our approach to additionality

Norfund’s investments are additional, helping to enable development impacts that might not otherwise be possible because of the high risks involved.

Marginpar, Kenya

Additionality is a central part of Norfund’s mandate. We are additional when we invest in markets and businesses that are characterised by high risk and scarcity of capital, and when we provide financial instruments associated with high risk. We add value that goes beyond capital value, providing active ownership, promoting environmental and social standards, and supporting enterprise improvement.

A common definition of additionality

Proving the additionality of our investments is challenging because it requires insights into what could have happened had we not invested. The lack of a common definition of what additionality is has complicated efforts to substantiate claims. In 2018, OECD DAC members therefore developed a common definition of additionality to address this challenge. This was an important milestone that influences our work. Norfund participates actively in international networks, strengthening industry standards and the reporting of additionality.

Financial and value additionality

The OECD’s definition of additionality distinguishes between financial and value additionality. A transaction is considered to be financially additional if it supports capital-constrained markets in which private sector partners are unable to obtain commercial financing due to high risk or if it mobilises investment from the private sector that would not have otherwise invested. Value additionality, in contrast, refers to “the provision or mobilisation of non-financial value that the private sector is not offering, and which will lead to better development outcomes, e.g. by providing or catalysing knowledge and expertise, promoting social or environmental standards or fostering good corporate governance”.

Our additionality framework

We have refined Norfund’s additionality framework to ensure alignment with the new OECD definition. Our framework consists of ten additionality ambitions, reflecting both the financial and value additionality of our investments. For each ambition, we have identified relevant indicators to assess to what extent we meet the ambition. The framework informs our new investment decisions and how we report additionality. Each new investment is assessed against the ten ambitions and accompanied by a narrative description of additionality. Norfund´s investments meet different additionality ambitions. To construct a portfolio that truly delivers impact, all investments are additional, but they can and should be additional in different ways and meet different additionality ambitions. This means that some investments deliver on many or even all ambitions and others deliver on some.

The framework was revised in 2020. Changes covered both inclusion of new and refinement of existing ambitions and indicators. The revised framework is applied to assess the additionality of all new investments from March 2021.