Unleashing more investment to drive a sustainable future in developing countries
EU policymakers, DFI community, institutional investors at EDFI-ODI Europe-hosted event look to better tap into $100 trillion in assets held by private investors worldwide, more than a quarter of which are concentrated in Europe alone.
BRUSSELS, 27 November 2024 – Solutions are needed fast to achieve a quantum leap in insurance corporation and pension fund (ICPF) investments into Emerging Markets and Developing Economies (EMDE). Mobilising more investment can help reach the UN Sustainable Development Goals and the objectives of the Paris Agreement to combat global warming.
Despite the urgency, achieving increased ICPF investment into developing countries has proved challenging. Identifying the roadblocks and opportunities to boost these critical financial flows was the goal of an EDFI and ODI Europe co-organised event last week in Brussels: “Trillions or billions? Reassessing the potential for European institutional investment in emerging markets and developing economies”.
Held on 21 November, the event centred on a new ODI Global report presented by two of its authors, Samantha Attridge and Bianca Getzel, who examine the role of governments, multilateral development banks (MDBs), development finance institutions (DFIs) and regulators in helping insurance companies and pension funds allocate more assets in EMDEs. They also discuss ways for the EU regulations on sustainable finance to help, not hamper EMDE private investment.
EU policymakers, the DFI community, and ICPFs participated in the round-table discussion and explored data showing how assets held by private investors worldwide have surpassed $100 trillion, more than 25 per cent of which are held in Europe alone.
EDFI Board Chair Luuk Zonneveld said: “The overall goal is to connect development opportunities to the potency of global finance. Today’s event helped move towards that aim by exploring the opportunities and bottlenecks to achieve a quantum leap in ICPF investments into EMDEs.”
Samantha Attridge, Principal Research Fellow, ODI Global, said: “We need to be realistic about the amount of capital that can be mobilised from institutional investors, better understand the barriers and develop solutions which overcome these. There is an exciting opportunity for investors as future global growth will be driven by EMDEs. MDBs and DFIs can play an important role but to unlock this agenda we must act as a cohesive system to overcome wider systemic issues.”
Media contacts:
James Pieper, Senior Communications Specialist at EDFI, james.pieper@edfi.org;
Maggie McNulty, Senior Communications and Partnerships Manager at ODI Europe, m.mcnulty@odi.org.uk.
Notes to editors:
Challenges to ICPF investment in EDMEs: The ODI Global report, “Trillions or billions? Reassessing the potential for European institutional investment in emerging markets and developing economies” by Samantha Attridge, Bianca Getzel and Neil Gregoryoutlines a number of issues that must be addressed:
- Not all ICPFs have the capacity to invest in EMDEs. Therefore, the addressable market for mobilising capital into EMDEs is smaller than often assumed in the financing-for-development discourse. With increased ambition, current combined investment flows of Europe’s top 35 largest asset owners could be doubled, leading to an annual EMDE flow of around $120 billion in five years. However, these flows are likely to be highly concentrated in publicly listed and investment-grade assets in large emerging markets.
- Prudential regulation does not constrain pension fund EMDE investment but does limit EMDE investment by insurance companies. For pension funds, the barrier to increased EMDE investment allocation appears to be more behavioural conservatism.
- European pension markets are undergoing reform and shifting from defined benefit to defined contribution schemes. This potentially has both positive and negative impacts on EMDE allocation.
- There is a critical role for governments, MDBs and the DFIs to help these institutions allocate more assets to EMDEs by expanding low-cost investment options in risk-diversified portfolios while making their offerings more visible to ICPFs.
- To create a portfolio of assets for ICPFs to invest in, MDBs and DFIs will have to devote more efforts to market development and asset origination, as there currently are not enough available investment opportunities to meet the potential demand and ticket-size expectations of institutional investors looking for large, pooled funding models.
- Need exists to adapt certain aspects of Europe’s sustainable finance regulations, to help keep vital capital flowing for private-sector projects in developing countries. European prudential regimes for ICPFs, like Solvency II, should also be analysed for their impact on EMDE allocations.
DFIs and EMDEs: DFIs are strongly committed to supporting EMDEs achieve sustainable growth in their countries and societies by investing into their private sectors. They understand the need for investment in businesses of all sizes, financial institutions, and infrastructure projects, especially to generate renewable energy. Last year the 15 DFI members of EDFI together held a portfolio approaching €53 billion in almost 7,000 investments and committed €9.6 billion to some 940 new investments. Yet much more is needed.
About EDFI: The Association of European Development Finance Institutions, or EDFI, was established in 1992 to support and promote the work of bilateral Development Finance Institutions (DFIs). With a combined portfolio of €53 billion, including more than €15 billion of climate finance, the 15 member institutions share a vision of a world where the private sector offers people in low- and middle-income countries opportunities for decent work and improved lives, and where private investment flows are aligned with the Sustainable Development Goals and the Paris Climate Agreement. EDFI holds the mission to promote the joint interests of its members, inform policy, and drive innovation in industry standards.
EDFI membership: BII (UK), BIO (Belgium), Cofides (Spain), DEG (Germany), Finnfund (Finland), FMO (The Netherlands), IFU (Denmark), Norfund (Norway), OeEB (Austria), Proparco (France), SIFEM (Switzerland), Simest and CDP Development Finance (Italy), SOFID (Portugal), Swedfund (Sweden).
About ODI Europe: ODI Europe brings research, ideas and dialogue with the wider world into the European policy debate. We address critical priorities while staying attuned to European policies and processes. Breaking down inward-looking trends, we are sensitive to political realities. We work with a wide range of stakeholders including EU institutions and Member States, as well as the UK and countries in the wider European neighbourhood. We are based in Brussels and are part of the ODI Global network.
EDFI mapping report on the EU sustainable finance regulatory framework : European DFIs signalled earlier this year in a statement that EU sustainable finance regulations are essential to direct capital toward environmentally sustainable economic activities, but that they currently lead to unintended obstacles for channelling private-sector financing to real-economy firms in developing countries.
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