Innovations In Emerging Markets

How A Private Equity Fund in China Helps Development

China's Mengniu Group is today the country's top seller of milk and a leading dairy product manufacturer. It got a major boost from the CDH China Fund -- a private equity fund in which IFC invested in 2002. Mengniu now serves as an incubator for small business development.

CDH China played an active role in helping the Mengniu Group to restructure its ownership and shareholding, improve its corporate governance, and expand its operations. Through its supply chain program, Mengniu helps its small suppliers access finance as well as training in animal husbandry to optimize their production.

As part of its focus on quality and innovation in the dairy industry, Mengniu has adopted and implemented international best practices and standards encompassing food safety and quality, worker health and safety standards, and environmental management.

How Equity Funds Impact Development
Over the past 20 years, and as one of the largest investors in this sector with $1.7 billion in investments in more than 100 private equity funds in emerging markets, IFC’s experience has shown that there is a strong relationship between fund performance and development impact.

The quality of the fund manager is the main driver of performance. So IFC’s investment strategy is to seek managers who add value to the companies in which they invest, rather than just supply capital.

For more information, see IFC Private Equity

Know a Few Capitalists? Africa Needs Them Now

That's essentially the message contained in a recent New York Times column by Tom Friedman entitled "Patient Capital for an Africa that Can't Wait". The author of the "World Is Flat", as always, brilliantly articulates the business ethos of the region.

Africa, he says, is in a middle place in the global economy,

"a wild, unregulated, informal, individual brand of capitalism, which we need to channel into formal companies that can grow and scale up, even with corrupt governance." ... "People grow out of poverty when they create small businesses that employ their neighbors. Nothing else lasts."

From IFC, one can still literally hear the applause: "way to go, Tom"; "right on, man"; "yesss, tell'em, it's about jobs and about scaling up small businesses." [Okay, there were also a couple of grumpy comments from our private sector development purists, as in: "who's the "we" in the "we need to channel" part of the sentence, Tom?," and thanks for specifying that capitalists can help start and run legal companies, Tom.]

Overall though, that is the sum of IFC experience and activities in Africa: investing in the expansion of companies such as the one mentioned in Friedman's column, Kenya's Advanced Bio-Extracts company. Like many small companies in Africa, ABE failed to get financial backing and credit from banks because of a lack of track record and collateral.

IFC was among those who stepped in with an investment in ABE, then helped bring in other financial investors like the Acumen Fund to partner in the project. Unlike ABE, whose CEO Patrick Henfrey worked at IFC for 11 years, many companies in Africa lack the financial know-how. They seek IFC as much for training and advice as they do for credit and support.

Backing Africa's small companies pays dividends in terms of development impact too. As Friedman mentions, ABE employs over 150 people in one of their factories and has contracted with several thousand farmers to grow the anti-malarial plant artemisia in Kenya and the neighboring countries of Tanzania and Uganda.

In Africa, both the investment and development potential is enormous.....and as Friedman says, what it needs now is many good capitalists.

Anglo American Has Best Social Impact Measuring Tool in the World

One of the world's largest mining and natural resources companies also has the best social and environmental impact evaluation tool in the world. That according to One World Trust’s 2006 Global Accountability Report. The report assessed 30 of the world's most powerful corporations on their ability to measure and thereby improve the social and environmental impact of their activities and ranked the South African mining firm's Socio-Economic Assessment Toolbox (SEAT) the highest on that score.

Thanks to its SEAT process, Anglo American is able to measure the environmental and social impacts of its mining operation and understand their dynamics. The company considers it a particularly valuable aid in managing the social dimension of long-term mine closure planning.

Last month, Anglo American furthered its commitment to sustainable development by joining 12 other large global firms to issue a "Statement of Intent for Doing Business with the World." The firms—including ABN Amro, AES Corp., BP, ERM, Eskom, GE, GrupoNueva, Statoil, Toyota, Unilever, and Vodafone—committed to search for responsible, sustainable, and inclusive business models that are profitable and good for development.

Brazil Banks Are Global Leaders in Sustainable Finance

Many of the environmental, social, and political challenges that confront the financial sector are magnified in emerging markets. Environmental risk is generally less transparent, huge segments of the population are financially excluded, and socio-economic inequality is a major challenge. A recent publication from the UNEP Finance Initiative, Sustainability Management and Reporting, highlights the leadership Brazil’s banks have shown in addressing these risks.

Unibanco, the third-largest private bank in Brazil, has been actively involved in driving the sustainable finance agenda and has contributed significantly to its current growth. It was the first emerging market bank to start complying with the Equator Principles, a set of social and environmental criteria used to evaluate and approve credits for infrastructure projects, and was also one of the first emerging market banks to offer research reports on the social and environmental performance of firms in its home market.

Because Unibanco pays as much attention to the sustainability of its own business practices as those of other Brazilian firms, it was also one of the inaugural firms included in the Sao Paulo Stock Exchange’s new Corporate Sustainability Index. The BOVESPA exchange launched its sustainability index in December 2005 to provide asset managers and investors with a reliable and objective benchmark of the best corporate sustainability practices in the country. The sustainability index project was financed by IFC.

