Publish What You Fund, a global campaign for aid transparency, has published a draft proposal outlining a new approach for boosting private capital mobilization (PCM) for emerging markets and developing economies (EMDEs).
According to an executive summary of the draft proposal, there is a desire for more resources for multilateral development banks (MDBs) and development finance institutions (DFIs) to help address global challenges. At the same time, there have been strong calls for reform of these development banks, including efforts to increase the ways in which DFIs can significantly mobilize the private sector, as well as to manage their assets and accounts to free up more capital for investments in development.
According to Publish What You Fund, one of the most urgent calls has been to increase PCM to close the financing gap needed to meet Sustainable Development Goals. In 2023, the G20 Independent Expert Group recommended PCM be increased to $240 billion annually by 2030, yet current PCM rates have stagnated at just under $64 billion annually.
Through multi-stakeholder consultations, including with DFIs, shareholders, private-sector representatives and subject-matter experts, Publish What You Fund’s report proposes both PCM measurement and disclosure as ways to move the needle. It defines both an improved measurement approach and the disaggregated project-level disclosure that is a prerequisite to reaching PCM at scale.
“Improved measurement of PCM is the first important step,” states the proposal. “The second, and probably more critical, is disaggregated disclosure at a level that is sufficient to understand and analyze PCM. The current state of transparency is wholly inadequate to do either.”
The proposal sets out three main baskets for measuring PCM: Balance sheet mobilization (including private DFI equity, hybrid capital, and bonds), primary private capital mobilization (including direct and indirect mobilization through co-investment), and secondary private capital mobilization (including secondary transactions distributing risk to the private sector).
In terms of disaggregation, the proposal states generally, PCM disclosure is now aggregated, with only limited levels of disaggregation, which is problematic because not all mobilized capital is equal. Aggregation also masks outliers that can significantly skew the data and distort the overall picture. To address these concerns, Publish What You Fund is calling for disclosure by investment, instrument, country, sector, amounts mobilized and the typology of the mobilized party (e.g., whether the mobilized party is a domestic bank, or a regional private equity fund). DFIs have expressed concerns, however, about commercially sensitive information becoming public and potential breaches of client agreements.
Hubert Danso, chairman and CEO of Africa Investor (Ai) Group, chair, CFA Asset Owners Council and co-chair SMI Africa Council, has published a commentary pledging support for the proposal and urging the institutional investment community to speak up to support efforts for better mobilization data, stating investors’ lack of willingness to share data is often a reason given by DFIs as to why this information isn’t available.
“The irony with private capital mobilization data is that we need the information yet are commonly cited as the main barrier to it becoming available,” wrote Danso in a piece titled, “Private Capital Mobilisation — why we need to speak up, not just pay up.”
Danso believes current efforts by MDBs to mobilize private capital are “grossly suboptimal,” with the potential to close only 10 percent of EMDEs private financing gap between now and 2030 to 2050, with the institutional investment community being counted on close the outstanding 90 percent of EMDEs’ private financing gap left by “the MDBs private capital mobilization market failure,” according to Danso.
It is estimated that it will take trillions annually to close the climate financing gap for EMDEs by 2050.
“Let’s not forget that PCM is about us,” Danso wrote. “We’re the ones being counted as mobilized. So, we need to be clear. We need this data. We believe that Publish What You Fund’s proposed approach to disclosing PCM data meets our needs and is wholly reasonable within existing business practices and confidentiality agreements. And we are willing for all of the investments where our resources are being counted as ‘mobilized’ to be subject to this level of disclosure.”
He added: “We’ll play our part, but we need DFIs and heads of state, as sovereign shareholders of MDBs to ensure MDBs play theirs.”
To read Danso’s commentary in full, click here.
Source: IREI
