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Closing the gender gap in economic participation and opportunity is not only “the right thing to do”, but also “the smart thing to do“. Gender-lens investing has become a key approach in the field of private sector investment to promote gender equality. This research study provides insights on how activities of DFIs and other investors can sustainably contribute to a transformation of root causes that perpetuate gender inequalities.

With a view to strengthening their efforts to promote gender equality, DEG and OeEB commissioned this research study on the transformative impact of gender-lens investing. A focus was placed on the role of women’s leadership as one aspect of women’s economic empowerment. The study encompasses a literature review, an assessment of DEG’s and OeEB’s investment portfolio performance on the 2X Challenge, exploratory interviews with experts in the field and three case studies with DEG and/or OeEB clients.

The study provides the following key recommendations. On the individual organizational level, it was found that women’s leadership can have positive effects on women’s economic empowerment if pre-conditions in four action areas are met: (1) Leadership commitment, (2) Equal opportunities, (3) Training and development and (4) Wellbeing, safety & work environment. In the cooperation between DFIs/Investors and clients, transformative effects on women’s leadership at client level can be achieved through the following approaches: (i) Be a role model; (ii) Move from minimum requirements to impact; (iii) Provide technical Assistance; and (iv) Networks, platforms & community.

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Literature Review  (PDF, 1 MB, non-accessible)

In 2020, the COVID-19 crisis plunged Africa into an exceptional economic recession. Lockdown measures to contain the spread of the pandemic, combined with the slowdown in activity in its main trading partners and the drop in commodity prices, had a significant impact on the continent's growth.

This paper aims to outline the impacts of the pandemic on Africa’s private sector. Compared to the rest of the world, support programmes to protect the sector from the harmful consequences of the lockdown and the subsequent falling household incomes have been weak and patchy. Digitalisation only provided some form of resilience. Overall, African firms are largely unprotected against the fallout of the crisis, a reason why the recovery from the crisis will be much slower compared to other regions.

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DEG customers have been hit hard by COVID-19. Helping our customers through the crisis is about a lot more than merely protecting our own interests or those of our customers: the private sector creates income and jobs for millions of people.

“Impact in times of COVID-19” is a loose series of brief insights into the development impact that is at stake as a result of COVID-19.

The series is structured along the lines of DEG’s Development Effectiveness Rating (DERa). DERa rates customer performance in five key outcome categories. For each outcome category, DEG has assessed the extent to which the development impacts of DEG’s portfolio (as per 31.12.2019) are at risk because of COVID-19.

1. decent jobs

2. local income

3. market and sector development

4. environmental stewardship

5. community benefits.

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Sustainable Development Goal 17 (SDG) states that governments and their budgets play a crucial role in reaching the global SDG targets and to boost human development. This paper changes perspective to private sector activities that create directly or indirectly government revenue.

From theory to practice: Compared to the traditional reporting of Corporate Income Tax (CIT) only, the tax contribution of DEG’s portfolio companies triples when taking into account some of the additional revenue sources.

When discussing government revenue and revenue creation, the role of the private sector is often underestimated. In this context, most discussions focus exclusively on the role of corporate income tax – a tax that is levied on a company’s profits – and often include the negative impact of tax optimizing structures on government revenues in Emerging Markets. While this discussion is important, there exist various other linkages between the private sector and government revenues that are rarely taken into account.

This paper discusses how private sector contributes through different linkages to government revenue. It follows a three-step process:

1. Identifying and discussing relevant sources of government revenues;

2. Linking private sector activities to these sources;

3. Estimating the overall government revenue amount that can be linked to DEG’s portfolio companies through the outlined channels

Compared to the traditional reporting of Corporate Income Tax (CIT) only, the tax contribution of DEG’s portfolio companies triples when taking into account some of the additional revenue sources.

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Women play a vital role in companies and company environments, as business leaders, board members, employees, suppliers, customers and stakeholders in the surrounding communities. However, in many parts of the world women’s participation in business and their access to financial services is still structurally limited.

In 2018, DEG joined its fellow G7 Development Finance Institu-tions (DFIs) to launch the 2X Challenge – a joint commentment to mobilize USD 3 billion for women’s economic empowerment in emerging markets.

In line with the 2X Challenge criteria, DEG defines gender-lens investing as private sector investments that provide women in developing countries with improved access to entrepreneurship, leadership opportunities, decent and skilled employment, finance as well as products and services that enhance their economic participation.

