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Capacity Development Beyond Aid: A new thought in development

Capacity development beyong aidIn the development domain, there are numerous confusions over capacity development, advisory services and aid. It is a common understanding that for development we need problem solvers [consultants] which are cost effective, efficient and swift. Consultants excel at developing and selling ideas, and are the simplifiers and implementers. Hence, the argument is that advisory and capacity development aspect is ‘ambiguous’.

In spite of these confusions, one thing becomes clearer: capacity development and advisory services are keys for transformational change; and aid effectiveness with capacity development system is more penetrating and sustainable for making systemic change. Capacity development supports are to identify the pros and cons of proposed courses of action and developing capacities of stakeholders to develop and implement themselves. Hence, the aid effectiveness in capacity development is more sustainable then merely consulting.

On this subject, an interesting publication just came out: Capacity Development Beyond Aid, which is a must read. The book outlines an agenda for future research and practice based on the substantive body of capacity development theory and praxis accumulated over the past few decades. It aims to contribute to the “what next” debate by synthesizing some key insights derived from a rapidly changing international development landscape.

Among the questions raised in the book are:

  • What does the changing knowledge landscape mean for the body of capacity development knowledge and praxis that has been built up in the aid sector over the past decades?
  • Is there indeed a role for capacity development beyond aid?
  • How can good practice be harnessed and further developed by those actors and stakeholders who are becoming less aid dependent, but who continue to face capacity challenges?
  • What contribution can capacity development play in the difficult circumstances of fragility and instability, where the role of the international community will remain important for the foreseeable future?

The book highlighted that for development, donors need to realise that they needed to work and act differently. The task of capacity development was not just about what countries needed, it was also about how donors  engaged.  It  was  generally  acknowledged  that  uneven  power relations,  the  imposition  of  policy  conditionalities  premised  on  financial  leverage, was undermining local leadership and ownership. Too much doing and not enough facilitation easily resulted in substitution and a plethora of uncoordinated projects. Partnership and later aid effectiveness emerged as new concepts during the course of the 1990s and 2000s.

At the most fundamental level, the Chinese proverb ’Give a man a fish… teach a man to fish’ continues to encapsulate the essence of donor-funded capacity development and  highlights  the  perennial  challenge  of  reconciling  the  pressure  to  solve  today’s needs through capacity substitution while keeping an eye on promoting long-term capacity development. Concerns about sustainability and exit strategies remain pre-occupations in the  aid  community.  The  solution,  it  is  generally  recognized,  lies  in the ability of countries to drive their own change processes so they can find ways of building and sustaining human, organizational and institutional capacities.

The complete book is available in the below weblink:

http://www.snvworld.org/download/publications/capacity_booklet_eng_web_new.pdf

Keshav C Das

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Development Paradox: Economic Growth and Inequality

development.paradox

On completing one year in office, Modi government in India reported that India’s economy grew by 7.3 per cent during 2014-15.  The International Monetary Fund has projected that India will outpace China during the current fiscal year. This is very encouraging news. From the point of view of broader policy-making India is still a recovering economy.  The prime drivers of the growth were the significantly stronger performance of ‘manufacturing’, ‘electricity, gas, water supply and other utility services’ and the ‘financial, real estate and professional services’.

However, this is a development paradox. Indeed, this development paradox is applicable as a truth into most of the developing and least development countries economics; both in Asia and Africa. Taking the example of India, it is true that India has attracted global attention for rapid economic growth. India accounts for nearly 80% of the regional GDP of South Asia, and is the largest country in the region, is seen as an emerging economic powerhouse. Other countries in the region are also well advanced in the transition from low income to middle income status. But this progress doesn’t mask the fact that India in particular and South Asia in general is home to the largest concentration of people living in debilitating poverty and social deprivation on planet earth[1].

The geography of poverty has changed over the last two decades[2]. More than 70% of the world’s poor now live not in low income but in middle-income countries. Indeed, there are more poor people living in South Asia than in Sub-Saharan Africa. This pattern of concentration of the poor living in the middle income countries is likely to continue over the next decade[3]. This raises two big questions. Firstly, why could we not able to reduce poverty despite of the impressive income growth and secondly, does this income growth provide socio-economic development to society? The direct responses to these fundamental questions are not positive.

