Nick O’Donohoe, CDC Group, and the Future of Impact Investing

Nick O’Donohoe, CEO of CDC Group, on how development finance institutions are providing liquidity and capital during the pandemic.

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The ability to absorb risk and be truly ‘additional’ in the world of impact investing sets development finance institutions apart from markets. Listen to Jason Mitchell discuss with Nick O’Donohoe, CEO of CDC Group, on how institutions are providing much-needed liquidity and capital during the pandemic and why investor action on climate and the Sustainable Development Goals (‘SDGs’) is vital to advancing the development agenda.

In this far-reaching episode, Nick discusses the roots of impact investing, the popularisation of impact investing and the SDGs, the dearth of venture capital that’s needed to support young entrepreneurs and digital businesses, and how DFIs can move towards higher risk projects.

 

Recording date: 31 March 2021

 

Nick O’Donohoe

Nick O’Donohoe is the chief executive officer of CDC Group. Previously a Senior Adviser to the Bill and Melinda Gates Foundation, Nick co-founded and served as CEO of Big Society Capital. Prior to his time at JP Morgan, he spent fifteen years at Goldman Sachs. He is also Deputy Chairman of the Global Steering Group on Impact Investment.

Established in 1948, CDC Group is the UK’s development finance institution with a portfolio of around £5 billion, making it the world’s first impact investor supporting businesses in Africa and South Asia.

 

Episode Transcript

Note: This transcription was generated using a combination of speech recognition software and human transcribers and may contain errors. As a part of this process, this transcript has also been edited for clarity.

Jason Mitchell (00:16):

Hi everyone. Welcome back to the podcast and I hope everyone is staying safe and well.

Over the past three years, I’ve been lucky enough to cover a lot of topics on this podcast.

But truth be told, one of the areas I’ve always found particularly challenging is impact investing. I know, that might sound strange. But it’s because I’ve tended to think of impact—at least in its truest additional form—as this almost sacrosanct space, the epitome of what I imagine we’re all trying to work towards in sustainable finance. It’s meant that I’ve continually wondered where and how I should first enter it. Should it be about frameworks like the SDGs or organisations like the UN? Should it focus on academic work or investors? Or the fact that approaches to impact itself are increasingly—and even controversially—expanding into other asset classes and strategies?

It’s why I find this episode is so compelling. Because it not only draws out the formal roots of what we now call impact investing, but it comes from the experience of one of the largest development finance institutions who also happens to be the oldest impact investor.

Which means we talk about what differentiates DFIs as impact investors, namely their ability to absorb risk and their willingness to be truly additional in ways that markets aren’t able to be. We also discuss how the CDC Group is positioning itself as the UK’s green development finance institution, what DFIs are doing to provide much-needed liquidity and capital during the pandemic and why investor action on climate and the SDGs is vital to advance the development agenda.

And that’s where my next guest, Nick O’Donohoe, comes in.

Nick is CEO of CDC Group. He’s been a Senior Adviser to the Bill and Melinda Gates Foundation, and both co-founded and served as CEO of Big Society Capital. Prior to that, he spent time at JP Morgan and Goldman Sachs. CDC Group, which was established in 1948, is the UK’s development finance institution with a portfolio of roughly £5 billion, making it the world’s first impact investor supporting businesses in Africa and South Asia.

Jason Mitchell (02:38):

Welcome to the podcast, Nick O’Donohoe. It's great to have you here and thanks so much for taking the time today.

Nick O’Donohoe (02:44):

Thanks, Jason. Great to join you.

Jason Mitchell (02:46):

Fantastic. So Nick, there is a lot to talk about today but before we get there, let's start out with the arc of your career. As I read it, it's taken you from more of a conventional finance background to making a sudden turn where you co-founded Big Society Capital, advised the Bill and Melinda Gates Foundation and are now leading the UK’s development finance efforts. And I'd really like to explore what precipitated all that change and whether it was personally or professionally motivated? I guess kids today might call it a kind of ‘wokeness’?