The following brief lays out the potential of gender equality and women’s empowerment for sustainable development and business growth. It further provides an overview of DEG’s approach to gender-lens investing and its solutions for financial institutions and corporates to increase their impact on gender equality and grow their business in a sustainable manner.

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Local sourcing is a relevant topic for companies and their financiers as it generates both business benefits and developmental effects to societies. Providing private sector companies in developing markets with the opportunity to increase the local part of their sourcing can have large effects on the money spent and value created in these markets, and enables Development Finance Institutions such as DEG to maximize the developmental effects of their investments.

This current strategic evaluation study shows that DEG’s clients spent just under EUR 23 billion on local procurement, 74% of total procurement expenses. An increase of 1% from this 74% would shift EUR 80 million towards the pockets of people in developing countries. Hence, providing private sector companies with the opportunity to increase the local part of their sourcing can have large effects on the money spent and value created in developing markets.

Where to start to increase local sourcing? This study disclosed two approaches for companies and its financiers:

1. A country-level approach to benchmark local sourcing practices, identify best-practices and improvement potential (per sector-country combination) and allow a structured exchange within private sector networks

2. A company-level approach to hands-on identify and tackle hurdles to local sourcing and structurally include the local aspect into general value chain management.

Both approaches are applied in the study to DEG’s customer portfolio including a case study of the animal feed producer Anova Feed in Vietnam.

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Private sector enterprises that are financially successful and that act responsibly promote local development in several ways: by creating more and better jobs, providing income locally, supporting countries on their way of transformation while acting in a sustainable manner and providing community benefits. Thus, private-sector activities are key for achieving the UN’s Sustainable Development Goals (SDGs).

How can private sector contributions to achieve the global Sustainable Development Goals be measured? Using international harmonized indicators, DEG steers on development effectiveness with its newly developed Development Effectiveness Rating (DERa). DERa is a multidimensional index guided by the SDGs and built along five outcome categories: decent jobs, local income, market and sector development, environmental stewardship and community benefits. DERa follows up on changes in performance on a yearly basis since DEG’s investment.

The aim of this case study, which is based on in-depth document reviews and on-site interviews, is twofold: firstly, it provides an insight into how DEG’s agribusiness customer Virú contributes to development in Peru and secondly, it shows how DEG’s DERa reflects this contribution. DERa also links its indicators to companies’ contributions to the relevant Sustainable Development Goals.

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Download case study (in Spanish)  (PDF, 3 MB, non-accessible)

The sound management of environmental and social risks is a key element of business success and sustainability for all financial institutions and private equity funds. As a responsible development finance institution, DEG is fully committed to supporting our clients in understanding and applying the necessary standards and processes. A current evaluation study shows that DEG’s support has led to positive change for clients and markets.

Financial institutions (FIs) and private equity funds (PEFs) are a significant part of DEG’s global operations. With a combined commitment volume of EUR 3.2 billion they constitute more than 40% of DEG’s client portfolio. For both, DEG and its clients, adherence to environmental and social standards is of critical importance when providing debt or equity to borrowers and investee companies.

For this reason, DEG commissioned an evaluation study of the promotion of environmental and social standards at FI and PEF clients with a special focus on the use of environmental and social management systems (ESMS). The study analysed i) the implementation and practical use of ESMS by DEG clients, ii) the effectiveness and impacts of such systems and the benefits for the DEG clients as well as their clients, and iii) the role of DEG with a focus on the value-added created by DEG’s Business Support Services.

The results of the study show a positive development in the operations of DEG clients towards an improved and well-structured management of environmental and social risks. DEG played a significant part in supporting this change.

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Management Response  (PDF, 42 KB, non-accessible)

Executive summary  (PDF, 68 KB, non-accessible)

Executive summaries of case study reports  (PDF, 653 KB, non-accessible)

ESMS Guide: Managing Environmental and Social Risks  (PDF, 904 KB, non-accessible)

Why qualification matters

Report  (PDF, 585 KB, non-accessible)

More than 200 million people worldwide are looking for jobs. Companies at the same time complain about difficulties in filling vacant positions or in finding suitably skilled staff. These skills gaps – the difference between the skills needed for a job and the capabilities of the workforce – represent a major constraint on social and economic development particularly in developing countries.