The number of poor people (defined as those living under $1.25 per capita per day) in Sub-Saharan Africa increased and Poverty headcount ratio for Africa is 46.8%[4]. In case of Asia, the poverty rate is nearly 50%[5]. Inequality has been raised and according to a recent report of Asian Development Bank, it has been increased in Asia two folds in last 10 years[6]. Inequality is an important dimension of development in its own right, but it also has consequences for governments’ fight against poverty and efforts to sustain growth. Both poverty reduction and the foundations for future growth can be strengthened by ensuring that the benefits of development are shared broadly and equitably.

The paradox of economic growth is that it has been instrumental in reducing poverty rates, but poverty rates have not fallen fast enough to reduce the total number of poor people. Poverty reduction in India, China (LDCs which aspires to be in the middle income status) are precisely in line with what economic growth would predict. Although inequality increased more rapidly and an inclusive development remains are dream to be fulfilled. Unfortunately, this is real world development paradox of the contemporary time. Policy makers need to address this paradox strategically, if we do not act on this urgently, it could impair growth and those with low incomes suffer poor health and low productivity as a result. It could threaten public confidence in growth-boosting policies like free trade, or it could sow the seeds of crisis!

Keshav C Das

Addis Ababa

June 1, 2015

[1] Is growth incomplete without social progress? Ejaz Ghani, 2011.

[2] Sumner, A (2010), “Global Poverty and the New Bottom Billion: Three-quarters of the World’s Poor Live in Middle-income Countries’”, IDS Working Paper 349, Brighton: IDS

[3] Chandy, L and G Getz (2011), “Poverty in Numbers: The Changing State of Global Poverty from 2005 to 2015”, Brookings.

[4] http://povertydata.worldbank.org/poverty/region/SSA

[5] http://www.economist.com/news/economic-and-financial-indicators/21614146-poverty-asia

[6] http://www.adb.org/sites/default/files/publication/41630/inequality-asia-and-pacific.pdf

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Is carbon neutral green economy a myth?

Green Growth-1In an interesting paper of Environmental Justice, it was questioned that the vision or philosophy of carbon neutral economy or green economy is a myth.  The author of the discussion paper, Kevin Smith narrated that carbon offsets are the modern day indulgences, sold to an increasingly carbon conscious public to absolve their climate sins. The author further stated that if we dig out more, a disturbing picture emerges, where creative accountancy and elaborate shell games cover up the impossibility of verifying genuine climate change benefits, and where communities in the South often have little choice as offset projects are inflicted on them. This discussion paper argues that offsets place disproportionate emphasis on individual lifestyles and carbon footprints, distracting attention from the wider, systemic changes and collective political action that needs to be taken to tackle climate change. Promoting more effective and empowering approaches involves moving away from the marketing gimmicks, celebrity endorsements, technological quick fixes, and the North/South exploitation that the carbon offsets industry embodies[1].

But in reality the picture of carbon neutrality and green economy is not bad, rather encouraging; thanks to the leadership of market leaders like Global Green Growth Institute (GGGI) , which has been relentlessly working with the belief that economic growth and environmental sustainability shall go hand in hand and its integration is essential for the future of humankind. This fundamental vision of GGGI continues to inform and inspire its enduring commitment to the future – a resilient world where one can envisage growth to be strong, inclusive, and sustainable.

A few instances to demonstrate that carbon neutrality and green economic growth is a reality; one may like to go through the well-developed report on ‘Green Growth in Practice: Lessons from Country Experiences’. The report has convincingly described with evidences and rationale that carbon neutrality can be a part of the vision of a nation’s economic planning as well as it can be accelerate the economic growth engine of a nation with timely, cost effective and sustainable investment planning (resources and activities), delivery (implementation) and strong adherence to accountability (post-delivery ownership). Indeed, these principles are reflected in the Ethiopia’s Climate Resilient Green Economy (CRGE) Strategy.

The strategy considers synergies between economic development, poverty reduction, climate change mitigation and resilience across all sectors of the economy, considering agriculture, energy and water as key sectors. In agriculture benefits include increased productivity, enhanced food security, jobs and stability of export income (through crop diversification). In energy and water compelling benefits come from expanding energy access and security and reducing economic and social vulnerability. At the same time, Ethiopia has to manage trade-offs in making policy decisions to improve the lives of the rural poor such as between forest conservation and increasing land for agricultural production. Possible solutions for managing these trade-offs are increasing the productivity of agriculture and providing economic incentives for forest preservation.  Ethiopia’s main framework for green growth focuses on how climate change resilience and greenhouse gas mitigation is crucial to achieving its economic and social goals of becoming a middle-income country by 2025.