Nick O’Donohoe (03:21):

You know, as you said Jason, I had a pretty conventional sort of investment banking career with Goldman Sachs initially, and then latterly with JP Morgan, but I suppose what really sort of the inflection point in my career if you like, was about 2007, 2008, and at that time JP Morgan, Jamie Dimon, the chief executive of JP Morgan, decided along with a lady called Christina Leijonhufvud that they wanted to start what they called the social sector finance group. And that was a group that was being set up explicitly. And arguably certainly before it's time to really try to explore ways in which capital could be used for the broader benefit of the global community. And I was asked at that time to supervise that group as to sort of spend a small part five, 10% of my time taking responsibility for it.

Nick O’Donohoe (04:20):

And that's what really introduced me to the world of what, at the time we called social sector finance and subsequent became impact investment. I was lucky enough to participate in one of the meetings of the Rockefeller Foundation organising Bellagio around 2000 and the end of 2007, beginning 2008, which really originated the name impact investment. And I thought the timing was pretty good cause I'd been in investment banking for sort of 26, 27 years. So I, I guess I was getting a little bit tired at that point, but it was also, I think I felt strongly, remember if you go back to that period, we were just in the middle of the global financial crisis and there was a sense that the zeitgeist was changing. There was a sense that there was a much greater recognition among the broader public of the importance of financial markets and the financial system.

Nick O’Donohoe (04:58):

And there was this equally a sense that the financial system wasn't delivering for society and the obvious challenges of climate and inequality just weren't being dealt with. So there was a feeling that something had to change and, you know, I was lucky enough to be there at the beginning of that. So that's what introduced me to the world of impact investment. And then we obviously did some interesting work at JP Morgan through the social finance group, including writing a report on impact investment in 2010, you know, highlighting it as sort of an emerging asset class, which is really, I suppose, the first time that a major institution had really looked at impact investment and sort of one thing led to another. I was introduced to Sir Ronald Cohen around that time and Ronnie's being one another great sort of founder father figures, if you like, of the impact investment movement. And then together, we got this opportunity to go and start what became known as Big Society Capital. So from that inflection point in 2007, 2008, as you say, it really did materially change the arc of my career.

Jason Mitchell (05:58):

The impact report that JP Morgan did in 2010, it is particularly interesting. I'd even call it seminal in the sense that back then you estimated the size by 2020 of the impact market of between 400 billion to as much as 1 trillion. It was a pretty radical idea as I understand it and surprisingly incredibly accurate. And by that, I mean, we're now seeing figures from 715 billion to as much as 2.1 trillion from the IFC. I guess I'm wondering, and I'd like to feed into your latest article that talks about this, what's your outlook for the next decade around impact?

Nick O’Donohoe (06:35):

Well, it's interesting that, that you say that the headline forecasts in that 2010 report were accurate. I mean, at the time when we published it, it was considered to be almost laughable that this asset class or this way of investing could emerge and that it would be so consequential, nobody at the time really had heard of impact investment. So looking back on it now, and as you know, we together with Yasmin Alami and Christina, we recently published sort of a follow-up in the Stanford Social Innovation Review, looking at what perhaps the next 10 years might hold. I mean, I'd say first of all, the last 10 years, the growth has been really extraordinary. The growth, not only of assets, which has obviously been important as you referenced, but just the growth in the brand and the recognition that when we think about that sort of investment is a lifeblood of capitalism and we need to think about it has profound impacts on the world we live in, on what's built and what jobs are created and so on.

Nick O’Donohoe (07:35):

So we need to, when we think about how we allocate capital, we cannot just allocate or think about allocating on a risk return basis. We've got to think more broadly than that, and we've got to factor in impact. So that idea has really taken root and has become mainstream now. So I think as you look into the next 10 years, what that means, there's a lot more opportunities than need for a lot more opportunities to commit capital to impact investment, but also I think a much broader spectrum of opportunities. When we published Yasmin and Christine and I, when we published this article a couple of weeks ago, we really focused on three key issues. I mean, one was the opportunity to address the question of diversity and equity and inclusion. And one of the really striking things about the last couple of years, when you look at issues like gender imbalance or Black Lives Matter, what you see is, whereas before I think our response society's response to that would have been very much grounded in government intervention of some sort, that's still an important part obviously of our response, but what is becoming also important alongside that is an investment response.

