goal. This shift is in line with the IDB Group’s “Vision 2025” strategy, which IDB President Mauricio Claver-Carone ushered in last year. IDB Invest has been able to improve its mobilization rates in part by making internal changes, including altering staff incentives to promote greater private capital mobilization rather than just more deals. The institution also changed how staff recognition and compensation are structured so that innovation and mobilization are rewarded, Scriven said. Board accountability and the way that IDB Invest measures success have also changed. Previously, the institution was held accountable by its board for the investments it made. Now, it is measuring itself against — and reporting to the board about — a combination of its own investments and the amount it mobilizes, with those having “equal standing,” Scriven said. IDB Invest has done the “internal work to change the organization to a different model,” which is closely tied to the Vision 2025 strategy, he said. This has required changing the internal culture to think about impact first, Scriven said. That has meant training staffers, convincing the board, marketing itself, and understanding new investors — especially local investors, who can be key mobilization partners in markets they understand well. “We feel that we're creating a new development model — what we call IDB Invest 2.0,” Scriven said. “It's a model of channeling international and local impact investors in our region through us. And that is an entire mindset. We’re probably one-third of the way there, but it’s my idea for the entire business to shift to this.” As it works on this new identity and strategy, IDB Invest will be adapting its internal development effectiveness instrument: the DELTA Tool, which it uses to evaluate projects throughout their life cycles. The tool — whose name stands for “Development Effectiveness Learning, Tracking and Assessment” — scores projects on potential economic returns, how well they align with the IDB Group’s development priorities, the extent to which they will produce social benefits, and how their development impact can be accurately assessed and verified. IDB Invest is one of the only development finance institutions using an internal development effectiveness metric beyond the initial decision-making stage, Scriven said. Quarterly internal reviews look at that development metric, as do biannual board meetings. When investments aren’t performing well against their DELTA projections, IDB Invest calls on its advisory services team to help assess the problem and get the investment back on track, Scriven said. “We’re a development institution. And what we deliver is not money; we deliver impact,” he said. Lately, an increasing number of large investors are no longer just asking about risk but about the DELTA score too, because their boards are pushing them for that information, Scriven said. While IDB Invest began this shift in 2021, it is going all in on the new approach and “will put this new business model of originating, de-risking, mobilizing on steroids,” he said. Making these changes “will require that we adapt not only our culture but also our products,” he said. Whereas IDB Invest in the past might have co-invested with an international partner, it will now be asking what partners need to double their investment and focus more on de-risking instruments, such as subordinated loans and equity, Scriven said. “When I talk about multiplying impact, it requires that we as an institution take more risk,” he said. But that doesn’t mean that IDB Invest is willing to jeopardize its credit rating, he added, which means IDB Invest will need more capital. The institution’s financial structure, business model, and capital needs will all be key issues at the upcoming annual meeting, where more answers on the model and its targets will likely be clarified.