June 10, 2022
Following FDI Center’s moderation of two panels at the OECD’s “Strengthening sustainable investment policies: FDI Qualities Ministerial Council Meeting” in Paris, here are our key takeaways and implications for investment promotion agencies (IPAs):
- The interconnection between sustainability and foreign direct investment (FDI) is real and is happening now. FDI is essential for achieving the sustainable development goals (SDGs). Governments around the world (in both developed and developing countries) are implementing policies to enhance the sustainability of the investment they attract and are defining sustainability in broad terms, along the lines of the SDGs. They are being supported by international organizations such as the OECD which has developed an FDI Qualities Policy Toolkit and other tools for governments to manage this transition. “Quality over quantity” is the guiding principle for new FDI related policies.
- The private sector plays a key role in these initiatives. This applies not only to multinational enterprises, but to SMEs and startups. Governments that involve the private sector in the development of sustainable investment policies to strengthen the sustainability of FDI can ensure that their efforts are in line with and complement the measures that companies are already taking.
- Introducing sustainable investment policies that enhance the contribution of FDI to achieving the SDGs requires a whole-of-government approach, with different ministries and agencies working in concert to ensure that conditions are in place for FDI to deliver the greatest benefits. This type of coordination has a positive effect on a country’s ability to support investors, as successful investment facilitation is dependent on cooperation between various parts of government.
- The introduction of an investment policy framework for sustainable development represents a competitive advantage for countries seeking to attract investment. It aligns with the objectives of most businesses and large parts of the population and provides investors with transparency and clarity. Rather than representing a deterrent to investment, clear policies around sustainability for investment are seen as a location strength and can contribute to investment promotion.
The implications for investment promotion agencies are significant. Many IPAs are already adjusting their strategies to reflect their governments’ focus on attracting sustainable investment. In practice, this means carefully selecting the “right” types of investment to attract as well as having the tools required to assess individual projects based on their sustainability characteristics. The focus on “quality over quantity” also means that IPAs will need different indicators to measure their performance. Their government stakeholders will need to accept that focusing exclusively on absolute employment and investment numbers is no longer an adequate method for evaluating IPAs.
Beyond these operational changes, there is also a role for IPAs to play in coordinating the efforts of their government to implement sustainable FDI policies. IPAs are experienced and adept at working with other parts of government and the private sector to achieve common goals. As the agencies that are ultimately responsible for attracting and working with investors, they provide the connection between government policy and the private sector. This coordination function will be particularly pronounced in countries where IPAs have the formal authority and mandate required to coordinate the efforts of others.
A recording of the strengthening sustainable investment policies: FDI Qualities Ministerial Council Meeting is available to watch here.
