Impact investing deserves our best effort
My name is Rodrigo Madrazo, and I'm the CEO of EDFI Management Company. BIO is one of our shareholders.
In my leisure time, I cycle. Spain, like Belgium, has a strong cycling culture. I am particularly fond of the three-week races, as well as the one-day events, such as the Tour of Flanders, Paris/Roubaix, and Liège-Bastogne-Liège. In my youth, I had aspirations of becoming a professional cyclist, but at the age of 21, I opted to pursue a career in economics instead. Presently, I live in Belgium, eagerly anticipating the Tour of Flanders.
For over thirty years, my professional life has been dedicated to economics and finance. Following my tenure as the Director General of COFIDES, the Spanish development finance institution, I recently assumed the role of CEO at EDFI Management Company.
Throughout my career, I have been driven by a passion for blending economic and financial theory with practice. I obtained my PhD in economic theory and also served for eighteen years as a state economist in the Spanish public administration. I became the Director General for Economic Policy at the Ministry of Economy, a pivotal position in challenging times for Spain.
I have also contributed to the academic and literary worlds with several articles, essays, and books on economics and finance. They can easily be found online, although most of them are in Spanish, like my book on the new labour behaviour of Spanish women, for example: Nuevo comportamiento laboral de las mujeres espanolas (Pamplona: Civitas ediciones, 2013).
In 2016, the European Development Finance Institutions joined forces to establish the EDFI Management Company (EDFI MC), which serves as the shared financial arm of the European DFIs. As its CEO, I am proud to lead an impact asset manager that provides financial services in partnership with the European Commission.
EDFI Management Company (EDFI MC) delivers development finance solutions that enable European DFIs, development banks, and private sector investors to increase the scale and impact of their work. The company offers co-financing, risk-sharing, and blended finance facility management, and its mission is to enable higher-risk investments that DFIs and private sector investors could otherwise make.
EDFI MC manages two EU-funded market development facilities, EDFI AgriFI and EDFI ElectriFI, in partnership with FMO. It also administers two co-financing facilities among European DFIs, EIB and AFD: the European Financing Partners (EFP) and Interact Climate Change Facility (ICCF). Additionally, EDFI MC administers risk-sharing facilities, such as T&C guarantee (with Proparco) and new guarantee facilities under EFSD+, such as MSME guarantee.
Sustainable Development Goals
EDFI MC provides services, shares pipelines, and co-invests in various sectors with BIO, one of our shareholders, including in agrifood and renewable energy. Our focus is always on impact and we follow the EDFI harmonised principles, as well as the IFC operating principles for impact management to measure it. In renewable energy, contributing to sustainable development goal number 7: our investments have enabled 14 million people to access affordable and clean energy. We also measure our contribution to SDG 13 on climate action by the tonnes of CO2 avoided through our investments since inception, which we estimate at 640.000, about the equivalent of almost 90,000 cars driven for one year. In the agri-food sector, we strive to reduce poverty, which is SDG 1, and we have already reached 77,000 smallholder farmers and contributed to over 115,000 hectares of newly cultivated land.
In 2022 we accomplished numerous milestones. Pivotal was the replenishment of our co-financing facilities, which we manage for the European DFIs, the European Investment Bank, and the Agence Française de Développement, raising an impressive EUR 680 million for the next three years.
As we move into 2023, in addition to managing the co-financing and market development facilities on behalf of the European Commission, we are now shifting our focus towards managing risk sharing facilities, which involves issuing guarantees on behalf of the Commission. We anticipate that our assets and mandates under management will double within the next eighteen to twenty-four months. Our challenge lies in the fact that, despite our substantial portfolio, we need to invest much more, to meet the growing demand for impact investments.
Given the global financial gap that needs to be bridged, the EU’s Global Gateway programme has committed to mobilise up to EUR 300 billion by 2027, we believe the European DFIs can play a key role in sourcing projects and mobilising private investors through de-risking facilities, credit enhancement instruments, and other financial tools. By teaming up with the European Commission and aligning with its Global Gateway policy, we can strive to achieve the SDGs while promoting European democratic values, interests and standards.
Direct and indirect impact
Providing investors with a broad range of asset classes enables them to pursue various objectives. Most European DFIs possess an extensive toolkit, and selecting the appropriate asset class is crucial to achieving impact goals. On the one hand, indirect investments allow DFIs to reach a larger number of beneficiaries by relying on local financial intermediaries who have a better understanding of the regional industrial structure. Indirect investments create a multiplier effect. Direct investments, on the other hand, allow DFIs to provide customised solutions and exercise greater control over the process. Choosing the right asset class to provide tailor-made solutions is a key part of our job.
Migration and colonialism
I have devoted considerable thought to the impact of development finance on migration, I even tackled the topic in my doctorate thesis. Expectations are often the driving force behind economic migration. When poverty, unemployment, and hunger are the only prospects, migration to other countries in search of opportunities is often the only rational, albeit painful, choice. By investing in the private sector in developing or least developed countries, DFIs create local job opportunities, increasing the amount of locally available prospects.
Achieving the sustainable development goals by 2030 requires a substantial mobilisation of financial resources. To accomplish this, it is imperative to encourage private investors and companies to invest in developing and least developed countries, as well as fragile states. Contrary to some beliefs, this is not about neoliberalism or neo-colonialism, but rather a crucial component of development. We have a responsibility to expand impact investing to the commercial investment sphere and persuade asset managers and private companies that it is a prudent decision. Implementing sound businesses practices is key. Businesses that incorporate enviromental, social, and governance criteria (ESG) are more resilient, less susceptible to risks and more profitable in the long run. The only real challenges are the slow pace of progress, and the need to improve our impact measurement methodologies to prevent greenwashing. If we can accurately measure ESG and impact, investors will focus not only on risk and return, but also on the development impact of their investments.
BIO is an equity investor in the EDFI Management Company.
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