Nick O’Donohoe (08:35):

So you've seen some of the large banks in the United States, for example, dedicate large pools of money to invest in black-owned businesses. You've seen a huge rise in gender finance, so investment in businesses that benefit women over the last, in indeed, I think since 2017 we had about a billion dollars in specific what we call ‘gender lens investing’. Now in the last year, that's been close to $5 billion. So we're seeing an enormous increase in mean being increased in the DFI community in the United States and the way it's funded and a lot more capital going into that area. The opportunity is much more obvious now that by directing capital, we can address key issues of diversity and equity and inclusion in society. So that's a first big area. I mean the second big area, obviously it will come as no surprise to people to hear is around climate and the climate emergency.

Nick O’Donohoe (09:30):

And obviously capital has played a significant role over the last decade or more in helping to develop much larger scale wind and solar facilities. And that will continue to be, I mean, we still have an enormous need for renewable energy worldwide over the net, really from now until 2050 and beyond. But what's, I think the role, the specific role that impact investment can play is continuing to support that what we call climate mitigation and developing wind, solar and so on. But I think in addition to that, perhaps strike out into a little bit of the more difficult areas, more challenging areas, more nascent areas. And so an example of that would be adaptation and resilience. We know we're going to have an increase in global temperatures. We know that the people that are going to be most affected are the most vulnerable.

Nick O’Donohoe (10:19):

We know that many, many of them live in emerging markets. So we need to address that through adaptation and resilience. So that's an area that CDC, for example, is playing a very significant role. And so every time we make an investment thinking about how you can adapt to it and making sure it's resilient. And then we also need to ensure we have what we call a ‘just transition’. That will be an enormous change as a result of the greening of the economy, many jobs will be created, many jobs will be lost. So we need to make sure that we're skilling people and training people for the new jobs. And at the same time, making sure that we recognise that in certain areas, there will be job losses that we need, to create new businesses there. So that's all part of the sort of reacting to the climate emergency.

Nick O’Donohoe (11:01):

And then on top of that, you've got a whole more sort of technology led response. So areas like carbon sequestration, for example, will be critical. Green hydrogen will be critical. Battery technology will be critical and all these areas, if they're going to develop, they need massive amounts of capital, both to fund research and development but also to scale new and emerging businesses so that they can respond to them. So that whole climate area is going to be critically important. And then the third area we identified in our most recent piece was around transparency and measurement. And, you know, we do run the risk with impact investment becoming such a popular term and I think sought after by the sort of investment community that you run the risk of what we call sort of ‘greenwashing’. And so having real transparency and measurement systems, the things like the Operating Principles For Impact Measurement which the IFC developed, things like TCFD, for example, to measure climate, those will be a critical part of the future the next decade in impact investment.

Jason Mitchell (12:02):

I want to come back to some of the elements in that article a little bit later, but it's a really good point around, you know, the definition of impact and the popularisation of it. And I'm wondering how you see the sustainable development goals transforming the notion of impact, which has sort of traditionally been anchored around the notion of intentionality and particularly additionality. You're starting to see a big push into public equities, in public credit, and it almost feels like there's a pragmatic emphasis on measurability, for instance, over the notion of additionality, just given some of the inherent constraints within those asset classes. Do you see a risk in this kind of rainbow where greenwashing as investors I think more broadly increasingly adopt the SDGs as an impact investment framework?

Nick O’Donohoe (12:52):

I think the first thing I'd say is that the SDGs have been – when you look at the various milestones that have led to the growth of impact investment over the last decade or so – the launch of the SDGs was a critical milestone although it might not have seemed obvious at the time because what the SDGs did was give a framework to an activity that up to that point was sort of rather poorly defined and somewhat nebulous. So the SDGs gave this important framework and it allowed impact investors to be much clearer about where they positioned themselves and what they were trying to do. I think this question of measurability and additionality is a very important one. I suppose, measurability is fundamental if you're going to claim to be an impact investor of any sort, whether it's in public equity or private equity, to some degree, you need to be able to measure, report, monitor, and report on your impact.

