Norfund’s investments are additional, helping to enable impacts that might not otherwise be possible because of the high risks involved.
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.
Norfund participates actively in international networks, strengthening industry standards and the reporting of additionality. In 2018, OECD DAC members agreed on a common definition of additionality. This is an important milestone that now influences our work.
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. OECD DAC members therefore developed a common definition of additionality to address this challenge. This definition 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.
This 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. Examples are the provision of knowledge and expertise, the promotion of social or environmental standards and fostering good corporate governance.
A refined additionality framework
We have refined Norfund’s additionality framework to ensure alignment with the new OECD definition. Our refined framework consists of ten additionality ambitions, reflecting both the financial and value additionality of our investments. Operationalisation is measured using a set of additionality indicators. The framework will inform our new investment decisions and how we report additionality.