Transforming our understanding of what works to mobilise private investors
Published: October 16, 2024
By Sally Paxton and Gary Forster | Oct 16, 2024 | Blog
Ahead of next week’s World Bank Annual Meetings, Sally Paxton and Gary Forster discuss the critical role of development banks in mobilising private capital to meet global development goals, and why we still don’t understand what is working. They present new recommendations from Publish What You Fund to fill the current knowledge gap by improving the measurement and disclosure of private capital mobilisation, and stress why action is urgently needed.
Why do we need (more) private capital mobilisation?
There is no shortage of crises today, all of which are creating both unprecedented human needs and significant strains on budgets. While donors of all stripes are being asked to substantially increase resources, there is a clear recognition that public money alone will not suffice to meet the scale of financing needed; the private sector must be an active partner.
Meeting these needs is largely what is behind the push for reform of the multilateral banking system. Some changes have been made, but on the calls for greater involvement of the private sector, including private capital mobilisation (PCM), the progress has been underwhelming. The G20 Independent Expert Group recommended that, by 2030, PCM should be increased to US$240 billion annually. A recent MDB joint report noted PCM reached US$71 billion in 2022, following a period of PCM stagnation at under US$64 billion. This is not the pace of progress that is required.
What is preventing the scaling of private capital mobilisation?
Against this backdrop, Publish What You Fund has undertaken an ambitious, 18-month initiative to tackle the two pressing issues that stand in the way of scaling up PCM: improved measurement and disaggregated disclosure. Our work entailed not only extensive research but more importantly, extensive consultations with the private sector, development finance institutions (DFIs), multilateral development banks (MDBs), shareholders and other experts.
What became clear is that scaling of PCM is hampered by (primarily two) different measurement systems that not only increase reporting burdens but also provide contradictory data on the same investments. Incentives were not necessarily aligned to approaches that best mobilise the private sector and the same instruments were not always treated consistently. Finally, the current level of PCM data aggregation hides insights into what works, distorts the data, and makes serious analysis impossible. We cannot ascertain what works and what doesn’t. Given the unprecedented needs, this status quo cannot be tolerated.
How can we improve the measurement and disclosure of private capital mobilisation?
Today we launch our final recommendation on how PCM should be measured and disclosed. This follows from our initial proposal released in April of this year and a subsequent period of public consultation. If implemented, we believe that both our measurement approach and our model for disaggregated disclosure will transform the understanding of how mobilisation works which, in turn, will help us learn, make more informed decisions, and allocate scarce public resources for maximum impact.
As a result of our public comment discussions, we made four changes to our original proposal. With these adjustments, we think there is now a solid consensus on our measurement approach. But measurement is just the first step. Probably more important is achieving the level of disaggregated disclosure that will allow for much greater understanding, decision-making, and ultimately, the scale of PCM that is required.
Measuring PCM is, frankly, complicated. DFIs play a variety of roles in their efforts to mobilise the private sector. This includes instances where DFI’s lead or play an active and direct role in an investment, but also instances where they are withdrawing from investments to allow the private sector to take their place. We’ve tried to reflect this in our proposal by splitting these roles into different baskets, all of which must be calculated and disclosed separately. Our proposal, which builds on existing work from the MDB Task Force on Mobilization and the OECD, also recommends a consistent approach to measuring PCM that aligns with incentives to promote the most effective investments and captures all relevant instruments and practices.
The changes to measurement will likely boost overall PCM figures. But that will only distort the picture if it is not accompanied by disaggregated disclosure. Discussions around disclosure have taken the bulk of our effort. We’ve talked to a range of private investors who are supportive of our proposal, and do not share the concerns of commercial sensitivity that have been made by DFIs. Our report also highlights where detailed investment data already exists on paywalled sites. Yet we are still met by claims – never detailed – that our disclosure proposal would violate commercial confidentiality. We think that is now mainly an excuse for lack of disclosure. We’ve set out a sensible path forward for mobilisation disclosure that’s achievable and in line with market standards. It calls for more detail on investments, including by sector, country, amounts, financial instrument and the type of organisation being mobilised, but it would also allow for more aggregation for certain instruments where there are legitimate sensitivity claims.
Taken together, these improvements in measurement and disclosure would give us the insights we need to target public money where it is most effective and start to reach the scale of private sector investments needed to meet global development needs.
What are the wider implications of better data?
This time last year, at the World Bank Annual Meetings in Marrakech, Ajay Banga took to the stage to share his vision for a more streamlined, more impactful Bank. His remarks included the following quote:
“We are asking a lot of the private sector. We are asking them to operate in places and in situations that their algorithms and expertise may not extend, on roads the DFIs have travelled for years. And if we are asking others to follow – we should be willing to share our map.”
Yet the maps aren’t forthcoming. The current information gap is preventing donors from judging where and how their scarce funds can be most productively deployed, shareholders from performing their oversight function, private investors from being aware of and informed about investment opportunities, and citizens from holding the banks to account.
This lack of data extends to beyond private capital mobilisation, to include climate finance and even risk data from GEMs, the Global Emerging Markets Risk Database. Disclosure of this data through strong leadership and changes to contracting practices that prevent disclosure would allow for the publication of timely, disaggregated, project level detail so it can be used by a range of actors for a range of purposes. Our proposal, launched today, provides the evidence, analysis, and concrete next steps to enable MDBs and DFIs to share their maps. This is an opportunity that shouldn’t be missed.
“What works: How to measure and disclose private capital mobilisation to increase private investment and close the SDG financing gap” will be launched at an event co-hosted with the Center for Global Development in Washington DC (and online) on 23 October, 2pm EST, 7pm BST.