Nick O’Donohoe (13:43):

And I think that's an area which has obviously got a huge amount of attention over the last decade or so I think we still are rather fragmented frankly, in our approach to impact measurement, but there is clearly a movement now towards much more harmonisation. Obviously, measurability depends on getting good data, independent or audited data, not self-reporting from companies and so on. And there's clearly a significant move towards that among many of the regulators and the accounting bodies. So measurability is pretty fundamental. I think the question of additionality is a sort of a slightly different one. You know, we take that within the development finance community. Additionality is pretty fundamental in the sense that we are given capital by our donor governments in case it's the UK and our role is to do stuff that other people wouldn't do, because if the commercial capital markets can take care of something, then there's no need for development finance.

Nick O’Donohoe (14:42):

So every time we make an investment, we consider very carefully what the additionality requirements are. It's not quite the same thing for when you're investing, for example, in public equity. And if I think about what I'd like to see big public investment managers and public funds do it's I think to ask them to think too additionally would probably be a step too far. I mean, I think what you do want them to do is to think about this impact question alongside the risk and return question. And I think to a large extent, that's what you see these organisations beginning to do.

Jason Mitchell (15:17):

I want to sort of go back because it was sort of interesting in 2018, the CDC announced a new five-year strategy, it essentially commits to take on greater risk with lower return assumptions in order to, and I'm reading from the disclosures to quote: “tackle specific market failures that hold back development”. How do you see this strategy now serving investment in a post-pandemic world? It feels like this is desperately needed in the current context in terms of providing liquidity and capital.

Nick O’Donohoe (15:49):

The strategy that you're referring to is what we now call our Catalyst Strategy within CDC. So we have two portfolios broadly. We have the growth portfolio, which is the largest part of our portfolio. That's a traditional DFI portfolio. The catalyst portfolio is specific – it was set up to allow us to take a higher level of risk to go places where we thought we could develop enhanced impact. And I do think, as I said before, the development finance institutions, our role really is to be additional. It is not to just do the things that other people would do, but it's really to try to stretch and be prepared to take greater risks and hopefully achieve greater impact and hopefully build markets. And what the catalyst portfolio has allowed us to do is things, for example, like we set up a company called Med Access to develop a volume guarantee business.

Nick O’Donohoe (16:40):

Volume guarantees were a technique originally developed by the Gates Foundation to help increase the supply of critical medical products and pharmaceuticals through guaranteeing demand effectively. So that was we were able to set up a business to try to develop that market. We were able to set up a business called Gridwork specifically to develop, to invest in transmission and distribution in Africa and in many countries in Africa today there's still a critical shortage of reliable power, but it's actually not caused by generation. It's a lack of generation is caused by poor transmission and distribution of the power. That tends to be a very difficult area to invest in. So we wanted to set up a dedicated focused company to do that. And the catalyst gave us the ability to do that. It gave us the ability to have a larger venture capital and a riskier venture capital portfolio. It allows us, for example, to invest in more in forestry, which is a critical part of our climate strategy. So it's given us the opportunity to go those places where capital really is absent and try to demonstrate that capital can play a role.

Jason Mitchell (17:41):

It's interesting from a climate change perspective, that in the midst of the pandemic, the CDC announced a number of climate actions mid-last year, including achieving net zero emissions by 2050 alignment to the Paris agreement and a 30% of total investment devoted to climate finance in 2021. All of these would seem to effectively reposition CDC into essentially what is a green development finance institution. I'm wondering what are some observations, and lessons, about working with developing economies who just relative to developed economies will end up showing later peaks in emissions as many tend to focus on more urgent human development issues?