The progress in Ethiopia on green economy development is impressive; for instance, the investment framework is in practice, investment and delivery plans for agriculture and climate resilience are developed and put in practices; and an effective results and knowledge development pathways for measuring results and impacts are also in the process of development. Hence, it will be naive to jump into a conclusion that carbon neutral green economy is a myth, rather we may conclude that it is complex, multi-dimensional and multi-sectorial, which needs critical, systemic thought process and a robust system to translate the systemic, contextualized delivery plans into real actions. And, this is the unique value proposition of market leaders like GGGI, who drives and commits itself in this mission!

Keshav C Das

Addis Ababa, May 17, 2015

[1] Red the full paper here: http://www.tni.org/sites/www.tni.org/archives/reports/ctw/carbon_neutral_myth.pdf

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Burning issues for COP.21: Road to Paris

720x300_cle0a69baUNFCCC came with a draft negotiation text in March first week, after six days of discussion in Geneva. This ‘negotiation text’ comprises of a wide range of options and proposals, which includes all most everything and anything, which are necessary to combat with climate change issues. This is now the official negotiating text for an agreement to curb greenhouse gas emissions, set to be signed off in Paris this December. However, parties and observer organisations need to evaluate the ‘negotiation text’ with a pragmatic approach to determine, what are the practical and doable goals that world leaders can agree upon to seal a deal in Paris.

Clearly, some of the proposals of this ‘text’ are outcomes of previous COP discussions; for instance, submission of INDCs, national inventory report containing estimated emissions and removals, in accordance with IPCC guidance; undertaking a national adaptation plan (NAP) process and initiate as nationally appropriate mitigation actions (NAMAs) as appropriate in the context of climate resilience and highlighting the need for financing for forestry in line with the Warsaw Framework for REDD+. Focuses on mitigation has been stressed upon by proposing more robust INDCs as well as another newly proposed mechanism as diversified enhanced mitigation actions (DEMAs). These DEMAs also include REDD+.

However, the negotiation text did not provide clear directions on agriculture sector development as major drivers of deforestation, loss and damage as well as mobilising climate finance. Instead the ‘text’ proposes a few debatable issues, which are going to be burning issues in COP.21. For instance, the draft text proposes to introduce an economic mechanism to regulate emissions under which emissions trading system and a new version of the UN’s Clean Development Mechanism would be introduced to support low carbon innovation in developing countries – promisingly entitled CDM+. It means countries with economy-wide emissions reductions targets could trade with one another in order to reach their goals in the most cost effective way. The hope is that this could incentivise emerging economies to adopt this kind of target. However, this has not been linked to the ratification of Kyoto Protocol and it also undermines the chaos, global leaders faced in Doha while giving an extension to CDM.

Another controversy, which could emerge from this draft text, is tax on oil exports. This would be closely modelled on Ecuador’s Daly-Correa tax, which the government has promoted as an effective way to transfer money from rich, oil importing countries to poorer developing nations. Ecuador has already paraded this idea before OPEC, where they proposed that all proceeds of the tax – around 3-5% levied on every barrel of oil – should be transferred directly into the UN’s Green Climate Fund. Similarly, the draft negotiation text also proposes a very ambitious proposal to parties to reduce net emissions to zero by 2050! Interestingly, this proposal is supported by many civil society actors, who see it as key to delegitimising the fossil fuel industry. But it is even more radical than what is proposed by the IPCC, which is that emissions should fall by 40-70% below 2010 levels by 2050 in order to stay below the 2 degree C limit. Another variation includes full decarbonisation by 2050 for rich countries, and a sustainable development pathway for the poorer nations.

Besides, UNFCCC proposes in the text that parties recognise that addressing climate change will also help their countries to attain “the highest possible level of health”. Inclusion of this text will definitely trigger a protest from China considering its industrial cities such as Beijing which regularly finds it choking on the hazardous air quality, partly as a result of burning coal. No need to mention about the emissions reductions targets for ships and planes, climate justice tribunal proposed by Bolivia, human rights and gender equality!

The message is clear; it is good to have this draft negotiation text, but can parties reach into a constructive pre-consensus before Paris or all of us will meet in Paris to disagree? To find answer to this question, we must wait for December.

