Report: Development policy investments significantly reduced emissions in developing countries

Finland’s development policy investments focus on combating climate change and promoting gender equality. Investments target Africa and developing countries.

Finland’s investments in the IFC climate fund enabled more than 500 schools in the Palestinian territories in the West Bank and Gaza to put solar panels on their roofs.
Finland’s investments in the IFC climate fund enabled more than 500 schools in the Palestinian territories in the West Bank and Gaza to put solar panels on their roofs. Photo: Issam Al-Rimawi/IFC

According to the first annual report(layout.types.url.description) on Finland’s development policy investments, which covers 2020, published by the Ministry for Foreign Affairs, developing countries benefited significantly from development policy investments. 

By the end of 2020, almost EUR 550 million had been channelled to development policy investments. Negotiations are under way on investments with a value of nearly EUR 380 million. By the end of the current government term, the portfolio is expected to rise to over EUR 1,048 million.

Investments support climate action

The majority of Finland’s development policy investments are allocated to climate change mitigation, with 75 per cent of them going to climate action. Financial investments, which are an important part of Finland’s international climate financing, helped developing countries to achieve significant reductions in their emissions.

“Our investments boosted renewable energy production and improved energy efficiency. As a result, many households previously deprived of electricity gained access. Resources were also allocated to support sustainable forestry,” says Irene Leino, Senior Adviser at the Unit for Development Finance and Private Sector Cooperation at the Ministry for Foreign Affairs. 

Gender equality is a cross-cutting theme, which is why a specific target has been set for the investments: at least 85 per cent must promote gender equality.

“Investments have helped developing countries to accumulate tax revenues and create jobs. Special attention has been paid to creating jobs for women,” Leino says.

Africa accounts for 60 per cent of the investments. Efforts will be made to increase the share of the least developed countries in the investment portfolio. 

Sustainable development needs more private financing

The amount of financing required to achieve the global sustainable development goals is too large to be covered by official development assistance. The purpose of financial investments is to attract private investors who might otherwise be sceptical about investing. Using public funding to leverage additional investments from private actors will multiply the amount available for development policy purposes.

“Development policy investments are always additional, which means they are channelled to investees that would otherwise not receive financing from the market. These investments may involve a greater risk for investors, which public funding may help to reduce,” Leino explains.

COVID-19 pandemic affected investment

The COVID-19 pandemic, which began to spread in 2020, had an impact on financial investments. 

“While the pandemic did not affect Finland’s investment activities, it had an impact on the target countries. With significant travel restrictions in force, it was very difficult to assess new investment opportunities. The pandemic hit the economies of developing countries harder, because unlike the developed countries, they did not have access to recovery facilities,” Leino notes. 

Development policy investments were, however, able to offset some of the impacts of the pandemic.

“Patient private sector investment is essential to support the economies and employment opportunities of developing countries.”