Nick O’Donohoe (18:26):

Yeah, so I think CDC has always, certainly for a long time, been sort of a green-focused investment firm. I mean, we've ensured strong environmental standards within our investee companies for many years. We gave up investing in coal, for example, coal fire generation in 2014. But I think obviously as the climate emergency has developed, we've had to become even more focused on that area. And so, as you say, we announced a new climate strategy about six months ago which focused on getting to net zero by 2050, on addressing this question about resilience, focusing on how we can make a difference in terms of just transition. But obviously, as you say, we need to do that in the context of being a development institution. So, you know, there are still 600 million people in Africa today that do not have access to reliable power.

Nick O’Donohoe (19:18):

And that means that obviously they can't light their homes at night, they can't charge their mobile phones, but they can't build hospitals or power hospitals. They can't build and power factories and create jobs. So this is a fundamental development issue. Africa today generates 2% of global emissions of which I think about half is generated in South Africa. So this question of ending energy poverty has always been central to what CDC has focused on, and indeed what other development finance institutions have focused on. I think what's changing obviously is we need to try to address that need for power in a green, environmentally friendly way. Now that isn't as simple as saying, we're never again going to develop, for example, gas-fired energy generation. One of the things that the Paris agreement was quite clear on was there is a need for a transition in many countries to a purely green economy. And that's particularly true in Africa. So now we've obviously tightened up our exclusions. So we don't invest in coal. We don't invest in oil-fired generation, but we will for example, look at gas power generation if we feel it's part of a transition and a pathway in that country to net zero.

Jason Mitchell (20:34):

I mean, if you were to look across the countries and the investments from a CDC perspective, I mean, how much dispersion is there when you think about the portfolio missions and individual country pathways towards net zero?

Nick O’Donohoe (20:48):

There is a significant dispersion between different countries. Certainly, we invest as you mentioned in your introduction, both in Africa and South Asia, every country is in a slightly different position. And that's why the Paris agreement specifically allows for different national country plans and clearly defined pathways. So for example, India is a very large economy with massive energy needs but most of its energy today is provided by coal. So there's a huge need for transition out of coal into cleaner source of energy so we're playing an important part in funding those renewable platforms. We started a company called Ayana about four or five years ago, which now has a billion dollars in capital and is building wind and solar power. So in India we are focused only on wind and solar renewables. In Africa, different countries are in different circumstances; both in terms of their ability today to generate power, their ability to deliver that power to their populations, and their access to fuel sources. So you have to look at each country separately, and there are significant differences between what you might do in Mozambique, for example, versus what you would do in Kenya.

Jason Mitchell (22:03):

There's been this historical concern that DFIs and even CDC, I've heard you talk about this in the past, are effectively too commercial that the risk is that they generally crowd out private sector investment given the scarcity of big bankable projects out there. And I'm wondering how you see that picture evolving as particularly CDC rebases its return assumptions. And to be honest, I'm wondering to what degree did the low rates environment that we've seen over the last couple of years, and particularly now, has it changed since pre-pandemic? And to what degree is it changing it in a post-pandemic world going forward?

Nick O’Donohoe (22:40):

Yes, I think the development finance community has in the past definitely been accused of being too commercial. And that gets back to our discussion on additionality and whether development finance is truly additional. I think when you look at the market today, I always think people talk about too much capital or not enough capital, really there's a spectrum of capital and a spectrum of risk. And what I think we often see is a lot of capital chasing the lower, and this is true broadly by the way, in the whole impact investment market as well, we see a lot of capital chasing lower risk transactions. So for example, if you're looking for US dollar debt for renewable energy in Africa today, there's a lot of reasonable projects. There's a lot of capital available. On the other hand, if you look at equity to support venture capital and to support young local entrepreneurs to build, you know, the digital businesses, the future, there's a dramatic scarcity of capital.

Nick O’Donohoe (23:43):

So I think for DFIs, we need to continue to try to move towards that higher risk end in a sensible way, move towards that higher risk end of the capital spectrum. So I think we have as a group been doing that, we also need to move towards the higher risk countries. I mean, it's in many countries in Southeast Asia really, there's a very limited need for development capital but still a huge need in Africa. So it's really moving when you think about sort of these issues of crowding out and additionality. you need to think about it in the context of risk and what part of the capital spectrum you're trying to occupy.