Keshav C Das

Senior Advisor, SNV Netherlands Development Organisation

Kathmandu, April 01, 2015

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A conversation with my CEO: Why Strategies Fail

March.Blog

This is always a pleasure to get an opportunity to work with a CEO, who is accessible, responds to your questions and feedbacks in impressive time and drives an organisation with exemplary motivation and zeal, because of which, his employees feel ‘free to innovate and deliver results’.  We are lucky to have such a CEO in SNV Netherlands Development Organisation, with whom; all the employees get opportunity to have an open chat in a month. In one of such chat sessions, I was asking my CEO about SNV’s strategic focus for next five years; mainly to understand, where do we [SNV] want to go and what do we want achieve and how quickly and efficiently we can do it together!

Response of my CEO for that question was built on his pragmatic understanding of the subject, which was evolved based on his long term engagement in planning and strategy development for government of Indonesia as well as his works with other development organisation and bi-lateral agencies. The answer was short and simple: ‘to survive in a competitive market, we need constantly evolving strategies and success is possible, even in a hostile environment. Long term planning may not work all the times although we can do a planning for plan sake’.

I believe the above mentioned statement reflects that understanding the value of and need for a strategic plan is a great place to start, but just wanting something, isn’t enough. Developing a strategic plan takes discipline, foresight, and a lot of honesty. Regardless how well we prepare, we are bound to encounter challenges along the way. I could find out six key points[1], which should be considered to introduce effective planning in organisation and translating it into real actions, which will bring us, closer to our goal of implementing a strategic plan that actually achieves results and improves our business.

  1. Understanding the environment or focusing on results. Planning teams must pay attention to changes in the business environment, set meaningful priorities, and understand the need to pursue results.
  2. Full commitment.Organisational leaders like CEOs, Managing Director, Country officers must be fully committed and fully understand how a strategic plan can improve their enterprise. Without this knowledge, it’s tough to stay committed to the process.
  3. Having the right people involved.Those charged with executing the plan should be involved from the onset. Those involved in creating the plan will be committed to seeing it through execution.
  4. Willingness to change. Organisation and our strategic plan must be nimble and able to adapt as market conditions change.
  5. Having the right people in leadership positions.Management must be willing to make the tough decisions to ensure the right individuals are in the right leadership positions. The “right” individuals include those who will advocate for and champion the strategic plan and keep the company on track. However, we must avoid micro-managers, which is very evident in many instance and I have witnessed such ‘management killers’’.
  6. Unrealistic goals or lack of focus and resources.Strategic plans must be focused and include a manageable number of goals, objectives, and programs. Fewer and focused is better than numerous and nebulous. Also be prepared to assign adequate resources to accomplish those goals and objectives outlined in the plan.

By adhering to these success factors, we can create an effective planning process, build a realistic business direction for the future, and greatly improve the chances for successful implementation of our strategy.

Keshav C Das, Senior Advisor, SNV Netherlands Development Organisation

New Delhi, March 01, 2015

[1] http://www.forbes.com/sites/aileron/2011/11/30/10-reasons-why-strategic-plans-fail/

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Transforming SDGs into realities

Blog.Feb
Development Landscape of Vietnam- Photo Credit:Anna-Selina Kager

Global leaders, think tanks and development practitioners are working tirelessly to agree “a truly transformative agenda” in a new set of development goals that will improve the lives of all people. These new global targets will replace the millennium development goals (MDGs), which reach their deadline at the end of this year. But, how are we moving in achieving a grossly agreed [consensus based] development agendas?  Will the new sustainable development goals [SDGs] have the strategic focus and necessary strengths, which could benefit almost 1 billion people, still living in abject poverty; would the hundreds of thousands of women, dying each year during pregnancy and childbirth be able to overcome this? Could it be able to provide clean cooking and lighting to 3 billion people, who have been still relying on traditional biomass for cooking and heating and 1.2 billion have no access to clean lighting? Similar questions also go for the global health, sanitation, education and human rights. Indeed, a draft set of 17 sustainable development goals (SDGs), with 169 targets have been developed. The proposed goals cover the broad themes of the MDGs – ending poverty and hunger, and improving health, education and gender equality – but also include specific goals to reduce inequality, make cities safe, address climate change and promote peaceful societies. It is hoped that the goals will encourage a more holistic approach to development at national and international level, and offer a chance for more partnerships and collaboration. However, unfortunately, we have not yet seen a universal buy-in of the SDGs by national governments as well as international donor’s communities. There is a general perception that the goals are too many and ‘having too many targets means no targets’. Hence, there is an urgent need to develop a consensus on the targets and goals. Crucially, the next set of goals should be universal, which means all countries would be required to consider them when crafting their national policies.  Indeed, this will be a major challenge. We will also need endorsement of bilateral donors, philanthropists and private sectors on the proposed SDGs and perhaps, private sectors will also be interested to see a focus on market externalities, resources and/or capital. We must not forget that the real test of UNs, global leaders, think tanks, donors and governments’ commitment isn’t the loftiness of the goals; but, it is what they are prepared to do to reach them!

