SECO’s Liliana de Sá Kirchknopf explains how Switzerland is mobilising more private capital for developing countries aligned with the SDGs, and announces the first call for proposals under a new impact finance initiative
One third of the global private impact investment market is managed in Switzerland, and the country has also made impact investing an integral part of its development cooperation activity.
At the end of last year, the State Secretariat for Economic Affairs (SECO), UBS Optimus Foundation, Credit Suisse Foundation and the Swiss Agency for Development and Cooperation (SDC), launched the Sustainable Development Goals Impact Finance Initiative (SIFI).
The programme aims to raise 100 million Swiss francs (€98m) in grant contributions, that in turn should unlock up to 1 billion Swiss francs of private capital supporting the United Nation’s SDGs in developing countries.
Later this month, the new initiative will issue its first, internationally open, call for proposals in collaboration with Convergence, the Canada-based global network for blended finance. Grants will be provided for the design of innovative impact finance solutions.
“This could for instance be an NGO, operating with a small investment manager, who need support to prepare a feasibility study for the design of a new investment vehicle,” says Liliana de Sá Kirchknopf, head of private sector development in the Economic Development Cooperation Directorate at SECO, and also the initiator of the SIFI.
A second call is expected later this year, and will support the scaling of investment products. The calls will be defined around specific SDGs, topics or geographies.
Avoiding impact washing
“With the SDG Impact Finance Initiative we aim to attract additional funding from a broad range of public, private and international actors”, de Sá Kirchknopf says. Initially, she expects banks’ foundations and philanthropic organisation, as well as development agencies, to support the initiative. “The ultimate goal is to get banks and impact investors involved, as we aim to seed-fund commercially viable investment products.”
Another aim is to strengthen the market and regulatory infrastructure of impact investing. “This is absolutely necessary,” she notes. “Credibility is crucial in this market. To avoid any form of ‘impact washing’, we need to have more harmonisation in standards, measurement methods and quality reporting.”
The lack of global standards regarding impact measurement and reporting is repeatedly mentioned as a major hurdle in further advancing impact investment. To help improve this situation, the initiative plans to cooperate closely with the Swiss Sustainable Finance association and the State Secretariat for International Finance.
Impact investment hub
As one of the major financial centres in the world, Switzerland has also become a hub for impact investing and other innovative financing initiatives.
Although impact investing still represent a very small part (2%) of Switzerland’s investment market, the sector is growing fast. Impact investments grew by 70% in 2020, according to the Swiss Sustainable Investment Market Study 2021.
Traditional financial institutions are increasingly embracing impact investing, as demand for sustainable financial products increases among their clientele.
“Impact investing must grow out of its niche. Without capital, innovation and expertise from the private sector, including large institutional investors like pension funds, we will not be able to address the world’s most pressing challenges.”Liliana de Sá Kirchknopf, SECO
The Swiss government is actively promoting new initiatives in this field. Last November, the second edition of Building Bridges – a conference aimed at establishing a movement and driving investment to achieve the SDGs – took place in Geneva, with a next edition planned for October this year.
“The seed for our new SDG Impact Finance Initiative came from Building Bridges”, says de Sá Kirchknopf. It was also built on an earlier experience in 2017 when SECO, for the first time, launched an open call for proposals.
The aim was to draw out the most appropriate funds to address the SDGs related to decent work and climate change mitigation. “Rather than providing ad hoc support, the submission process was based on competition, which helped optimise cost-effectiveness.”
Also in 2017, SECO, together with the Colombian government and the Inter-American Development Bank, launched the first social impact bond (SIB) in a developing country. This SIB focuses on integrating poorer segments of the population into the formal labour market, with the Swiss and the Colombian governments paying only for results achieved.
The bond is now in its fourth phase. “The actual number of people entering the labor market is increasing. An even more important impact is systemic: we see a big shift in the government’s approach on how to provide social services,” she notes.
Leading the way
Building on the strengths of being a financial centre, Switzerland has the potential to continue to lead the way in impact investing, de Sá Kirchknopf says.
This is also the aim of the public-private platform finance.swiss which aims to position the country internationally in the fields of sustainable finance and fintech.
The conviction that the private sector plays a central role in addressing development challenges is reflected in Switzerland’s international cooperation strategy for 2021 to 2024.
“Impact investing must grow out of its niche. Without capital, innovation and expertise from the private sector, including large institutional investors like pension funds, we will not be able to address the world’s most pressing challenges,” de Sá Kirchknopf concludes.