Every Year We Ask Ourselves, Are We Making a Difference

Amounts of impact capital under management. Regional and sector focus. Headquarters location. This is some of the information included in the recent list of 100+ impact investors published by the Financial Times and the Global Impact Investing Network (GIIN).

Beyond this snapshot, it's important to understand how the investments made by these impact investors are performing. Are they achieving the expected social, economic, or environmental impact, and if not, why?

Reporting on impact performance-both what's working and what isn't-is critical for continuing to bolster the credibility of the growing impact investing industry. Investors can learn from these results and use impact data to inform decision-making.

At IDB Invest, we do this through our annual Development Effectiveness Overview (DEO).

Let's recap the main takeaways from the 2024 DEO around three main questions:

1. How is our active portfolio performing?

• Our portfolio is diverse: As of end-2023, it includes 289 projects across three business segments (Infrastructure and Energy, Corporates, and Financial Institutions), 13 sectors, 24 countries, and an array of financial instruments, from loans to equity fund investments.
• Our portfolio is healthy: As of end-2023, 63% of projects in our active portfolio are on track to achieve their development impact objectives (vs. our target of 70%). This doesn't mean that the remaining projects are in the red regarding impact. Most of them are tagged for closer monitoring since the client may be facing challenges or need additional support from us to get things back on track. That's why we keep our fingers on the pulse of the portfolio's impact performance, enabling us to learn dynamically and shift course when needed.

2. Did completed projects achieve their intended impact?

Once a project matures or exits our portfolio, we do a final evaluation to assess its overall impact performance. Of the 45 projects evaluated in 2023, 69% were rated positively, as validated by the IDB Group's independent Office of Evaluation and Oversight.

This is above our annual corporate target of 65%. More importantly, the results captured by these evaluations translate into on-the-ground benefits for women-led SMEs in accessing credit, for small farmers in increasing productivity, and for avoiding carbon emissions, among others.

The DEO also analyzes historical evaluation trends, putting performance over time into perspective.

3. What's driving impact performance by sector?

For the first time in the DEO, we take a deep dive into the impact performance of our operations by sectorand region. We look at both mature operations in the active portfolio and final evaluations conducted from 2016 to 2023.

Here's a taste of the trends we've found for sectors.

• Over 80% of operations in the energy sector have achieved their intended impact targets, including increasing renewable energy production and reducing carbon emissions.
• This strong track record is mainly due to the prevalence of projects using proven wind and solar technology in countries with stronger regulatory frameworks, which have often been strengthened with IDB Group's support for public-private partnerships.
• At the same time, energy operations face challenges such as regulatory, political, and social instability in some countries, climate-related events, and other factors.
• Our agribusiness portfolio also shows good results, with 65% of operations approved since 2016 performing positively.
• They're promoting food security, increasing agricultural productivity, creating jobs in rural areas, and strengthening value chains despite facing challenges such as commodity price volatility.
• As for operations through financial institutions-which have financed nearly 5.5 million MSMEs since 2016- those with stronger alignment between objectives and client strategies perform better.
• We also see that performance strongly correlates with macroeconomic trends, signaling the need to adapt strategies and target-setting to broader economic conditions.
• This also signals the need for more dynamic evaluation approaches to better account for external factors when assessing an investment's impact performance.

Data for Greater Impact

As we move forward with our new IDB Invest+ business model aiming to achieve even greater impact and scale in Latin America and the Caribbean, understanding what's driving impact-and acting on this knowledge to continually improve-is more critical than ever.

This is not just to inform our decision-making but also of other impact investors seeking opportunities in the region.

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