Jason Mitchell (24:20):

There was an announcement for the Net Zero Asset Owners Alliance recently that that essentially issued a call to asset managers to provide blended finance solutions that specifically aligned to the net zero transition. And I think the CDC would seem to be sort of at that nexus of net zero in this area in finance. And I'm wondering how you're using blended finance as part of your overall toolkit and how you balance the commercial returns component within that within the overall effort to take higher risks amid potentially lower returns.

Nick O’Donohoe (25:10):

Well, blended finance has been one of the sort of important developments I think in driving the impact investment movement, driving development, finance over almost a decade now. And it's very important and continues to be more important. What's interesting is that originally the sources of blended finance. And when I say blended finance, I mean the concessionary part, blended finance by definition is, you know, two or more participants coming together in one investment structure where they've got different risk-return impact objectives, so they can come together in one structure. So I think blended finance originally, the concessionary part, which is typically the most difficult piece to find, has been provided by governments and through programmes; the World Bank has a big program, he Global Climate Fund has a big program. I think what's interesting about the development finance world over the last two or three years is you're beginning to see the foundations, for example, play a much broader role in providing the concessionary piece of blended finance.

Nick O’Donohoe (26:06):

And I think that's a very positive development. And indeed, before I came to CDC, I worked as the senior advisor to the Gates Foundation, specifically looking at how they could develop a bit more in the field of blended finance. So I think it tends to work best in areas where you’re coming together to fund projects where you've got predictable cashflows. So it works well, as you said in the world of renewables, where many projects still are difficult to justify, particularly in the more difficult countries, difficult to justify on a purely commercial basis. So having the additional blended finance components can be the difference between getting a project done or not done. It can be valuable in providing guarantees for broad SME loan programmes, for example, where you have fairly predictable loss ratios.

Nick O’Donohoe (26:57):

And sometimes those loss ratios make the whole programme, perhaps commercially unattractive. But with the addition of blended finance, it can become more attractive to commercial investors. So it has a really important role to play. It's not a panacea for every problem. I mean, one of my learnings at Gates Foundation was how complicated it is, how bespoke everything is, how we still are lacking standardisation across much of blended finance. The amount of money moved has been probably less than some people would have expected. There have been some very interesting transactions, but probably the total amount of money has been moved is less than perhaps some people would have hoped for. I think it doesn't work as well in areas like equity; so the higher risk is really unpredictable. We look at high risk unpredictable returns, although we're again beginning to see, you know, concessionary trenches in some equity funds. So it's definitely an important and growing part of the development and the impact agenda. And indeed at CDC, we've done a number of different transactions; in climate, in SME funding, post-pandemic where we've employed blended finance to get those transactions actually over the line.

Jason Mitchell (28:12):

Within that CDC toolkit that I mentioned another interesting announcement that came out was the expansion of CDC’s venture cap program. And I'm wondering how you see technology and early stage innovative business models supporting the CDC’s investment mandate, you know, is the focus on early stage a necessary step, given the lack of a lot of large scale investment opportunities?

Nick O’Donohoe (28:37):

I think that supporting the digital revolution is an absolutely critical part of a development finance institution’s job today. And I think that has not historically been the case for a couple of reasons, for a number of reasons, but today, because it's very obvious before the pandemic, it's even more obvious post pandemic that building the digital economy is fundamental to development in every country in the world. And I think development finance institutions have a critical role to play. And it's not necessarily an area where DFIs have been necessarily comfortable. I mean, they'd be much more visible for example, in large infrastructure projects or in providing funding for financial systems and financial inclusion. But in funding the digital revolution I think we have two really important roles and there's sort of two ends of a bar bell. You know, on the one side we need to fund the hugely expensive digital infrastructure that needs to be built so that people can get reliable high-speed internet access.

