Helping businesses improve and raise ESG standards is at the core of CDC's mission as a development finance institution. CDC takes an active approach to its responsible investment mission. This includes helping companies achieve good standards of governance and strong E&S performance to manage risks and impacts by detailed due diligence and monitoring, regular training for fund managers and site visits to portfolio companies.
CDC's ESG workshop programme highlights an innovative approach in terms of the practical advice and support provided to investees. In 2018, CDC supplemented these workshops with a variety of more targeted programs to address specific country, sector, or company (for example within the direct equity portfolio) issues. One such program was hosted in conjunction with human rights NGO, SHIFT, and the UK’s Department for International Development (DFID), working through social risk management in North Africa (building upon a 2017 workshop of similar scope in Ethiopia). Another series of workshops upskilled banking professionals from within CDC’s financial institutions portfolio, to better assess and address E&S risks in their potential loans.
In 2018, a main area of focus was increasing the integration of gender considerations into the due diligence and portfolio management process. This was in partnership with CDC's corporate commitment alongside the other G7 DFIs (in the 2x Challenge) to collectively mobilise $3 billion toward investments that provide women in our markets with improved access to leadership opportunities, quality employment, finance, enterprise support and products and services enhancing economic participation and access. This has provided an innovative and motivating way to engage investees on the topic and generate commitments on improving female representation at all levels, including management.
CDC's Financial Institutions team developed an innovative Customer Protection toolkit to be used internally by CDC, externally by CDC fund managers, and more broadly. The toolkit is aligned with CDC's Principles of Customer Protection: safeguarding, fair treatment, enabling organisation & culture, and sustainability & innovation. It helps companies and funds embed assessments of customer risks into the investment process and identifies opportunities to protect and create value.
Under CDC's Climate Policy, we have developed a Resource Efficiency Facility (REF), which provides financing at concessional rates to support capital projects that would lead to resource efficiency gains. It is an innovative mechanism that assists in delivering tangible impacts in line with our Climate Policy objectives. The facility provides preparatory assistance and low-cost loans to incentivise companies to optimise resource use and reduce their carbon and ecological footprint. In 2018, CDC developed a second mechanism to deploy REF capital, which is directly to third-party providers who have been through CDC's investment committee process. This innovative approach expands access to REF for companies that might otherwise be unable to take on debt.
One of the most innovative tools created by CDC is the ESG Toolkit for Fund Managers (a free, publicly available tool for integrating ESG into the investment process and sector-specific guidance, which was updated and web-enabled in 2015). The Toolkit was updated in 2018 and is had its official relaunch at the end of the year. On this basis, CDC is a leading source of ESG insight and guidance to the private equity industry in emerging markets.
Another area where CDC differentiates itself from its peers is the role we play in delivering an integrated E&S risk/compliance and value-add proposition in our investments. CDC tailors the ESG value-add proposition to each business or fund, and finds practical opportunities that stretch the business to innovate beyond CDC's core compliance requirements, as set out in CDC's Code of Responsible Investing. Areas of focus from a value-add perspective include effective gender, energy efficiency improvements, water-use audits and green real estate building standards.
CDC aims to be a thought leader in responsible investment by disseminating responsible business practices and keeping up with the challenges faced by investments in our geographies. For instance, CDC became one of the first development finance institutions to launch a quarterly E&S newsletter for its fund managers in early 2017, which continued throughout 2018. CDC has also published or contributed to the following reports in recent years:
- CDC Good Practice – Preventing Fatalities and Serious Accidents (CDC, 2014).
- Good practice for fund managers – Environmental and social due diligence: mitigating risks, identifying opportunities (CDC, 2015).
- Private Equity and Emerging Markets Agribusiness: Building Value Though Sustainability (Credit Suisse, CDC, EMPEA, IFC and WWF; 2015).
- Investments in the Agricultural Value Chain: Expanding the Scope of ESDD Improving risk management, creating value and achieving broader development outcomes (CDC, IFU, Obviam and Norfund; 2015).
- A guidance note on managing legacy land issues in agribusiness investments (CDC and DEG; 2016).
- Annual Sustainability Review 2015-2016 (CDC; 2016).
- Evaluating the impact of private providers on health and health systems. (Centre for Health Policy at the Institute of Global Health Innovation, Imperial College, funded by CDC, 2017)
- Growing Businesses of Scale in Sub-Saharan Africa (Chatham House, CDC, 2017)
- An Evidence Review: How affordable is off-grid energy access in Africa? (Acumen, CDC, 2017)
- Managing Risks Associated with Modern Slavery: A Good Practice Note for the Private Sector (CDC, EBRD, IFC, DfID, 2018)
- CDC Guidance Note - Waste Management (CDC, 2018)
- Private Equity's Role in Delivering the SDGs: Current Approaches and Good Practice (CDC, EMPEA, 2018)