PF4SD 2020 expert discussions key takeaways

EXPERT DISCUSSIONS
Key takeaways
28 & 30 January 2020
PRIVATE FINANCE FOR SUSTAINABLE DEVELOPMENT CONFERENCE
28 – 30 January 2020 | #PF4SD | oecd-events.org/PF4SD
For any question, please contact DCDPF4SD@oecd.org

The role of international pension funds in financing sustainable development
Key takeaways
• A gradual (perhaps generational) shift can be observed within international pension fund communities towards
increasing focus on social return (e.g. environmental considerations) alongside financial returns. However, the risk-
reward ratio seems to be a persistent issue. There is a disconnect between the development co-operation and the
investment communities, and this centres on risk. This may especially be true of the US, which is more distant
geographically from emerging markets in Africa.
• Several international pension funds are moving into SDG investment in developing countries, although with
different strategic approaches. A key feature is collaboration with institutions such as DFIs or professional asset
managers with specialised experts. Some pension funds have developed frameworks for Sustainable Development
Investment (SDI) whereas others are collaborating directly with local pension funds in developing countries.
• The fiduciary responsibility of pension funds is a key determinant of their strategic choices, not least in new and
relatively risky markets. This has to be factored in when designing investment strategies, institutional setup and
governance structure of investment vehicles and products. Intermediary institutions such as DFIs could do more to
engage with and mobilise international pension funds, in terms of designing institutional setup and developing
suitable investment products.
Expert Discussion - Tuesday 28 January 2020 (9:30-11:00)

The role of tax in private finance for sustainable development
Key takeaways
• Session was led by the African Tax Administration Forum (ATAF), who highlighted the role of tax
at the heart of financing for sustainable development.
• Much of financial flows and revenues that go uncollected are the result of weak domestic tax
systems (as opposed to corruption) this is why ATAF was founded in 2009. ATAF has trained more
than 13,000 tax officials in audit capacity, communication and taxpayer education, VAT, EOI, tax
treaty negotiation, transfer pricing and other main drivers of illicit financial flows .
• Technical Assistance going forward will focus on (i) building African expertise, (ii) implementing
sustainable systems and the right technology, and (iii) building political support and working at the
policy level

Market place on triangular co-operation projects
Key takeaways
● Triangular co-operation is a partnership enabler that allows combining comparative advantages in ways that the
sum of partners’ efforts is greater than single parts. Triangular co-operation is a modality that reinforces
horizontality, has potential for reciprocity and boosts ownership. An enabling environment that allows the private
sector to engage effectively as a partner in triangular co-operation is essential. The session showed that there is a
real interest among investors, public and civil society partners to work together in triangular co-operation.
● In order to exploit the full potential of triangular co-operation and to scale-up successful initiatives, existing
grant-based modalities could be better linked with instruments such as guarantees and private investment.
Empowering triangular co-operation by bringing in the innovative financing community and the private sector
(with large volumes of funds ready to invest in impactful projects) could contribute to filling the SDG finance gap.
● There is great interest in partnering with the private sector in innovative triangular projects. A remaining
question concerns how to ensure that their contributions are aligned with partner country priorities and with the
SDGs. To do so, sustainability and flexibility at community level were pointed out as factors for success.

Impact measurement and management
Key takeaways
• As achieving the SDGs and driving towards impact on the ground becomes more imperative, the need
for global standards on impact measurement and management is becoming increasingly critical. The
Impact Management Project (IMP) Structured Network has brought together 13 standard setting
organisations, including the OECD, to work on a system of standards to guide companies and investors.
• At the same time, there is an urgency for tools that companies and investors can use today. Therefore a
balance is need between processes that work towards global standards, tools and guidance that can be
used in the shorter term and the role of regulators.
• In the development community, there have been efforts to bring together DFIs and other key players
to identify a core set of metrics to measure direct and indirect impacts of investment.
• Further work is needed on all of these fronts and the OECD, UNDP, IFC and many other players are
engaged from multiple angles.
Expert Discussion - Tuesday 28 January 2020 (11:30 – 13:00)

The business case for action on biodiversity: mobilising investors
Key takeaways
• Increasing interest from regulators regarding the integration of biodiversity in investment
decision making, and there is the opportunity to make important progress given the upcoming
COP15 in China.
• Difficult to make links between biodiversity, business and finance – look at how the financial
sector was mobilised on climate for a good example.
• Identify and devise metrics to quantify biodiversity losses – need some kind of environmental
accounting standards.
• Role of public funds is to discover opportunity, and then move when the market has taken off.
Expert Discussion - Tuesday 28 January 2020 11:30 – 13:00)