Nick O’Donohoe (29:40):

And so CDC, for example, two years ago invested $200 million in a company called Liquid Telecom. Liquid is building a fibre platform across Africa, from Kairos that Cape Town and Mombasa to DACA so that vision of a connected Africa is going to require massive amounts of capital. And it's going to require companies that are African-based, focused on Africa, to do it. So for them to raise equity is difficult to do and DFIs have critical roles to play. And, you know, that certainly was a large investment by CDC. It was on our overall risk spectrum, one of the risky things we've done, but we felt it was really important to do it because without that, digital infrastructure development in Africa was going to be significantly slower. So that's one part of it. The other end of the barbell is about how do we find the capital to support the young, local entrepreneurs that are using digital technology to build the businesses of the future?

Jason Mitchell (30:41):

One of the upcoming guests is going to be Dambisa Moyo who's been a big influence on me, particularly in the development area. She's clearly a big proponent in terms of private sector versus the aid strategy. But I guess I'm wondering when you think about the CDC’s position and role within Sub-Saharan Africa, the fact that it feels like we're kind of in the midst of a potential credit crisis, particularly going through the pandemic, debt to GDP ratios are climbing, we've even seen the first formal sovereign credit defaults happen. How is CDC thinking about all of these factors in the context of greater risk-taking?

Nick O’Donohoe (28:41):

I think one of the things that was very clear when we went into the pandemic a year or so ago, was that what always happens in any global financial crisis of any sort is people's natural reaction; investor's natural reaction is to take risk off. And that means say they take money out of those places that are furthest away, that they perceive to be highest risk. Africa is a continent where the majority of countries, certainly outside of South Africa, don't have deep capital markets, domestic capital markets. So they've nothing to replace that with. And so you get this big sort of sucking out of funding, and that's exactly what's happened when the pandemic started. And that of course is accentuated by the fact that unlike developed countries, where we have deep pockets in government that in the UK, for example, we can step up and provide emergency funding to companies to get them through, get them through the pandemic, in most African countries, they don't have that funding they're over in debt going into the, so it's absolutely vital that the development, finance community steps forward at a time like this and acts in a counter cyclical way.

Nick O’Donohoe (32:27):

And that's what we tried to do. And I know other organizations, IFC and others all tried to step in to fill that gap that was created at the start of the pandemic.

Jason Mitchell (32:39):

Last question. What are your expectations going into COP26 later this year in terms of the development agenda? What are you seeing on the ground from developing economies around climate commitment and action?

Nick O’Donohoe (32:51):

COP26 is critically important. It's obviously also critically important for us because it's taking place in the UK and there's a huge agenda around COP which is the financing capital piece, which is the piece that we're involved in is just one part. But I think, you know, on the broader big picture, it's obviously critically important that we get commitments to more urgent action on climate change. I think when you start looking at the opportunity for the UK to play a really important role, I think it's in areas like carbon offset trading, for example, where that's been a very embryonic sort of illiquid market. I think we need to institutionalise that market. So that's a big work stream within the UK. But I think for the development finance community, it's about making sure that we do deploy our capital in a way that's really additional.

Nick O’Donohoe (33:41):

And as I said earlier, that's still around climate mitigation. So it's still around providing the vast amounts of capital to build more renewable energy, but it's also importantly around pushing out into adaptation and resilience, focusing more on the just transition. So our role is to try to bring together as much as possible; the development finance community, the multilateral development community, to try and really focus on pushing a bit further, taking a little bit more risks, looking at the areas where perhaps that are less attractive to commercial capital, but it will be a hugely important event, obviously for the UK, but for the whole world, if we're really going to bring the sort of urgent attention and action to the climate emergency, then COP26 has to be a key catalyst in doing that.

Jason Mitchell (34:33):

That's great to hear. I mean, there are high expectations, so it's a really hopeful message.

So it's been fascinating to discuss how the CDC group is positioning itself as the UK’s green development, finance institution. What DFIs are doing to provide much needed liquidity and capital during the pandemic and why investor action on climate and the SDGs is vital to advance the development agenda.

I'm Jason Mitchell, Co-Head of Responsible Investment at Man Group here today with Nick O’Donohoe, CEO of CDC Group.

Many thanks for joining us on A Sustainable Future and I hope you'll join us on our next podcast episode.

Thanks so much, Nick. Really appreciate it.

Nick O’Donohoe (35:16):

Thanks, Jason. Great to talk to you.