“Preserve, Strengthen, Rebuild” COVID-19 Response

Give an overview of your sustainability outcome targets and explaining the methodology for establishing them. This should include information on:

• The sustainability outcomes, positive or negative, that you are seeking to shape.
• The specific targets you have set, and relevant related policies you have established to implement action on sustainability outcomes.
• Any additional context relevant information – that have influenced your choice of sustainability outcomes and targets – including links to global goals and thresholds.
• % of AUM to which these targets apply.

As the UK’s development finance institution (DFI), CDC invests to deliver a positive economic, environmental or social impact and to support the commercial sustainability of businesses it invests in. Its mission is development-focused: to promote sustainable, long-term growth in Africa and South Asia by building strong, resilient and profitable businesses that create jobs, improve lives and deliver lasting impact in some of the world’s poorest places. It seeks to alleviate poverty, grow responsible businesses, be additional (i.e. supplement rather than substitute what private capital can provide), make a difference, mitigate market failures and achieve sector transformations.

CDC champions the UN Sustainable Development Goals (SDGs), the framework of which describe its impact objectives, including women’s economic equality and climate action. CDC has set targets for the following sustainability outcomes:

• SDG 8: Decent work and economic growth: CDC aligns all its investments with SDG 8 by assessing the difficulty of investing in the country where the investment is to be made, and the propensity of investments in the relevant business sector to generate employment. The investment difficulty of each country and Indian state is measured by an equally weighted index combining five indicators: (i) market size (GDP by purchasing power parity); (ii) income level (GDP/capita PPP); (iii) credit to the private sector (as a percentage of GDP); (iv) ‘Doing Business’ rankings; and (v) a composite measure of fragility designed by the UK’s Department for International Development. These targets apply to 100% of its assets under management (AUM).
• SDG 13: Climate action: In 2020, despite the pandemic, CDC set a target of 30% of its commitments within its broad sector investment mandate to be in climate finance-qualifying subsectors in 2021. It tracks climate finance according to the Multilateral Development Bank climate finance methodology for mitigation finance and the principles of the EU Taxonomy for adaptation finance. Its climate change strategy is aligned to the 1.5°C temperature goal of the Paris Agreement and SDG 13. Furthermore, CDC seeks to have net-zero portfolio emissions by 2050, which will be tracked by attributed portfolio GHG emissions. These targets apply to 100% of AUM.
• SDG 5: Gender equality: CDC seeks to increase investment capital for women through joint commitments with fellow development finance institutions. This is done through identifying a number and value of new commitments made that qualify for the 2X Challenge (an initiative by G7 development finance institutions to support the economic empowerment of women). Metrics include the percentage of shares owned by women, female CEO or founder, percentage of women in senior management, percentage of female employees, and products or services that disproportionately benefit or serve women. CDC’s target for qualification is 25% of AUM.

With the emerging COVID-19 crisis early in 2020, CDC recognised that, within its mandate, it needed to provide critical support as a counter-cyclical investor, providing immediate liquidity to businesses, while also taking a long-term view to support economic recovery. As all CDC’s regions have been impacted by COVID-19 in different ways, it recognised the need to step up and support its portfolio to preserve its impact.

In this context and as an impact investor, its response was built on three pillars:

• ‘Preserve’ supported its partners to safeguard impact and navigate the crisis. With investments in over 1,200 companies in South Asia and Africa employing over 800,000 people, its impact outcome focus for its investees was to save jobs, safeguard companies’ impact and build resilience.
• The ‘Strengthen’ pillar looks to scale its response to the economic and health challenges of the crisis. Beyond assisting its current investees, it looked at how to extend support – whether through working with local banks to provide the working capital that businesses need or by exploring investments that could scale up access to healthcare and basic services. Impact priority sectors under the Strengthen pillar include COVID-19 and other healthcare, sanitation and basic needs.
• Through ‘Rebuild’, CDC seeks to be a long-term partner to the countries where it invests. Finance and support from institutions like CDC will be critical to the rebuilding process.

These pillars span its entire portfolio, but CDC also identified vulnerable and high (ESG and business integrity) risk targets for additional support.