Keshav C Das Senior Advisor SNV Netherlands Development Organisation Kathmandu, February 03, 2015

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Financing Innovatively: What can we do in Renewable Energy Sector?

There is widespread recognition that renewable finance needs to be scaled up from its current levels. However, there is no clear view on how developing countries like Nepal can efficiently and effectively mobilise further finance to meet the needs of its increasing energy economics from new and innovative sources of financing. Jan.

While the demand for renewable energy technologies keeps growing, the cost of such devices remains an important barrier for a majority of households and small businesses, slowing down their potential dissemination in developing countries.

The International Energy Agency (IEA) has reported in its recent Global Energy Demand Report that the world requires $48 trillion investment till 2035 in order to meet the growing need for energy. To meet this increasing energy demand, countries need to diversify sources of energy production and means of energy distribution and countries must invest $40 trillion in energy supplies over the next 21 years, according to the same report of IEA. Economic growth and rising living standards have been fuelling the global energy demand, forcing governments to find ways and money to increase supplies. The world has invested $1.6 trillion in 2013 for energy supply, more than double the amount in 2000. Until 2035, the annual investment figure is expected to reach $2 trillion, report says.

In the recently published Global Status Report on Renewable 2014 it is stated that that total investment in renewable power and fuels (excluding large hydro-electric projects) fell for the second year running in 2013, reaching $214 billion worldwide, some 14% lower than in 2012 and 23% below the 2011 record. That means, there is a significant gap between financing need and the existing financing, which is more than $50 billion investment gap (23% of the $214 billion).

In this context, the key question is- where from such a big investment can be generated to meet the growing needs of financing, while the global economy is affected with financial crisis? Indeed, this difficult situation has stimulated increased interest in innovative financing to help deliver more and better aid.

Seeking to overcome this barrier, we need further works and demonstrations on innovative finance for designing a range of innovative financing mechanisms for the renewable energy sector with a particular focus on the domestic cooking and lighting markets.  Key activities under this work could be conducting field based assessments to understand renewable energy users’ perceptions and preparedness for new financing methods, and evaluating the applicability and readiness of various result based finance instruments in the domestic cooking and lighting markets.  On this front, I will welcome inputs and partnership for this important works!

Keshav C Das

New Delhi, January 03, 2015

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Why does ‘not for profit’ pathetically fail in business development?

October.BlogThere is a paradigm shift in accepting ‘business development’ as one of the core activities in not for profit organisations in recent days. This ‘shift’ is mainly triggered due to the reasons that funders and donors are demanding more accountability, traditional forms of funding are becoming smaller and less reliable, donors are focusing for an increasing engagement with private sector instead of not for profit entities and hence, for-profit businesses are competing with non-profits (not for profits) to serve community needs and lastly needs of community are growing in size and diversity!

In the face of this new reality, an increasing number of forward-looking non-profits are beginning to appreciate the increased revenue, focus and effectiveness that can come from adopting “for profit” business approaches. Increasingly, they are reinventing themselves as social entrepreneurs, combining “the passion of a social mission with an image of business-like discipline, innovation, and determination.”[1]

For many not for profit organisations, this new reality is still a surprise and struggling in a confusing state of operations to survive; taking up quick-fix based remedies like reducing size of human resources, cutting cost, merging with other organisations or merging it multi-country operations into a regional operations. Will this change bring brighter days to them? Answer is clearly NO!

To survive in the present competitive development market, not-for profit companies really need to look for a systemic change in its overall process of business model, orientation and strategies. Non-profit organisations now need to carry out a serious self–reflection and identify its key strengths and services (offerings), which are unique, competitive, affordable and having a ‘brand ’ of these offerings in market. To formulate its services, accurate understanding of community and development needs to be ensured so that organisation can offer higher quality of services by focusing on what it does best, which will eventually enhance credibility with clients and funders. Needless to say that such transformation will happen in organisation only through a continuous learning and improvement.

