Measuring impact without transparency

Leading development specialists, bankers, policy makers and impact investors will gather at the OECD next week to discuss, among other things, impact. In this blog we question the value of increasing the focus on impact measurement if development objectives, results and lessons learned are not transparent.

Private Finance for Sustainable Development

Next week is Private Finance for Sustainable Development (PF4SD) Week – an annual OECD event that brings together the public and private sector to discuss new approaches in using private finance to achieve the Sustainable Development Goals (SDGs). Naturally the role of multilateral and bilateral Development Finance Institutions (DFIs) will be included in these discussions by virtue of the financial muscle they bring to the table. And as part of our ongoing work on DFI Transparency, we’ll be there too.

The theme for this year’s conference is “the impact imperative”. Attendees will discuss better measuring and monitoring of the end-results and thus the impact of private finance including Blended Finance, Green Finance and Social Impact Investment.

Why does this matter?

The overarching arguments for aid transparency apply to development finance too. Knowing what is being spent where, by whom, and with what results is the basic foundation for increasing effectiveness and accountability. Without transparency, investors cannot coordinate to achieve the maximum impact with their scarce resources. Meanwhile recipient governments struggle to know how much is being invested in their country, let alone where and how it is spent – they need more information to make the most effective use of their own money alongside that of donors/investors.

The contribution that transparency can make to the achievement of the SDGs is significant, and perhaps no more so than when we talk about impact. How else, other than by evaluating and publishing the successes of individual investments, can we hope to continually improve our approaches and raise the efficacy of investments globally? How often are opportunities missed, or best practices ignored for want of a shared understanding of the most effective practices in each sector? How often does this gap translate directly into failed progress towards the SDGs such that poverty, ill-health, and social injustice remain?

This discussion is taking place in a context where DFIs are becoming increasingly important. The ability of DFIs to create jobs, increase tax receipts and promote economic growth – either directly or catalytically by mobilising private sector funding – means that they play an important role alongside more traditional aid flows. In terms of numbers, in 2014 annual total commitments of DFIs equated to ~$70 billion, and this was before the increased investment in CDC in the UK, and the creation/ recapitalisation of new DFIs in the US, Canada and China. The IFC alone reports in its FY18 accounts a total commitment of $23.3 billion for that year, including nearly $11.7 billion mobilised from other investors.

The need for impact transparency

As the DFI sector continues to grow, it is imperative that these organisations are fully transparent, including on their impact and outcomes. Some work on this has been done to date including collaborations between the International Aid Transparency Initiative (IATI) and a select group of DFIs[1] to determine a revised reporting approach to specifically take into consideration the nuance of DFI operations. And while we applaud initiatives such as the Harmonised Indicators for Private Sector Operations (HIPSO), and the aligning of these with the Global impact Investing Network’s IRIS indicators, the extent to which DFIs publish their performance against these metrics is at best inconsistent and at worst non-existent.

This is backed up by our 2018 edition of the Aid Transparency Index, the pieces of information critical for assessing project performance such as pre-project impact appraisals, reviews & evaluations, and results, are the most difficult to find – if available at all. This was as true for DFIs as other donors. Although notably, three of the seven DFIs/MDBs assessed do publish results for their public financing, indicating that progress is possible.

When all is said and done, we know that DFIs have a tough job, delivering extraordinary results in nascent markets – the challenge is that we mostly know this because we’ve spoken with their teams, not because of publicly available, standardised reporting. At the same time Publish What You Fund is not blind to the commercially sensitive nature of project performance information in the investment space. We appreciate that such information can be interpreted as a market judgement as to the health of an individual company or project. We recognise too that with so little information shared when investments flow through intermediaries, which can sometimes make up 50% of a DFI’s portfolio, there is no quick fix.

However we can’t bury our heads in the sand. If we want the billions to trillions narrative to become a reality we need a way to not only measure the increased financial flows but also, obviously, the contribution this money is making to the achievement of the SDGs. This is why we are challenging the attendees at next week’s PF4SD conference to commit to greater transparency as a foundation for improving impact measurement and publication.

[1] African Development Bank (AfDB), Asian Development Bank (ADB), Black Sea Trade and Development Bank, CDC Group plc, European Bank for Reconstruction and Development (EBRD), European Investment Bank (EIB), Inter-American Development Bank (IDB), International Finance Corporation (IFC), International Fund for Agricultural Development (IFAD), Private Infrastructure Development Group (PIDG), Swedfund, The World Bank.