An indirect approach guided by responsible and collaborative investment principles.
Our approach to investing follows a clear strategy guided by fundamental principles, adhering to universal standards and benchmarks
We invest in financial intermediaries, either in local and regional funds or in local financial institutions. The intermediaries in turn finance local small and medium-sized companies. This indirect investment model has proven to be efficient for several reasons:
Fund managers with local presence are better positioned to identify and select companies and projects. They have better access to investment opportunities and risks, extensive knowledge of the companies requirements and the local regulatory and cultural environment.
Financial intermediaries such as fund managers, local banks or microfinance institutions often deliver tailored non-financial advice to the companies.
Financing local MSME banks strengthens and deepens the local financial sector.
Fund investments allow for a broad and diversified portfolio as a mitigant for investment risks.
Funds empower public investors like SIFEM to engage private co-investors in developmental business financing within countries that would typically be deemed too risky by private investors alone.
The Investment Guidelines outline our responsible and collaborative investment approach. At its core, we adhere to the following investment principles:
SIFEM adheres to the basic principles of financial, economic, social and environmental sustainability in its investment activities. Our investments are intended to generate an adequate financial return. Those returns are recycled and used again to finance new projects. Unlike traditional development funds, this economical business model enables the multiple use of federal funds for development purposes.
SIFEM provides financing which, without public support, would not be available from private local or international financial markets on reasonable terms or in sufficient amounts for comparable development purposes. As a DFI we often operate in riskier environments where private investors are hesitant to participate.
SIFEM makes investments that not only fill a financing gap but also add tangible value, notably in the form of know-how transfers and the provision of technical support to funds and portfolio companies. We are an active investor by taking a seat in the governance bodies of funds or financial institutions whenever possible.
SIFEM, through its investments, seeks to mobilise the flow of additional capital from private and other institutional investors for the benefit of the investee companies.
As a conscientious investor, we prioritize not only financial returns but the broader impacts of our investments, including environmental, social, and governance (ESG) factors. Our approach entails adhering to rigorous ESG standards, applying climate-related measures, and adhering to a responsible taxation policy.
ESG Standards:
SIFEM’s Approach to Responsible Investment delineates the organization’s ESG-related investment criteria. This policy extends across various tiers: SIFEM itself, its Portfolio Manager, Fund Managers, underlying portfolio companies, as well as Financial Institutions and their clients.
At its core, SIFEM exclusively invests in funds and financial institutions that uphold rigorous standards in environmental, social, and corporate governance, while also enforcing these standards upon their portfolio companies. We assert that proper ESG risk management not only reduces risks to workers, the environment, local communities, and other affected stakeholders but also mitigates reputational and financial risks. Proper ESG risk management contributes to sustainable, positive impacts on finances, the environment, and society. The evaluation of these criteria holds significant weight in our investment process and ongoing monitoring. SIFEM’s commitments outlined in the Approach to Responsible Investment align closely with international standards.Â
In pursuit of fostering economic growth, certain sectors play a crucial role in job creation but also pose specific labor risks. Therefore, we advocate for the development and implementation of ESG-related Good Practice Notes tailored to these sectors.
Climate-related measures:
SIFEM’s Climate Approach outlines our commitments to climate finance. Since 2023, all new investments must be aligned with the Paris Agreement. For this purpose, we apply two measures:
Responsible Tax Principles:
For regulatory reasons, many fund opportunities are structured through so-called Offshore Financial Centres (OFCs). Such structures allow for a broad pooling of funding from various investors and to the benefit of countries with a difficult legal and regulatory environment and limited investor protection. However, fostering responsible tax behavior and transparency have become international priorities in order to enhance domestic revenue mobilization in developing and emerging markets, which is one of the key challenges to achieving the Sustainable Development Goals. We carefully consider compliance with tax laws following our Responsible Taxation Policy which is aligned with the EDFI Responsible Tax Principles.
Good Practice:
Our goal is to ensure that economies adhere to high standards, thereby assisting organizations in emerging markets to enhance their processes through practical guidance. We actively facilitate the creation and implementation of Good Practice Notes, integrating them into our procedures to further our mission.
Discover our regional and sectorial focus, guided by climate criteria and a clear exclusion list.
Discover our regional and sectorial focus, guided by climate criteria and a clear exclusion list.
