WASHINGTON — The United Kingdom’s development finance institution has responded to a critical report from the Independent Commission for Aid Impact by detailing its work to improve development assessments, better monitor development impact, and more actively engage with companies it invests in.
The response, which was jointly issued by CDC Group and the U.K. Department for International Development, said the agencies are “pleased that many of ICAI’s recommendations are aligned with the ambitious commitment made in CDC’s Strategic framework 2017-2021” and called it a “timely contribution” as CDC is nearly two years into the implementation of those plans.
Despite some progress, the CDC Group has room for improvement on its approach to achieving development impact, according to a report from the Independent Commission for Aid Impact.
ICAI’s report, released earlier this year, examined three primary subjects: whether CDC’s approach to achieving development impact and financial returns in low-income and fragile states is credible; whether its investments in those countries are effective; and how well the agency learns and innovates.
It found that between 2012-2018, CDC increasingly made investments to low-income and fragile states, but was too slow in building in-country capacity to support a more development-focused approach, and had not done enough to monitor results, improve evaluation, or apply learning.
CDC’s response to the report provides some insight into how the U.K. development finance institution has focused its work in the past few years, and outlines some of the changes it has made to implement a new strategic framework.
For example, CDC is implementing a new framework to improve its impact management systems, which is part of how it is addressing the ICAI report’s recommendation that the institution better incorporate development impact criteria in investment decision-making.
Since 2018, after the period of the report’s analysis, CDC has broadened the development impact criteria it uses to include indicators for specific sectors and investments, including creating a specific impact case for each investment that is published online. The impact team has also grown since 2019 — from three in 2012 to 56 today — and incorporated impact specialists on investment teams, as well as added a chief impact officer.
To better support and more actively manage investments, the institution has changed quarterly portfolio reviews to better track progress and make recommendations about how to engage with investees, and provided investees with more support on gender equality, climate change, job quality and skills and leadership, according to the statement. The agency also launched CDC Plus, which provides grants to support impact within a company and the “wider environment.”
In response to concerns about its monitoring and evaluation of development impact and a need to learn from those evaluations, CDC said it is expanding its learning program by launching an impact challenge fund with DFID and doubling the number of “deep dive” studies into specific sectors it conducts by 2021. CDC and DFID also created a £20 million ($26.07 million) joint evaluation and learning program overseen by a steering group chaired by DFID’s chief economist.
CDC and DFID “are deepening their partnership in a thoughtful way to optimize the value of official development assistance,” according to the statement. They are doing so by creating connections between DFID’s country offices and CDC’s regional network, linking sector specialists, and through strategic engagement. CDC is also standing up a new “global affairs function” that will work to “deepen relationships with DFID and a broader range of development partners,” the response reads.
CDC opened new offices in South Africa, Kenya, and Pakistan in 2017 and 2018, has representatives in Ethiopia, Zimbabwe, and Myanmar and expects to add permanent staff in Nigeria and Bangladesh before the end of the year.
One of the key recommendations in the ICAI report was that DFID consider CDC’s development impact before transferring more money to the agency in the future.
In response to that concern, CDC and DFID wrote: “Any new business case to increase the level of equity invested by DFID in CDC will follow departmental guidelines. It will consider the context, the need, and the rationale for the additional capital, as well as the outputs and outcomes expected from the new investment. Evidence of the development impact already achieved by CDC and progress in expanding its overseas country presence will be two of the factors that DFID would consider when assessing any case for further investment capital.”
DFID will commission an independent review of CDC’s progress toward its strategic objectives, which it will use to help determine any future investments, the statement said.