|Leverage for the Environment - A Guide to the Private Financial Services Industry (WRI, 1998, 108 pages)|
In the years since the Earth Summit in Rio, accelerated financial globalization has compounded the challenge of reconciling economic growth with environmental sustainability. Over this period, capital flows to developing and transition countries have risen dramatically, and their composition has changed in significant ways. Among the most important changes in the development finance landscape has been the absolute and relative increase in private capital flows to developing and transition countries. As recently as 1992, public financial flows were greater than private flows; by 1996, private flows were more than five times larger. For the public interest community, this shift implies the need to look beyond engagement with bilateral aid programs and multilateral donor agencies such as the World Bank in order to influence development finance decisions that are increasingly made in the private sector.
The strategic planning phase of the International Financial Flows and the Environment (IFFE) project was initiated in 1997 by the World Resources Institute (WRI) and World Wildlife Fund, with support from the C.S. Mott Foundation and the Wallace Global Fund, as a first step toward understanding the rapidly changing landscape of development finance. The purpose of the project is to identify the most promising avenues of inquiry and advocacy for public interest organizations concerned with how international financial flows affect the environmental sustainability of developing and transition economies, as well as the social and economic dimensions of environmental concerns.
Early on, the IFFE project identified portfolio flows as one of the fastest-growing and least understood components of increasing private capital flows to developing and transition economies. Analysts attribute this explosion to both "push" and "pull" factors: individual and institutional investors in industrialized countries seek higher returns and diversification by investing abroad, and new investment opportunities are created by the liberalization of so-called "emerging market" economies. It is important to note, however, that these changes are not spread evenly across developing and transition countries. Some 80 percent of private financial flows in the first half of the 1990s were captured by only 12 emerging market countries, none of which was in Africa. (World Bank. Private Capital Flows to Developing Countries: The Road to Financial Integration. 1997.) Portfolio flows have been relatively more prominent in Central and Eastern Europe and Latin America than in other regions, in part due to large-scale privatizations of state-owned enterprises.
Whatever their genesis and despite their current geographic concentration, the increase in portfolio flows as part of the broader increase in private capital flows has raised the question of how public interest organizations might influence international capital markets to promote investments in environmental sustainability. The information provided in this guide is thus designed to illuminate this one small area of the development finance landscape - the private financial services industry - for members of the public interest community seeking to understand and influence how investors think.
World Resources Institute