Select Committee on Environmental Audit Appendices to the Minutes of Evidence

Supplementary memorandum to Environmental Audit Committee from the CDC Unit at the Department for International Development

  1.  The Secretary of State for International Development gave evidence to the Environmental Audit Committee on 6 March. Following some discussion of CDC the Secretary of State undertook to provide the Committee with a memorandum setting out how CDC was seeking to ensure that its investments promoted sustainable development. The Committee also asked that the memorandum should address issues raised in The Times on 2 February.


  2.  CDC is committed to investing in a socially responsible way and makes every effort to ensure that the underlying businesses in which it invests also "buy in" to its ethical approach towards doing business. This goes much further than notional adherence to a set of headline principles whose sole purpose is to boost CDC's corporate reputation.

  3.  CDC has a dedicated business principles unit in place which looks after social issues, health and safety and the environment. The unit works hard to make sure that:

    —  business principles are part of the new investment process

    —  existing investments are randomly monitored, checked and measured, and that these results are then published

    —  CDC exists from businesses in a socially responsible manner

  4.  CDC also has a business principles committee which meets regularly and is chaired by a DFID-appointed non-executive director. This committee reviews progress in the implementation and monitoring of CDC's business principles. CDC's effectiveness at implementing business principles across its portfolio of investments is discussed each year in its annual report and accounts.

  5.  In 2001, CDC commissioned the Ashridge Centre for Business and Society to provide an independent assessment of CDC's adherence to its business principles. The following summary from Ashridge appears in CDC's annual review for 2001:

"There is clear evidence that potential and existing investments are being assessed and managed with regard to health, safety, environmental and social (HSES) performance. To ensure that good practice is applied consistently across CDC, we recommend the continued development of their HSES training programmes and a more systematic approach to assessing HSES issues."

  6.  Ashridge's full report is available on the CDC web site at

  7.  A copy of CDC's business principles is attached.[11]


  8.  CDC's investment policy, as agreed in 1999 and set out in its company Memorandum, states the following:

"To implement policies designed to maximise the creation and long term growth of viable businesses in developing countries, especially poorer countries, to achieve attractive returns to its shareholders and to implement social, environmental and ethical best practice in the conduct of its and its subsidiary undertakings' business."

  9.  In many of these developing countries, particularly in Africa, there are no other major venture capital firms investing in these economies. CDC is therefore providing a vital role in achieving sustainable development, as it is often the only provider of permanent equity finance.


  10.  CDC's purpose is to provide and encourage private sector equity investment into the poorer countries, to enable the growth and development of their economies. This growth and development needs to be sustainable. In other words, it needs to help to ensure a better quality of life for everyone, both now and in the generations to come.

  11.  CDC's investment criteria guide CDC to select commercially viable businesses which treat people in the company and in the wider community fairly, and which take steps to protect the enviroment by mitigating any adverse impacts. Each of these three areas—economic performance, human rights and the environment—is an important component of sustainable development and successful investment. If a company does not meet CDC's criteria on any one of the three areas of then CDC will not invest, however attractive it may seem to be in the other areas. Once a company is within CDC's portfolio, its performance in all three areas in monitored and CDC takes action over any concerns.

  12.  The concept of sustainable development is also relevant to CDC when it decides to exit its investments. In every case CDC aims to ensure that any potential purchaser of its stake will continue to encourage the business to operate in a sustainable way.


  13.  Three examples are given below:

      1.  CDC, as an investor in palm oil in Papua New Guinea, is mindful of the environmental impact of the palm oil industry. CDC's subsidiary in the country uses independent environmental and social specialists to advise on the selection of appropriate degraded land for planting, as opposed to primary rainforest, and on land clearance techniques which promote biodiversity. CDC is also continuing to work with others in the supply chain, including Unilever, on the designation of ethically labelled palm oil, produced with proper regard for people and the environment.

      2.  During 2001, as part of the due diligence work being carried out on potential investment NorthPole in China, which makes tents and mobile furniture, CDC conducted a social audit of labour practices at the company and among its sub-contractors. The aim was to ensure that acceptable practices were in place, and to identify any areas of possible improvement. As a result of the social audit, CDC agreed with NorthPole's management a corrective action plan and is continually monitoring its implementation.