The study "Bridging the skills gaps in developing countries: A practical guide for private sector companies" takes a look at how private entrepreneurs can close these skills gaps through appropriately targeted measures implemented at the workforce, suppliers and local communities. In cooperation with the Boston Consulting Group, it was produced as a contribution of the Association of European Development Finance Institutions within the international "Let’s Work" Partnership. The study also provides a guide for practitioners.

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Executive summary  (PDF, 1 MB, non-accessible)

Sustainably working, successful companies have great propensity to improve the living conditions of a local population economically, ecologically and socially. Contributing to the sustainable success of clients therefore is the major objective of DEG.

DEG is increasingly faced with the challenge to define what it considers sustainably successful clients. It also needs to determine how it can best contribute to the sustainable success of clients. And it wants to adequately monitor and measure the sustainable success of clients and DEG’s contributions.

However, no clear-cut definition of sustainable success can be found and there is no standard measurement methodology for sustainable client success available. Further complexity is added by the (external and internal) pressure to make the contribution of DEG to the sustainable success of its clients more transparent.

DEG asked Steward Redqueen to address this challenge through a research and evaluation study, in close cooperation with DEG’s Corporate Strategy and Development Policy Department. This final report presents the results of this research and evaluation study.

Report

Beyond indirect multiplier effects of economic development, companies can directly contribute to human development by way of Corporate Social Responsibility (CSR). To evaluate this impact and the way CSR structures within the organization influence CSR performance, DEG commissioned the external consulting company Dalberg.

The evaluation examines the CSR programme of an Indian toll road, determines the impact of the individual activities, compares the efficiency of each and develops recommendations for the programme, the CSR structure within the organisation as well as for potential technical assistance by DEG.

The authors of the study found that the central CSR activity - the deepening of water reservoirs - unfolds great effect. The effects range from the number of users in the local communities (about 25,000) to the general extension of access to water for nearly two months. However, other measures (such as tree planting, clothing donations and education packages) are found to be small, scattered, rather short-lived and to produce little impact

CSR is firmly anchored in the company, as a CSR charter of the parent company shows. Also the management was found to be clearly committed to CSR. The implementation by the decentralized structure allows a high sensitivity to local needs. The planning, reporting and systematic learning of CSR activities however could be improved.

This evaluation points out that DEG already supports its clients to implement impactful CSR programs. Nevertheless, there are several recommendations on how to improve this support to increase impacts and sustainability of CSR programs of DEG’s clients.

Report  (PDF, 5 MB, non-accessible)

Small and medium-sized enterprises (SME) are considered to be a key element in the development of an economy. To what extent can finance institutions effectively support SMEs in developing countries and within this process what is the role of a development financier such as DEG? The external consulting company Horus Development Finance commissioned by the EDFIs seeks to clarify this question.

The evaluation examines the EDFIs' commitment at six finance institutions (FIs) in sub-Saharan Africa, who provide financing for SMEs. The study spans effects for the FIs, such as changes in credit allocation to SMEs, to impacts for the SME customers themselves.

The key result is that the EDFIs' support is highly relevant for FIs. One component that was particularly improved was the sustainable focus of business activities and, therefore, also the ability to cater to customers. At the same time, it is clear that there is room for improvement in focussing on SMEs: The orientation of the FIs to SME financing should be checked ex-ante, the accompanying measures should focus more explicitly on SME financing, and the EDFI financing should set clear incentives for SME financing. According to the study, areas which can be improved on include management information systems, as well as reporting in general on the part of customers and the EDFIs – only in this way can SME financing be adequately described, managed and evaluated.

The Horus study with a foreword by the EFDI board

An EDFI workshop was held based on the study.

Minutes

Development finance institutions are active in the energy sector at worldwide level. The sector is seen as a key industry for development. The evaluation by the Institute of Development Research and Development Policy (IEE) examines the impacts that DEG's commitment has on energy efficiency and on the shift to renewable energy. To this end it was analysed which effects - particularly looking at indirect effects - can be achieved through energy provision.

The authors of the study conclude that the high standards that apply to an investment by DEG lead to a balance between economic and development effects: Besides the economically important removal of energy bottlenecks, DEG manages to incorporate development effects into the projects, e.g. through technology transfer, environment protection, and by mitigating side-effects for the local population through CSR measures. It is shown that an inadequate energy supply is one of the major growth barriers. The provision of additional energy therefore has a high indirect impact on growth and employment. The evaluation encourages DEG to further advocate climate-friendly investments in the energy sector and presents CSR measures as promising accompanying measures of DEG investments.

Executive summary of the report