We have several myths on pursing business development activities; such a business development is a team work, funding can be mobilised with a smart and innovative business proposal or even for many non-profit workers; business development can also be done over an informal beer meeting. These beliefs are relative and its success is also isolated, but it can’t be considered as organisational business development strategy.

In the contemporary competitive environment, non-profit business development should be built upon five key principles:

  • Identifying a set of best mission-related earned income opportunities, where fund raising will be smooth and there is a better chance of winning (it could be water, health, energy or agriculture and any other opportunities). A continuous researching on feasibility of these opportunities is crucial, based on which organisation can select the most appropriate ones to develop realistic business plans
  • Identifying the major assets and capabilities that organisation has to invest in its business development. These asset could be a team of experienced ‘warrior’ for business development or internal fund to invest for business development
  • Recognising that organisation’s vision, mission and strategic goals represent the purpose and context for business development.
  • Gaining a better understanding of the motivations and support for doing business development, both within the organisation and in peers, and, at the last
  • Leadership in the organisation, to drive business development with proven knowledge and skills. We must remember business development is a specialised job.

Sad part is that most organisations do not consider these principles, instead take up business development activities without a clear strategy and plan of actions. Outcome of such initiatives is ‘A Bad Dream’.

Keshav C Das

Senior Advisor

SNV Netherlands Development Organisation

[1] “The Meaning of Social Entrepreneurship” by J. Gregory Dees.

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Responsible Investment: Making profits and Creating Companies Value

RIDo we invest responsibly as an individual? I think, the answer is certainly yes as we are not interested to be bankrupt and nor we are willing to cause any damages to our personal and family lives.  This outlook of life-‘low regret’ or ‘do no harm’ is also increasingly happening in other sectors of our contemporary societies, starting from profit making companies to financial corporations; not for profit organisations to state-owned enterprises.

What is responsible investment? We do not have yet a universally accepted definition on it. However, we may grossly consider responsible investment as an investment approach founded on the view that the effective management of environmental, social and governance (ESG) issues is not only the right thing to do, but is also fundamental to creating value. Responsible investors believe that companies which are successful in avoiding ESG risks whilst capturing ESG opportunities will outperform over the longer term!  

 

In the context of responsible investment, the key environmental issues: encompass pollution and contamination of land, air and water; related legal and regulatory compliance; eco-efficiency (“doing more with less resources”); waste management; natural resource scarcity; and climate change. Many environmental challenges also present opportunities for value creation, for example, generation of incremental revenue from new technologies, products and markets such as ‘green’ / sustainable products and services.

 

With respect to the social issues, responsible investment can encompass the treatment of employees; health and safety; labour conditions; human rights; supply chains; and treating customers and communities fairly.  Indeed, governance is also a crucial part of the social issues and in a responsible investment sense, this term is generally held to encompass the governance of environmental and social issue management, plus the areas of anti-bribery and corruption, business ethics and transparency.

 

What are the drivers of responsible investment?

 

There are two key drivers of responsible investment: risk management and investor concern. In an increasingly competitive business environment, managing risks and opportunities is the way for sustaining responsible investment.  These two drivers could be further governed by policy statements of companies.  

 

The study of policy statements — or codes of conduct — suggests that companies, often working in business associations, have formulated an impressive array of concepts and principles for thinking about sustainable development issues. However, although these policy statements often represent serious reflections on the challenges facing business, they do not, viewed as a whole, constitute a uniform standard of business conduct in any area. This suggests that, in areas where a uniform standard of behaviour is desirable, there may be a need for inputs from governments, international organisations, or civil society. Therefore, a partnership between companies, government, development agencies and civil society is desirable for translate the policy statement into an actual work-plan.

 

Having said this, I also clearly see the importance of an enabling environment which could stimulate effective corporate action in support of sustainable development. Thus, although responsible investment initiatives are essentially private, they are influenced in various ways by the broader environment — economic, cultural, social, legal and political — from which they emerge. The immediate implication of this is that, if broader environment is not functioning well, the business sector will not be able to do its job either. Societies provide essential influences and inputs that promote appropriate business conduct in subtle ways (for example, through informal enforcement stemming from peer pressure — so-called “voluntary compliance’).

 

Drawing on my experience, I have four recommendations which I believe can help companies, to enhance their ability to create value from RI, and stay ahead of the competition.

