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How Norfund measures development effects

What are the relevant developmental effects of Norfund’s investments?

Norfund’s objective is to contribute towards the establishment of viable, sustainable businesses in developing countries. This is important for development because businesses provides jobs, products and services; generates tax and export incomes; and introduces new technologies and techniques; etc.

The key developmental outcome of Norfund’s activities is therefore profitable, well-run and responsible companies that operate in some of the poorest countries in the world. Profitability is important because only financially viable businesses survive in the long run and can thus provide long-term, reliable jobs. Operating responsibly includes complying to local laws and relevant international standards, including environmental and social standards; ensuring a decent and safe working environment; and good corporate governance.

These are the relevant developmental effects, and Norfund’s methodology for measuring developmental contribution relates to documenting these effects.

Norfund’s methodology and considerations for documenting developmental effects

  • Objective: Obtain relevant, reliable information about our investments without inducing unjustifiable reporting burdens onto our portfolio companies.
  • Norfund invests in commercial companies that operates in some of the most challenging markets in the world. There must be a balance between reporting requirements and administrative burden for recipient.
  • Norfund is a small actor in the countries and sectors in which we invest and the relevant effects are therefore outputs and outcomes, rather than impacts.
  • Rather than estimating effects based on heuristics or samples of the portfolio, Norfund wish to obtain information about actual, ex post results from the entire portfolio annually. To limit the reporting burden for the companies, Norfund has selected a few indicators that are relevant and relatively easy to obtain for the companies.
  • Norfund measures developmental effects on two different levels: strategic achievements (green indicators in the table below) and project results (all other indicators).
The reason behind this division is that there is a difference between results directly affected by the investment choices Norfund makes, and results that depends on Norfund’s portfolio companies and their achievements. E.g., while job creation is one of the most important outcomes of viable businesses, Norfund does not choose which company to invest in based upon the number of employees in the company. Norfund seeks to invest in sectors that employ many people, e.g. agribusiness, but within that sector we choose the companies that are most likely to operate responsibly and profitably in the long run. In other words: the share of investments in agribusiness is an indicator that says something about the choices Norfund has made, i.e. the strategic achievements, while the number of employees depends on the current situation in the portfolio companies. As an indicator, the number of employees is still relevant and illustrates the outreach of Norfund’s investments. However, it cannot be used as a success criteria for Norfund, since Norfund does not, and should not, dictate the number of workers to be employed in each individual company. This must be determined by the needs of the company based on its financial situation and market conditions.