Norfund’s mission is to create jobs and to improve lives by investing in businesses that drive sustainable development. Our strategy directs how we work to achieve this.
To fulfill our mandate efficiently, we focus on countries, sectors and instruments where capital is scarce and our development impact is likely to be strong. Capital is scarce where other investors are reluctant to invest because of high risk. These two criteria – additionality and impact – constitute the backbone of our strategy. Being additional also means adding non-financial value in the form of expertise and active ownership to the investments we make. Through our value-additionality, we can improve both the financial profitability and the development impact of the companies.
Norfund developed a new strategy for the next four year period (2023-2026) which largely builds on elements from the previous strategy period to ensure that we have continuity in our approach and continue to leverage our position as a responsible minority investor working closely with partners. The following strategic choices will guide the next strategy period:
1. Invest in selected business areas
Norfund invests in four areas where the potential for development impact is substantial and that are aligned with the SDGs:
Access to renewable energy is a crucial infrastructural prerequisite for growing businesses, while avoiding greenhouse gas emissions.
Access to finance is key for businesses and households to take advantage of business opportunities, invest in education, save, and insure against risk.
Scalable enterprises with significant potential for growth and job creation are key to sustainable economic growth over time. Well-functioning waste and water management are crucial for sustainable growth of cities and towns, to reduce adverse environmental impacts and to improves people’s standards of living.
2. Target selected developing countries
Norfund targets selected countries where capital is scarce and international investments will have high impact potential. For the next strategy period we will retain a focused country strategy targeting 30 countries where we will actively seek to build pipeline and market expertise.
These countries were selected based on three criteria:
- Competence – Norfund has solid market knowledge of and expertise in these countries.
- Additionality – they have considerable investment needs but few alternative investors.
- Attractiveness – each country has sufficient investment opportunities within Norfund’s investment areas.
In addition to our core target countries, Norfund may also invest directly in other countries in Sub-Saharan Africa and Least Developed Countries together with partners on a selective basis.
Norfund has also formulated a strategy for investments in fragile and conflict affected states which focuses on 6 countries where we will adopt a specific approach to execute investments.
3. Prioritize equity instruments
Norfund provides capital in the form of equity, debt and fund investments. Preference is given to equity investments because in most developing countries, this is the scarcest type of capital that enterprises need. Norfund will also provide debt instruments to meet varying market demands, to continue to support financial institutions as access to credit lines is critical to finance growth, and to manage liquidity and risks.
Norfund will also invest through funds to strategically build experience in new markets and segments, to reach companies we cannot reach directly, to outsource the engagement to fund managers when these are a more suitable partner for companies due to resources, competencies and local presence, and to provide co-investment opportunities within selected areas.
4. Mobilise and circulate capital for increased additionality
By demonstrating the attractiveness and investment opportunities in developing markets we want to increase mobilization and collaboration with private investors. At the individual investment level, we will seek to mobilise more capital, and at the portfolio level, we will explore the market appetite for solutions for institutional investors and family offices to invest at scale in our markets. Circulating capital strengthens our ability to fulfill our mandate because it releases capital for new investments. Norfund uses an active, structured and planned approach when exiting companies (for example, through sales, mergers and initial public offerings (IPOs)). Going forward, we aim to circulate more capital, bringing in private investors when exiting from companies. This will allow us to deploy the released capital in other investments in which we can be additional.
Circulating capital strengthens our ability to fulfill our mandate because it releases capital for new investments. Norfund uses an active, structured and planned approach when exiting companies (for example, through sales, mergers and initial public offerings (IPOs)). Going forward, we aim to circulate more capital, bringing in private investors when exiting from companies. This will allow us to deploy the released capital in other investments in which we can be additional.
5. Be a responsible investor
To succeed as an investor, Norfund continuously builds and develops the expertise needed to invest and manage risks. This includes in-depth knowledge of traditional financial risks, as well as ESG (environmental, social and governance) and integrity issues. We strive to have a thorough understanding of the business environments and sectors in each of our target countries, as well as the systems and governance practices affecting them. Norfund therefore recruits employees both in, and from, our target countries and regions. In our role as an active owner, we recruit experienced external and internal board members to represent us in our investment companies.
6. Consider cross-cutting issues
Norway has defined four cross-cutting areas of concern that needs to be considered in all development assistance projects; Climate & Environment, Gender Equality, Human Rights and Corruption Prevention.
As a responsible investor, Norfund adheres to international performance standards. When we undertake investments, we conduct assessments in the above mentioned cross-cutting areas. The Environmental and Social Performance Standards of the World Bank’s International Finance Corporation (IFC) provide the basis for these assessments. These often stipulates compliance requirements above those that are general practice.
In many of the countries in which we invest, employment and environmental laws, rules and protections may be poorly implemented. Protections for vulnerable populations may also be weak. Norfund therefore requires all our investees to be willing to comply with the IFC’s Standards.
Although we don’t expect our investment companies to be compliant at the time of investment, we require an action plan that maps out how they will ensure compliance over time.
7. Strengthen our climate work
We will strengthen our climate work to meet the increased expectations and manage risk. Specifically, this entails aligning all new investments with the objectives of the Paris Agreement, develop a pathway for portfolio transition to net-zero by 2050 and step up work on adaptation and resilience. We will also explore how to further strengthen our work on biodiversity.