 

Access the right expertise: I understand lack of internal capacity and expertise is a major barrier of most companies to implementing their responsible investment (RI) goals. Hiring in to build in-house teams is an unlikely option, given the ‘lean’ structure of many private companies and the current economic climate. Companies need to think innovatively to access the right expertise (in particular on environmental and social issues) and keep their RI programmes on track.

Adopt best practice approaches: Approaches to managing environmental and social issues during the investment cycle are diverse. Following best practice will help companies to maximise value from their RI activities. This would include adopting a consistent and systematic approach to due diligence, and ensuring that action points from the pre-acquisition phase are integrated into the 100 day plan. The most progressive companies strive to capitalise on environmental and social opportunities, rather than using ESG due diligence only as a means of ‘de-risking’ their investments.

Measure the financial value created: Of late, I have interacted with few Indian companies and that interactions help me to visualize that measuring ESG performance improvements and ascribing financial value to these remains a challenge for many of these companies. I will recommend that standard valuation methodologies (such as discounted

cash flow models) can be used to quantify the value of RI initiatives. However, the key challenge in conducting these exercises is the availability of ESG relevant financial data: given enough data, it is possible to establish a credible link between ESG activities and intangible value. Tips for measurement and valuation include focusing on quality not quantity, aiming for consistency not uniformity (given material issues for each portfolio company will vary depending on their sector and geographic location), and considering qualitative assessment options if the costs of gathering quantitative data are prohibitive.

Ramp up reporting: One notable survey finding Responsible investment: creating value from environmental, social and governance issues Insight from our survey of the private equity industry, March 2012, it was found that there is relatively limited external reporting on RI.  I think, it is crucial to report externally and the ongoing initiative of Carbon Disclosure Project or Global Sustainability Reporting is key reference points on this front.  Companies can benefit and adapt from the considerable progress made on ESG reporting in the corporate sector (and integrated reporting more broadly). Several companies are relying on the use of case studies for reporting. Case studies can be a highly effective means of showcasing progress and success, but there are several pitfalls to be aware of: there is the risk of unbalanced (i.e. ‘good news’ only) reporting, and the need for transparency regarding the role of the companies in bringing about ESG improvements in the portfolio companies.

 

 

Sources:

  1. Enabling Conditions for Environmental Sustainability: Private and Public Roles, Kathryn Gordon (2002)
  2. Survey finding Responsible investment: creating value from environmental, social and governance issues Insight from our survey of the private equity industry, March 2012

 

 

Keshav C Das

Senior Advisor

SNV Netherlands Development Organisation

 

keshavcdas Agriculture, Energy, Environmental Sustainability

FINANCING REDD+ AND GREEN CLIMATE FUND*

5fe714a62d2417e54a50d9a48eeea001Result Based Financing (RBF) was a new addition to the REDD+ domain, incorporated during COP.19 under the Warsaw Framework for REDD+. This new set of financing instruments is designed for disbursing payment against pre-determined performance indicators (both carbon and non-carbon benefits and performance). However, the Warsaw Framework does not address non-carbon benefits of REDD+ or provide methodological guidance on non-market-based approaches for defining performance indicators while implementing REDD+ program interventions. Parties continued discussions of these aspects of REDD+ at the 40th session of the Subsidiary Bodies to the UNFCCC (SB 40) as well as during the meetings of Subsidiary Body for Scientific and Technological Advice (SBSTA). Unfortunately, there is very little progress on this agenda item, and further consideration of these issues was postponed to future sessions. Encouragingly, there are a few promising progresses with respect to the modality of the result based financing of REDD+, which is expected to be linked to the Green Climate Fund (GCF). The key development on this financing modality is presented below.

