How we make investment decisions
We are impact-led and commercially rigorous, and our investment process includes specialists from both our investment and impact teams.
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As a development finance institution and impact investor, we measure success in two ways. First, we look at whether the businesses in which we invest can make a positive economic, environmental or social impact. Second, we look at how commercially sustainable and successful a business can be.
These two measures of success, impact and financial return, go hand in hand. To create long-term impact, a business must be financially sustainable. That means when we invest, the potential development impact and the commercial viability of the business, as well our ability to make a positive contribution, all need to be aligned. The second of these measures – financial return – also matters because we can reinvest this to help other businesses grow and generate further impact.
Because we seek to make a modest financial return on our investments, we can recycle this money into new investments. In steady state we are able to be entirely self-financing. We only require additional capital from the UK Government to increase our activities. There has been steady build-up of our work over the last decade in order to meet the huge financing gap laid bare by the UN Global Goals and the climate emergency. When we receive new capital from the UK Government, it comes from the part of the Official Development Assistance budget that is reserved for investment, and represents a small proportion of the overall aid budget.
We have unparalleled experience of supporting businesses and the communities that rely upon them, in some of the most challenging countries and regions in the world – places that are starved of investment. Private sector investors can often be put off by higher levels of risk caused by, for example, regulatory or political uncertainty. We are skilled at navigating those risks. We also play a key role in supporting private investors that are seeking to make impact investments in the countries where we operate.
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