The Kampala Principle in action:
building better partnerships at country level
Key takeaways
• The private sector is a key partner to deliver on the 2030 Agenda. Despite ongoing efforts, there
is potential for increasing the development impact of private sector partnerships on the ground.
• All development actors need to join forces to deliver effective private sector partnerships and the
Kampala Principles can guide the way. The five principles are an important blueprint for
governments, development partners, businesses and civil society, for example to align joint efforts
to national priorities.
• Applying the Kampala Principles is adding value already: many good practices exist, from
inclusive public-private dialogue to greater focus on results and impact and mitigating risks to
reach those furthest behind first.

The Tri Hita Karana roadmap for blended finance (i)
Key takeaways – Part I:
The Co-Chairs of the five THK Working Groups (WG) presented their work streams and deliverables,
namely:
• Practices WG: a stocktaking (inventory); Governance of Blended Finance; Blended Finance Instruments
and Optimal risk mitigation approaches; sharing best practices and supporting market development;
• Mobilization WG: Blended Finance to Mobilize at Scale; Private Sector Segmentation; Mobilisation to
less explored sectors; large universe of bankable SDG projects;
• Transparency (WG): Scoping survey to inform the state of play; current reporting practice and areas for
improvement; A compendium of transparency resources; A report on transparency for blended finance;
framing a pathway to more transparency in the context of blended finance and Case studies that
highlight transparency in blended finance; Exploring the application of more transparency in a blended
finance projects; Communicating WG efforts to stakeholders, including the private sector.

The Tri Hita Karana roadmap for blended finance (ii)
Key takeaways – Part II:
The Co-Chairs of the five THK Working Groups (WG) presented their work streams and deliverables,
namely:
• Impact WG: Guidance by providing a comprehensive checklist of ex-ante questions regarding the
expected impact of the investment on the poor; What has to be measured ex-post to assess impact
in each area; A set of ex-ante questions or screening considerations to explore potential risks of
negative impact on the poor.
• Inclusive Markets WG: Enabling environment; Local Capital Markets; Mapping Inclusive Market
Deliverables; Early Stage Pipeline.

Private philanthropy for the SDGs
Key takeaways
• Private philanthropic foundations are a source of innovative finance for development. Results
play a key role in foundations' funding decisions.
• Foundations do not only engage in grant making but also in other kinds of financing
modalities. Such approaches often involve risk taking in exchange for scalability and higher
impact, e.g. catalytic capital, impact investing, blended finance, lending to
microenterprises and programme-related investments.
• Other examples of innovation by philanthropies include active participation in PPP projects,
integrated funding (research + implementation in the field + market viability) and sheding light
on underserved areas, such as gender disparities in pension and tax systems.
• Synergetic partnerships are a way to scale up impact.
Expert discussion - Tuesday 28 January 2020 (14.15-15.45)

Can blended finance fill the gap in the health sector?
A CSO perspective (in collaboration with the DAC-CSO Reference Group)
Key takeaways
• CSOs and independent researchers are building evidence through cases and examples on the
adverse impact of blended finance projects for people living in poverty and inequality.
• Donors should monitor their share of ODA devoted to blending, in order to minimise the
diversion of valuable aid dollars from public investments, such as health in the poorest countries.
Exclude sectors responsible for delivering rights until a full review of blended finance impacts to
date on these sectors demonstrate they have not caused harm.
• Donors should adopt appropriate monitoring and evaluation measures and involve all local
authorities, parliaments and civil society.

Blended finance funds and facilities
Key takeaways
• The results of the 2018 edition of the OECD Survey on Blended Finance Funds and Facilities have
been presented, building on a working paper on the results concerning the investment strategy
and one on the development performance of BF funds and facilities.
• Speakers highlighted the importance of carrying out evaluation and at different stages of the
investment cycles. Several challenges remain in evaluation blended finance evaluations, due to the
long chain of actors involved, limited access to data and differences in data collection standards

The role of national development banks
(in collaboration with ODI, AFD and IDFC)
Key takeaways
• There are two key areas in which National Development Banks (NDBs) need to take on more of a
role: climate and the 2030 agenda architecture. This is about National Development Banks realising
their potential.
• NDBs are in a unique position to assess risk and de-risk. They also have the power to shape the
enabling environment. For instance, they can help to develop markets in areas in which they
operate where there is currently a lack of capital markets.