  1. Parties agreed while developing the Warsaw Framework for REDD+ that the GCF would play an important role in channelling REDD+ payments to developing country governments, and that results-based payments will depend partially on the submission of a reference level for review by experts from an assessment team. Assessment guidelines and procedures were also established, so that developing countries know how their reference levels will be evaluated.
  1. In addition, developing countries wanting to participate in GCF REDD+ activities will have to establish national forest monitoring systems (NFMS) as a basis for estimating forest-related greenhouse gas (GHG) emissions if they do not yet have such systems in place. Changes in emissions levels will be measured against respective national reference levels. In addition, parties officially mandated a link between safeguards (such as respecting livelihoods, the rights of indigenous peoples and local communities, and biodiversity) and payments. REDD+ beneficiaries must submit summaries identifying strategies to address the safeguards framework. Furthermore, all information submitted, including data on payments should be posted on an “information hub” that parties requested the Secretariat to create.
  1. During the fifth part of the second session of the Ad Hoc Working Group on the Durban Platform for Enhanced Action (ADP 2-5) and the Ministerial Dialogue on the Durban Platform, the need to capitalize the GCF was underscored. Much anticipation around whether the GCF will be able to provide the necessary financing for REDD+ surrounds the ongoing efforts to operationalize the Fund. Some parties suggested COP 20 should open a REDD+ window in the GCF. During the TEM on land-use, the GCF reported that its initial focal areas include REDD+ implementation and sustainable forest management (SFM).
  1. At the seventh Board Meeting of the GCF, the final six items needed to operationalize the Fund were agreed, including an initial Results Management Framework (RMF). The RMF, as it applies to REDD+, differentiates itself from the Warsaw Framework in that it will also be used for ex ante payments. However, plans for more specific guidance on REDD+ are in the pipeline, as the Board requested the Secretariat to “develop a logic model and performance framework for ex post REDD+ results-based payments, in accordance with the methodological guidance in the Warsaw Framework for REDD+, for consideration at the third Board meeting of 2014.” As an operating entity of the financial mechanism of the UNFCCC, the GCF’s REDD+ approach should be in line COP decisions.
  • Complexities:

The board meeting of GCF and UNFCCC’s meetings (SB, SBSTA, ADP etc.) did not create an enabling environment for motivating financial institutions (donor countries, UN funds, multi-laterals fund like FCPF etc.) to operate under a single umbrella of REDD+ finance. Rather, the FCF stated during it last board meeting that entities not beholden to the UNFCCC COP, however, can continue to operate as they please. The Forest Carbon Partnership Facility (FCPF), which was originally intended to sunset once the GCF became operational, has recently completed a methodological framework for its Carbon Fund based on its experience thus far, and there is no indication that the FCPF will twilight soon. Likewise, UN-REDD, at its recent policy board meeting, adopted a roadmap for the development of a new strategy beyond 2015. Meanwhile, the Food and Agriculture Organization of the UN (FAO) takes its own approach to REDD+, based on its Strategic Framework.

Donor countries also continue to offer REDD+ funds to developing forest countries through bilateral agreements, making their own stipulations as they do so. Norway, through its Climate and Forest Initiative, and Germany, through its REDD Early Movers Program, have taken this approach while REDD+ issues were being sorted under the UNFCCC. Despite the adoption of the Warsaw Framework, donor countries inclined to do so cannot be prevented from making bilateral deals under their own terms and conditions. The primary implication of having various scattered institutions distributing REDD+ finance is that developing countries, their capacity already stretched, have to follow different rules, produce different documents and reach different benchmarks depending on where they turn for REDD+ financing.

With this background, question marks surround the future of REDD+ financing. Some cooperative efforts, such as between UN-REDD and the FCPF, to consolidate financing are yielding positive results for REDD+ readiness, but as financing is scaled to move beyond the readiness and pilot programme phases, will cooperation and coordination efforts be scaled as well? Will the capitalization of the GCF lead to a convergence of REDD+ finance under the GCF?

There is no clear lead to find answers of these questions. The only hope is that parties agreed to continue considering these difficult questions (including the methodological issues related to non-carbon benefits) in 2015 at SBSTA’s 42nd session and to discuss non-market-based approaches at SBSTA 41, to be held in Lima, Peru (FCCC/SBSTA/2014/L.8).

 Lima Expectation:

 Expectations are high for COP 20, which will convene in Lima, Peru, in December, as it is the last negotiating session of the COP before a new legal instrument is to be agreed in Paris in 2015. In Bonn, some developing countries expressed support for including REDD+ in the negotiations of a global agreement, in particular the inclusion of the Warsaw Framework for REDD+. Keeping Lima in mind, UNFCCC parties and the GCF can take a number of actions between now and Lima to build confidence in the efficacy and authority of the guidance created at COP 19. From capitalizing the GCF, to submitting reference levels, to completing the GCF’s “logic model and performance framework,” showing the Warsaw Framework in action will be the most expedient way to encourage convergence to its methodology.

Keshav C Das

New Delhi, August 08, 2014.

[1] Source: http://climate-l.iisd.org/policy-updates/the-direction-of-redd-financing-merging-ahead/