Explain how you have sought to shape sustainability outcomes through investment allocations, stewardship of investees and/or engagement with policy makers and key stakeholders. This should include information on:

• Which levers you have used to achieve your targets, and why you have chosen them.
• If and how you are working collectively with other investors or collaboratively with other stakeholders to achieve your targets.

In setting up its three pillars to prioritise investments for its COVID-19 response, CDC focused on blending pools of capital with different risk profiles (e.g. taking on greater risk for enhanced impact) and technical assistance (TA) funding.

Through its Preserve pillar, it provided $37m of liquidity to support its existing portfolio of companies, projects and fund managers through the crisis. It also set up an emergency TA facility which approved £820,000 of funding to 19 projects across its portfolio for projects ranging from job protection to credit risk management and health and safety improvements.

Under the Strengthen pillar, it provided $540m for systemic liquidity and to meet healthcare and basic needs to scale-up the response the economic and health challenges of the crisis. This meant proactive investments in companies, projects and partnerships (at scale) to directly mitigate some of the adverse impacts of the crisis.

Under the Rebuild pillar, CDC prepared a robust c.$1bn pipeline to be a long-term partner to the countries it invests in. This made CDC one of the first investors to re-enter the African and South Asian private equity and debt markets to support rebuilding economies and mobilising capital. In addition to investment capital, CDC offered a wide range of guidance and support to portfolio companies and networks of other DFIs and investors.

Describe how you are tracking performance against your sustainability outcomes targets (short, medium and longer term). Include details of any progress achieved to date, any lessons learned, and how strategies or implementation approaches have shifted as a result of experience thus far.

Early outcomes show CDC’s portfolio has proven to be resilient with no measurable increase in write-offs and good job retention (outperforming its International Labour Organization benchmark) because of these efforts. Against a more challenging environment, CDC increased the number of investments it holds, supporting more companies during a time of difficulty in order to sustain impact in its markets, and notably increased commitments in its high-impact portfolio.

Under its Strengthen pillar, impact-led commitments ensured scale and reach to its target populations. Its investments were distributed across priority groups, balancing the need for urgent liquidity at scale, and targeted investments to reach more vulnerable groups. Healthcare and basic needs were top impact priorities.

The other impact priorities inform its “Rebuild” pillar as the crisis evolves from an acute to a chronic situation. CDC’s DFI collaboration initiatives created a coherent response for the market with tangible results. CDC partnered with 14 organisations to commence and complete initiatives – nine with European DFIs, two with multilateral institutions and two with other groups. Matters approved ranged from emergency facilities, guidelines and standard legal documentation for repayment deferrals, guidelines for sector-specific issues, principles for TA and guidance on environmental and social monitoring. The need for alignment with a multitude of stakeholders was clear and valuable, adding credibility and robustness to its decisions.

The impacts of crises are rarely gender-neutral and COVID-19 is no different. CDC has sharpened its approach to gender-smart investing through the crisis and led the way for other investors, continuing to be a key member of the 2X Challenge. More than $200m of its 2020 investments qualified under 2X criteria.

The crisis also focused attention on the importance of responding to the threat of climate change. CDC launched its Climate Change Strategy in 2020 and has shown leadership, alongside other DFIs, by: making commitments to ensure its portfolio reaches net zero by 2050; supporting a ‘just transition’ to a low-carbon economy; and strengthening resilience in its markets to the effects of climate change.

CDC played a leading role in TA by approving a total of £5.2m of COVID-19 assistance through 65 projects and leading the European DFI collaboration. All projects in the facility were aligned with the response pillars and streamlined for quick and flexible approvals. Over 70,000 workers were supported through the Worker Engagement and Protection Facility. An example is its work on retrenchment planning, through which CDC supported 1,507 workers across five companies with a focus on vulnerable workers including women, migrants, and gig economy workers.

CDC is now assessing the results of its interventions using its impact assessment framework, which will be reviewed under each of the three pillars, aggregating data on employees supported, jobs created, jobs protected, improved working conditions, customers reached and protected, customer service improved access to basic goods and services, and COVID-19 patients screened and treated. Its combined response of capital, technical assistance, advisory and capacity building resulted in portfolio resilience, safeguarded impact and led to very real examples of impact at the level of individual investments.