Opinion: The 'impact imperative' for sustainable development finance

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This week at the Organisation for Economic Co-operation and Development, 500 participants from the public and private sector are gathering to discuss how to increase the impact of our collective investments in sustainable development — but first, we need a shared understanding about what impact means when investing in sustainable development.

“There is no luxury to invest in development without certain, sustainable impact.”

— Jorge Moreira da Silva, director, the OECD Development Co-operation Directorate

This doesn’t mean that we need to have shared mandates; OECD members answer to citizens and the private sector to its investors. But we do need to share a common understanding about what we need to do together to fix a system that currently has no way to measure the collective impact of public and private impact-based investments in sustainable development.

Since 2015, we have often talked about the need to turn billions into trillions to achieve the Sustainable Development Goals. Today, we know the trillions exist. At least, we know much more SDG finance exists than prior measurements gave. The OECD estimates that over $81 billion in private finance for development was mobilized by public finance over four years. Preliminary first estimates of cross-border flows for sustainable development amounted to $580 billion gross, disbursements. This includes official bilateral flows from DAC providers, official flows from emerging market economies,and official flows from multilateral institutions.

This doesn’t mean that we need to move away from the 2015 call for significant mobilization of new finance for development, but the more informed 2019 version is an impetus for more strategic mobilization that is driven by impact. This is what social impact investing can teach us: to start with a focus on the impact marker. It sounds obvious, but it represents a dramatic shift from input to outcome.

In a new OECD report, “Social Impact Investment: The Impact Imperative for Sustainable Development,” we studied 590 social impact investment policies in 45 countries to outline lessons learned from the growing impact investing market. We use this as a basis for a forward agenda for private finance and development cooperation.

We can see that social impact investment markets are growing in all continents across the globe, both in OECD member and developing countries. The number of impact investors rose from fewer than 50 in 1997 to 200 in 2017. Social impact investing assets under management currently represent $228.1 billion, with over half allocated to emerging markets. Pay-for-success instruments such as social and development impact bonds are increasingly being applied, while other innovative models are being tested, such as social impact incentives, which directly reward enterprises with premium payments for achieving social results.

While the public and private sectors largely agree that financial and sustainable development returns can go hand-in-hand — and can often strengthen the sustainability of the investment and foster important innovation and partnerships — the challenge lies in defining impact. Public and private organizations measure different elements by different yardsticks.

The clear role of policymakers in this impact imperative framework is to drive investments from public and private finance to where they are most needed, to fulfill a commitment to leaving no one behind. Evidence presented in this report shows that today, most investors seek market rate returns, and the assessment of achieved social outcomes is uneven at best.

IFC releases draft impact investment guidelines

Investors have welcomed draft principles for impact investing intended to turbocharge a sector that could be critical to garnering development finance — but some say there is still work to be done.

To counter the danger of “impact washing,” public authorities have the ultimate responsibility — in their capacity as market regulators, policymakers, and development finance providers — to establish and promote integrity standards.

The risk of impact washing is compounded by diverse definitions of impact investing, the lack of internationally comparable data, and underdeveloped impact measurement practices. In response, OECD sets out a four-pillar call to action for the “impact imperative” through better financing, innovation, data, and policy.

Specifically:1. ensuring financing is going where it is needed most; 2. applying innovative approaches to reaching the SDGs; 3. addressing data and measurement challenges; and, 4. evaluating the social, environmental, and economic results of public initiatives. These four pillars and ensuing policy recommendations are intended to ensure that financing for sustainable development achieves real impact as a result of collective effort.

Working backward, come 2030, how will the impact of our investments in development be defined?

Amid the increasingly active and populated public and private marketplace for sustainable development, the uniquely ambitious SDGs, and increasing global challenges related to climate and conflict that affect us all, there is no luxury to invest in development without certain, sustainable impact.

All sustainable development finance actors — and the private sector more broadly — share the responsibility for delivering the 2030 Agenda, and this means adopting a shared understanding about what we mean when we talk about impact on sustainable development.

This op-ed is part of a media partnership between Devex and OECD for the Private Finance for Sustainable Development Week.

About the author

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    Jorge Moreira da Silva

    Jorge Moreira da Silva is director of the Development Co-operation Directorate at the OECD, overseeing the organization’s work measuring progress in development cooperation, analyzing global and regional trends, and helping to design development policies that meet recipient countries’ needs. His role also supports the work of the OECD’s Development Assistance Committee.