What is DEG’s approach to impact investing?
DEG has 60 years’ experience in financing and advising private companies, infrastructure projects, financial institutions and private equity funds in developing markets. As a development finance institution, impact has been at the core of DEG’s mandate since its inception.
In 2022, DEG refocused its strategy. For the first time, impact and sustainable financial returns are both equally important strategic targets for DEG. A new steering approach at portfolio level ensures an effective allocation of DEG’s equity and resources to achieve both the impact and return target.
Why is this approach important for delivering impact in emerging markets?
In the midst of a global pandemic and its economic and social impact, with a rapidly warming climate and rising global inequality, major challenges lie ahead of us. At DEG, we firmly believe that the private sector is not only much needed but also in a good position to address global challenges for a sustainable future. With this belief at our core, we support our customers through our investment and advisory services in creating positive impact with decent jobs, inclusive economic growth, and the sustainable socio-ecological transformation of their value chains.
What does DEG look for in an impact fund or impact-focused manager?
Private equity funds form a key part of DEG’s portfolio, accounting for 27 percent of investments. From an impact and return perspective, we have achieved the best results when working with experienced, more institutional GPs that have local operating capacity and share our commitment to sustainability and impact. Having a shared vision is key.
When it comes to implementation, DEG provides additional support for the fund and its investees in order to further develop them in a targeted manner, thus supporting long-term impact.
How do you measure impact?
In 2017, DEG introduced its Development Effectiveness Rating (DERa) to measure the development impact of each customer – the private sector companies DEG finances. Guided by the Sustainable Development Goals, DERa uses five outcome categories to assess the development contributions of each customer: decent jobs, local income, market and sector development, environmental stewardship and community benefits.
DERa enables DEG to manage the overall quality of its portfolio in developmental terms and provide its customers with helpful impetus for improvement. We use DERa to determine the current and expected impact of a potential customer as early as possible in the acquisition phase. The results are incorporated into our investment decision and monitored annually.
Elleke Maliepaard leads the impact team at DEG