      3.  CDC's social issues policy outlines the basic labour standards which must apply in businesses in which CDC invests. However, it is very difficult to isolate a business from the environment in which it operates (for example, in some countries free trade unions are illegal). In 2001, CDC continued to develop a framework which helps it also to assess the social impact of a country's human rights on a business. This framework guides CDC on (a) whether or not CDC should make investments in a certain country; and (b) the human rights issues to look out for during the due diligence work.


  14.  Over the past three years, CDC has invested £216 million (US$ 313 million) in 81 separate businesses in Sub-Saharan Africa. In 2001, almost 50 per cent of CDC's new investments were in Sub-Saharan Africa.

  15.  Recent new investments have included:

    —  Healthcare—during the past two years, as part of a new initiative, CDC has invested in three primary healthcare projects in South Africa. These include Prime Cure, South Africa's largest provider of quality, affordable primary healthcare to lower income families. It currently offers over 50 clinics across the country.

    —  Tsavo Power—US$18 million invested in a diesel powered plant in Mombasa, providing Kenya with a much needed boost to its power generation and reducing its dependence on unreliable hydro-electric generation.

    —  MSI—a further US$ 40 million in a pan-African mobile phone operator company providing much needed communications, trading and security facilities to users in twelve African countries. This greatly facilitates the development of commerce and modern market economies.

  16.  CDC has also re-opened an office in Nigeria (with a national as Country Manager), a huge market with a population of 110 million and a US$ 319 GDP per capita. CDC views this as an important regional centre for doing business in West Africa.

  17.  CDC is also responsible for jointly managing a series of private equity funds, dedicated to the SME sector, nine of which are focused at making investments in designated Sub-Saharan African countries. These are Ghana (2), Kenya (2), Tanzania (2), Mozambique, Zimbabwe and Zambia. US$ 114 million is currently committed by CDC and third party investors within the region. Three further regional African SME funds are planned.


  18.  The Committee asked for a response to issues raised in The Times on 2 February.

  19.  The decision to transform CDC into a Public/Private Partnership was announced by the Prime Minister in October 1997 and was taken in order to increase private sector investment in developing countries. Despite the major contribution made by CDC over the years of its existence in promoting economic development, particularly in Sub-Saharan Africa and South Asia, it was considered that CDC represented an under-utilised asset and had the capacity to play a much greater role in raising new private finance for poor countries. In order to achieve this, it was decided to enlarge the resources at CDC's disposal by introducing private sector capital, in a partnership between Government and the private sector which would see CDC provide leadership as an ethical and socially responsible investor in poorer countries. The Government introduced legislation which was debated in both Houses of Parliament. The Commonwealth Development Corporation Bill was granted Royal Assent in 1999.

  20.  CDC's focus on developing countries was protected when it became a public limited company in December 1999. At the centre of this framework was an Investment Policy which requires that CDC should make 70 per cent of new investments, measured over a rolling five year period, in poorer developing countries, and that each year CDC should aim to make at least half of new investments in Sub-Saharan Africa and South Asia. CDC met these targets in 2001. CDC remains a distinctive body and continues to perform an important development role. All its business activity is governed by a set of strong business principles put in place when CDC was transformed into a public limited company.

  21.  The business of CDC is changing to reflect the new strategy of the Public/Private Partnership. As part of this, CDC has reviewed its portfolio and sold off a number of investments made in the past, which produce low rates of return. Some are in areas of long-standing involvement, including some agribusiness in Africa. Where CDC has withdrawn, this has been done in a responsible manner. If CDC cannot demonstrate that commercial rates of return can be gained from responsible investment in Africa, then the prospects for the increased investment the continent needs are bleak.

  22.  As CDC operates in a commercial way, drawing its strength from a diverse portfolio with risk spread over a number of markets and different types of investment, its ability to mobilise much needed private capital for the benefit of poorer countries will be enhanced.

CDC Unit
Department for International Development

March 2000

11   Not printed here. Can be read at Back

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