Using the BOVESPA ISE index as a benchmark, ABN AMRO’s Brazilian affiliate launched the first emerging market socially responsible investment fund. According to UNEP’s publication, ABN AMRO Fundo Ethical was awarded best performing SRI fund since inception out of 221 socially responsible funds tracked by Bloomberg.

Companies Innovating in Renewable Energy Sector

A recent World Bank Group report reviews progress made by the World Bank and the International Finance Corporation, among others, in establishing the business of renewable energy and energy efficiency in emerging markets. The report provides a wealth of information tracking the growth of renewables and energy-efficient technologies over the last two decades.

The World Bank Group's web site on renewable energy for development is even more interesting for those seeking information on innovations in this sector. The site lists several recent case studies of companies in developing countries that have used innovative financing approaches to grow their green energy capabilities and business lines. For more on this, click here.

Philanthropreneurs and Companies Doing Good while Doing Well

The line between philanthropy and business is blurring, says a New York Times supplement on Giving this week. A new generation of philanthropists has stepped forward, for the most part young billionaires who have reaped the benefits of capitalism and believe that it can be applied in the service of charity. They are “philanthropreneurs,” driven to do good and have their profit, too.

Meanwhile, in emerging markets, companies are also applying the "part philanthropy/part corporate strategy" business model. The result: they are developing markets AND contributing to bettering the lives of millions of people. Intel's World Ahead program in China is one example. The tech company has announced plans to spend $1 billion over five years to improve Internet access in developing countries and train teachers on how to use technology.

The long-term pay-off for companies such as Intel is pretty clear. For the governments of countries like India and China, where programs by Microsoft, Intel, and other hi-tech companies are underway, "the technology projects offer ways to close gaps with wealthier cities -- providing more-remote and less-educated residents access to information they wouldn't have otherwise to improve their own and their children's fortunes. Both countries have ambitious plans to use technology to maintain their rapid economic development."

For those of us at IFC -- an international financial institution with a development mission-- the convergence of emerging market development goals with 'philanthropreneurshipism' means at least a triple pay-off, where everyone can win.

Cleantech: Not a Dirty Word for Venture Capitalists Anymore

This blog has covered the booming clean technology industry in emerging markets before. Now comes news that venture capitalists in the U.S. are catching on. The alternative energy industry is "in" and not just because it's green, an International Herald Tribune article notes.

In emerging markets, the impetus for the growth in investments in alternative energy sources is fueled largely by high fuel costs, as we noted in our earlier blog entry "Clean Energy Firms Have Moment in the Sun."

Not so in Silicon Valley, where innovations in finance are finally catching up with cutting-edge technology. The IHT says:

"On its face, interest by investors appears to be driven by higher oil and energy prices and the drain they have created on the economy. But there is also a more immediate allure, as investors have become receptive to alternative energy companies."

One count puts the number of funds focused on U.S. clean tech companies at 100, up nearly 40 percent from a year ago. Whatever the motivation behind the surge of interest, the end clearly justifies the means.

Verifying a Company's Contributions to Society

"Trust but verify" is as much a truism in the sustainable development world today as it was two decades ago in the political realm. Klaus Leisinger, president of Switzerland's Novartis Foundation for Sustainable Development talks about the challenges inherent in verifying a company's contributions to society in a recent McKinsey Quarterly interview. The Swiss pharmaceutical company has worked extensively among Africa's rural poor to introduce private health insurance.

Examples of the commitment of business to society are growing, although they have outpaced the ability to measure. The Novartis Foundation's fight against global poverty and disease --leprosy in particular-- is one example that stands out.

World's Financial Institutions Take Responsible Investing to Next Level

About forty international banks, controlling over 80 percent of all project financing around the world, have agreed to further strengthen a set of environmental and social standards known as the Equator Principles. In practice, that's taking responsible investing to a major new level.

How major? The agreement means most large global projects over $10 million will now be assessed for their impact on the environment or local population before receiving financing. As one Citigroup official told Reuters: "The Principles created a de facto global standard for the project finance business." A World Resources Institute official applauded the move, saying this showed global lenders are "creating better mechanisms for local communities to have their say before projects go forward on their land."

The agreement last week has been in the making for three years. In 2003, 10 financial institutions announced they would adopt IFC environmental and social guidelines for project financing. Since then, IFC has developed new guidelines, and the ranks of adherents to the Equator Principles have grown.

The World's Leader in Sustainable Banking Recognized

HSBC, the world’s third largest financial services group, is the global leader in merging social, environmental, and business objectives. HSBC is the first-ever recipient of the Financial Times Sustainable Banking Awards. The global award is designed to recognize banks that have shown leadership and innovation in integrating social, environmental, and corporate governance objectives into their operations.

Emerging markets banks distinguished themselves in this field as well. Brazil's Banco ABN Amro Real walked away with the "Emerging Markets Sustainable Bank of the Year" distinction, while several others received commendations.

The Financial Times and IFC assembled a panel of global experts to select winner of the FT Sustainable Banking Awards.