Another potential for innovative finance - Japan’s insight
Key takeaways
• There is increasing evidence that social factors play a crucial role in the corporate value creation
process.
• Social bonds can be an innovative tool to link private finance with the SDGs more effectively.
However, social impact is hard to measure and quantify. More transparency is needed to
understand what has worked and can be replicated.
• Social sectors such as health, agriculture and nutrition present unmet investment needs in
developing countries. Good practices and demonstration effects in the field of blended finance in
the health, agriculture and nutrition sectors are emerging. The way to achieve aggregation remains
challenging.

The role of domestic pension funds in financing the SDGs
Key takeaways
• Local pension funds are showing increasing interest in the SDG investing space, in a range of different sectors
(e.g. communication, transport, etc) and instruments (private debt funds, direct investments, professional asset
managers). There are examples from Latin America (e.g. Chile, Paraguay, Columbia, Mexico,Panama) and Africa
(e.g. Kenya). Local pension funds need to be offered a diversified exposure to a set of developmental assets that
are risk adjusted and priced in a way that can give them a meaningful return, given their strong fiduciary duties.
• The regulatory framework play a key role for local pension funds, as highly restrictive regulation may force
pension funds primarily into the government bond market. Some reform has taken place, e.g. in Kenya, giving
pension funds a bit more room to invest in asset classes like infrastructure. A thorough analysis of the local
context (incl. the macroeconomic environment) is key to moving the reform agenda forward in a meaningful way.
• Capacity is important, both in local pension funds and at the level of the regulatory authorities. International co-
operation can play an important role in building national capacity. Local pension funds are suitable partners for
international institutional investors, that can bring both co-investments and capacity building.
Expert Discussion - Thursday 30 January 2020 (8:15 – 9:15)

Innovations to address foreign currency risks
(in collaboration with KfW)
Key takeaways
• As most DAC investment is denominated in hard currency, local borrowers and beneficiary
countries are exposed to high currency risk, and investors are exposed to high credit risk. Thus, the
ability of development finance providers to take and manage risk, is critical.
• No silver bullet, but local currency schemes and programmes are mushrooming: EBRD provides a
guarantee, which allows the reduction of a credit margin. Successful with NPL rate of 0.5, 700
million EUR of financing has been dispersed. Trade and Development Bank and Citibank both
mentioned local currency-denominated bonds.
• On mobilising the private sector, TCX mentioned they are working with EBRD, IFC et al. to create
a new asset class, which is frontier-market currencies.
Expert Discussion - Thursday 30 January 2020 (9:30 – 11:00)

Aligning private finance to the sustainable use and
conservation of the ocean
Key takeaways
•All actors underlined the lack of ocean literacy among investors and governments alike, and
highlighted it as a major obstacle to effective deployment of funds. In reality, the ocean economy is
multi-trillion dollar industry.
• Multiplicity of work being undertaken to combat this narrative: Blue Finance is now working on
the management of Marine Protected Areas in order to make them investible projects with a
stable revenue stream. RARE also launched an app called ‘Our Fish’ to evaluate what the true value
of coastal fisheries is. Caribbean Biodiversity Fund employs both traditional and non-traditional
sources to bring more financing. AXA’s Ocean Risk Initiative develops insurance-led solutions to
respond to ocean-derived risks and help create ocean resilient economies.
Expert Discussion - Thursday 30 January, 09.30-11.00

Unlocking commercial finance for water and
sanitation projects: SDG 6
Key takeaways
• South African Development Bank advise following a holistic approach regarding water
programmes (otherwise, this lacks adequate risk identification and mitigation, which is required
for making it bankable).
• SIDA made the point that blended finance discussions should be sector-specific and not general.
Examples of water provision in Syria from Red Cross: even in difficult settings, it is possible to look
for private actors in addition to traditional aid channels. Tension between crisis areas and
established middle-income countries, like South Africa, which still struggle to access water.
Expert Discussion - Thursday 30 January, 11:30 – 13:00

OECD DAC Blended Finance Principle 5:
building the guidance
Key takeaways
• Use of a common reporting standard with a focus on development is key in order to get better
knowledge about what is happening in the sector.
• It is important for actors in the development space (both public and private) to decide at the
outset what their aim is, i.e. what they want to achieve and by using what instrument.
• What are the barriers to more and better transparency? There remain severe institutional, legal
and regulatory barriers to information and data disclosure. When working with the private sector,
governments can and should continue to raise the bar on transparency.

