Development finance institutions make a substantial contribution to market development by promoting investment in strategically important sectors such as financial services, health and renewable energy. They support the building of infrastructure and create incentives for private investors, driving economic development in emerging markets. They also enable micro-, small and medium-sized enterprises (MSMEs) to access financing, allowing these companies to grow while supporting sustainable development goals at the same time.
43% of DEG customers have a core business whose activities, products and services contribute directly to the SDGs, for example through investments in training centres, hospitals and renewable energy.
At 38% of the financial institutions supported by DEG, more than half of the portfolio contributes directly to the SDGs. Examples include fintech companies that focus on financial inclusion, giving more people access to financial services.
The financial institutions supported by DEG enable more than 11.6 million MSMEs to access financing.
Companies’ business activities can result in varying development outcomes, depending on the investment needs of the country and sector concerned. The DERa assesses whether an investment is going to a country or sector where there is particular need for it and where it will potentially have a particularly positive effect on development. All project countries eligible for promotion are assessed for this purpose based on three factors: “Vulnerability” assesses the susceptibility of a country to external economic shocks. A very vulnerable country would benefit the most from investments to increase resilience. The second factor – “additionality” – refers to the additional value or benefit to a country of DEG’s investments that would not have been realised without DEG’s involvement. The “economic capacity” factor assesses a country’s ability to effectively use investments, such as those in infrastructure or education and skills acquisition, for sustainable growth.
69% of companies, financial institutions and infrastructure projects promoted by DEG work in markets and sectors where investments promoting sustainable development are of above-average importance.
24% of direct DEG customers work in sectors that are of particular importance to a country’s economic development and can generate positive spillover effects. These include customers working in energy, information and communications technology (ICT), transport infrastructure, finance and water management.
The importance of innovation to market development is also reflected in SDG 9 (Industry, innovation and infrastructure), which recognises that making industry more sustainable requires more efficient technologies and industrial processes. With most companies using innovation to survive in the market and respond to a changing world, DEG has refined and further narrowed down the definition of market and business innovations.
Examples of business innovation are innovations in a process or technology that, at a minimum, measure up to best practice and that secure companies’ long-term competitiveness, contributing to economic success. Market innovations, meanwhile, are defined as disruptive innovations that introduce a completely new product or open up a new market.
59% of DEG direct customers contribute to innovation by introducing new technologies, developing new products or implementing new processes.
Innovative cultivation methods in fruit and vegetable production
Name: Sweet Greens
Invested volume (in USD): 750,000
Country: Indonesia
DERa category: Market and sector development
Despite its fertile soils, Indonesia depends on imports of many types of fruit and vegetables as the country’s agriculture is not very developed and is vulnerable to weather, pests and disease. Innovative farming methods can help to improve food security in the long term. One example is the Indonesian company Sweet Greens that is using modern greenhouses with hydroponic technology to grow high-quality fruit and vegetables. This cultivation technique works without soil, as the plants are supplied with nutrients dissolved in water. To enable it to build more greenhouses, DEG provides the company with EUR 750,000 via its Up-Scaling programme.
Sweet Greens uses sunlight as its main energy source and controls its greenhouses digitally with sensors and automated processes. Plants are protected against adverse climatic conditions and are less susceptible to mould and fungi in the greenhouses. To further improve resource efficiency, Sweet Greens is also focusing on products that generate barely any waste.
Sweet Greens was founded by three Indonesian entrepreneurs with the aim of setting a new standard for quality with their products. The company markets and distributes these via its own website, social media and large grocery shops. Sweet Greens also plans to cooperate with various delivery service apps.
Impact of DEG’s fund investments
Investments in funds are a key part of DEG’s portfolio. They provide important equity capital for companies’ development. Small and medium-sized enterprises in developing countries benefit in particular from this.
DEG currently has approximately over EUR 1.9 billion invested in around 180 predominantly private equity funds, which provide capital to more than 1,300 investees.
As an anchor investor, DEG strengthens the capital base of the funds it finances, thereby also mobilising further investors. It also contributes market and structuring expertise, extensive knowledge of individual countries and regions, a large network and advisory services, particularly in relation to environmental and social factors.
DEG supports funds and their investees with Business Support Services in areas such as environmental and social risk management, climate strategies and management professionalisation. The effects of DEG’s fund investments measured using the DERa were as follows:
69% of fund managers pursue a structured approach to generate positive social or environmental impact.
34% of fund managers systematically and transparently integrate climate risks and opportunities.
52% of fund managers actively work to promote diversity in the workforce.
43% of fund managers have developed processes and mechanisms to safeguard the positive impact after their exit.
USD 50 million for net-zero infrastructure fund
Name: Emerging Markets Infrastructure Fund II (EMIF II) of A.P. Moller Capital
Invested volume (in USD): 50 million
Country: supraregional
DERa category: Market and sector development
DEG invests in the transition to a climate-friendly economy with a contribution of USD 50 million to the Emerging Markets Infrastructure Fund II (EMIF II) of A.P. Moller Capital. The fund will focus on investments in transport infrastructure and renewable energies in selected high-growth markets in South and Southeast Asia and Africa that provide green electricity and solutions to local logistics bottlenecks.
EMIF II seeks to achieve net zero by reducing greenhouse gas emissions for its transport investments by a minimum 25%, amongst others. As part of its net zero strategy, the EMIF II calculates the carbon footprint of each of its portfolio companies, as well as measures to reduce it. Besides DEG, other investors in the fund include global institutional investors. The fund is aiming for a volume of USD 1 billion.
EMIF II’s first investments include an airfreight logistics company in Egypt and a cold chain logistics company in South Africa.
