United Nations Economic and Social Commission for Asia and the Pacific

Sustainable FDI Attracting FDI in support of SDGs

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United Nations Economic and Social Commission for Asia and the Pacific

What is sustainable FDI?

• Sustainable development • “Development that meets the needs of the present without

compromising the ability of future generations to meet their own needs” (Brundtland report).

• Overall goal: long-term stability of the economy and environment. This is only achievable through integration of economic, environmental and social concerns throughout the decision making process.

• Sustainable FDI

• No agreed definition:

• FDI that contributes to a country’s sustainable development / to achieving social, economic and environmental objectives

• FDI that yield sufficient profits to maintain effective corporate engagement without harming host country interests while producing positive net benefits for the country’s long-term development goals

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United Nations Economic and Social Commission for Asia and the Pacific

Sustainable development dimensions Social development

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Sustainable FDI

Economic development

Environmental sustainability

Social development

Good governance

United Nations Economic and Social Commission for Asia and the Pacific

Sustainable development dimensions

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Sustainable FDI

Economic development

Environmental sustainability

Social development

Good governance

Business Linkages

Capital

Employment Taxes

Tech. transfer

Exports

Infrastructure

Labour rights

Skills enhancement

Public health

Non-discrimination

Balanced development

Pollution control

Carbon footprint

Environmental Tech transfer

Water usage

Waste management

Transparency

Management

Stakeholder dialogue

Marketing practices

Supply chain standards

United Nations Economic and Social Commission for Asia and the Pacific

Changing goals of FDI attraction

• Historically FDI attraction focused mainly on economic dimensions (capital, employment, exports, tech transfer, etc.) • At times even at the expense of social and environmental

dimensions, and often at expense of tax income

• Other dimensions now gaining importance • Attracting FDI to support moving up the value chain /

to build a knowledge based economy (R&D, high-tech, fintech, foreign universities, etc)

• Attracting FDI to build a low-carbon, environmentally sustainable economy (Renewable energy technology, water purification, etc)

• Attracting FDI in key infrastructure (ICT, energy, roads, public transport, water, etc)

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United Nations Economic and Social Commission for Asia and the Pacific

UNCTAD Investment Policy Framework for Sustainable Dev. 1. National FDI policy supports sustainable development objectives

Integrating investment policy in development strategy Incorporating SD objectives in investment policy

Revising investment promotion strategies and institutions

Ensuring investment policy relevance and effectiveness

2. Ensure IIAs support SD Strengthen the development dimension of IIAs Balance rights and obligations of states and investors Manage systemic complexity of IIA regime

3. Promote investment in sustainable development Evolving IPAs into investment development agencies, re-designing

incentives Resolve policy tensions associated with private sector engagement Expanding the use of risk sharing tools (to improve risk-return profile of

SD projects) Find mechanisms to overcome inadequate risk-return ratios Facilitating innovative financing solutions

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United Nations Economic and Social Commission for Asia and the Pacific

FDI policy for SD/SDGs

Integrating FDI in national (sustainable) development strategies and plans

=> Looking at FDI holistically and cross-sectorally, how to best ‘use’ FDI for: Productive capacity / linkages

Industrial upgrading

Human resources/skills

Technology & know-how transfer/upgrading

Infrastructure

Reviewing investment policies to ensure they support SD

Ensuring investment agreements leave enough policy space

Linking investment promotion efforts and incentives to SD criteria / national SDG priorities (quantitative and qualitative)

Developing a pipeline of bankable SDG projects (e.g. PPPs)

Collaborating regionally (regional investment compacts, joint zones)

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United Nations Economic and Social Commission for Asia and the Pacific

Example: Renewable energy

Goal: Reduced carbon emissions, reduced pollution, increased energy access and energy security Renewable energy targets

Identify current obstacles to RE investments (national and foreign, different types of RE)

Put in place policies needed to expand investments / reduce risk (e.g. feed-in tariffs, guarantees, carbon tax, removal of fossil fuel subsidies)

-> Link to FDI policy and promotion Ensure investment agreements leave policy space to support

RE projects and increase requirements for carbon emission limitations

Tailor incentives, guarantees, and other tools to support low-carbon energy investments (if needed)

Explore avenues to access climate finance

Develop a pipeline of bankable projects

Target and approach RE companies

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United Nations Economic and Social Commission for Asia and the Pacific

Measuring effectiveness

Possible indicators • Economic value added

• Value added • Contribution to gross fixed capital formation • Export generation • Total fiscal revenues

• Job creation • Number of jobs created (directly and indirectly) • Wages – household income generated • Types of jobs generated

• Sustainable development • Labour impact (Employment of disadvantaged groups, Skills upgrading, Occupational safety

and health effects) • Social impact (no of families lifted out of poverty, increased access to affordable goods and

services) • Environmental impact (GHG emissions, energy and water consumption, treatment of

hazardous materials, enterprise development in eco-sectors) • Development impact (development of local resources, technology dissemination) (Source: Impact indicator methodology developed for G-20 Development working group, referenced in UNCTAD PFSD)

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United Nations Economic and Social Commission for Asia and the Pacific

Assessing sustainable FDI

• One proposed methodology to assess sustainable FDI involves: • Choosing top ten priority development objectives

• Self-assessment of investment climate

• Identifying target sectors for FDI promotion • Incentives only after rigorous cost-benefit analysis, and transparency

• Qualitative targeting of investors (responsible)

• Exclusion conditions test

• Project assessment matrix, with development priority weighting (and adjusted for cost of incentives)

Source: John Kline (2012), Guidance paper on evaluating sustainable FDI, Millenium Cities Initiative Working paper series, no 12/2012

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United Nations Economic and Social Commission for Asia and the Pacific

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United Nations Economic and Social Commission for Asia and the Pacific

Sharing ideas

• How is FDI policy changing in your countries to support SDGs?

• Investment Agreements?

• Investment promotion efforts?

• Incentives?

• Do you have an inter-ministerial process in place?

• How do you measure impact?

• What areas could benefit from regional cooperation, analysis or capacity building?

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