Metrics for measuring business impact on wellbeing and
sustainability – an open consultation
Key takeaways
• The application of the OECD Well-being Framework to the private sector was presented,
operationalised by indicators at the firm level.
• Experts were invited to comment on the approach and the indicators, and an ongoing
consultation is taking place.
• The final results will be published later this year, taking into account the inputs of experts at the
PF4SD Expert Discussions.

The role of private sector insurance actors in development finance
Key takeaways
• The conversation on insurance needs to move towards considering insurance as an industry rather
than as a product: there needs to be collaboration among all players in the insurance industry, who
have expertise on risk management, and development finance actors. For this to happen, we need
trust and recognition of each other’s area of expertise.
• In the insurance space, there is a lot going on how to deal with climate risks and how climate
change are going to impact assets and physical infrastructure.
• We need to keep in mind affordability of insurance products for end-users in developing countries.
There is space for financial innovation to make it work and to bring successful solutions to scale.
Expert Discussion - Thursday 30 January (11:30 – 13:00)

Disruptive uses of blended finance to build markets in the
agri-SME space (in collaboration with IFAD)
Key takeaways
• Going into the ‘unbanked’ world has to be done with clear, standardized rules; if you make the
wrong decision to risk aggravating existing problems.
• Organisations are getting much better at assessing, and identifying, where market failure is.
• De-risking is tricky; agriculture carries particular risks, including fluctuations in weather, for
example.
• There is no linear progression as to how companies go from grant to commercial capital.

Aligning incentives: enhancing the business and investment impact
on the SDGs
Key takeaways
• Financing is not enough – we need private finance to bridge the financing gap. We need a better
understanding of how to define an investment that contributes to the SDGs.
• Foreign Direct Investment can help, but that does not represent the full picture. The main
contribution to gross capital formation is domestic.
• Corporations want to ‘see things happen’. Evidence of previously implemented programmes
could be a good method of showcasing the impact of certain policies. Need to underline that being
sustainable is a competitive advantage in the long run: it will become the only way to compete.
Simplifying bureaucracy, improving the access to financing from local banks and increasing total
productivity by training attracts capital.

Innovative financial instruments for development
Key takeaways
• There has been a growth in interest and development of outcomes-based financing instruments,
including but not limited to social and development impact bonds.
• More than 140 impact bonds have been launched to date. However, they are not applicable in all
circumstances. Impact bonds take time to develop and require clear expectation setting between the
contracting parties (outcomes payer, investor and service providers) regarding the targeted outcomes
and payments based on cost efficiency or effectiveness targets.
• Most importantly, impact bonds and innovative financing mechanisms in general, are not just
about attracting private financing but also about piloting new approaches which can then be scaled.
• While interest in these mechanisms has grown, more projects are needed. To that end, more shared
learning and institutional readiness is needed within organisations wanting to leverage these
mechanisms to facilitate the generation of projects pipeline.
Expert Discussion - Thursday 30 January (14:15-16:15)

Can blockchain technology reduce the cost of sending remittances?
Key takeaways
• The costs of remittances continue to limit the flow of funds, hindering significantly development potential. Disruptive
technologies like blockchain can play a key role in lowering the cost of remittances.
• Pilot projects are experimenting blockchain technology for Know Your Customer (KYC) facilitation process, clearing and
settlement, peer-to peer transactions and delivery of aid. However, scalability of projects remains a challenge. There are
no large-scale projects demonstrating the impact of using blockchain technology for reducing the cost of remittances.
There is a need for experimentation with regulators to develop effective regulatory standards, which could foster
collaboration (e.g. for design thinking or prototyping with start-ups).
• Cryptoassets and stablecoins may alleviate some of the complexities of cross-border payments system, but they might
not be able to solve some of the implementation challenges such as last mile delivery, particularly cash-in and cash-outs.
• The agenda of financial inclusion should continue and any innovation must reach and include the bottom of the pyramid
for leaving no one behind. The OECD Working Paper on “Can blockchain technology reduce the cost of remittances” to be
released in March 2020 supports this work.
Expert Discussion - Thursday 30 January, 14.15-16.15

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