Supplementary memorandum to Environmental
Audit Committee from the CDC Unit at the Department for International
1. The Secretary of State for International
Development gave evidence to the Environmental Audit Committee
on 6 March. Following some discussion of CDC the Secretary of
State undertook to provide the Committee with a memorandum setting
out how CDC was seeking to ensure that its investments promoted
sustainable development. The Committee also asked that the memorandum
should address issues raised in The Times on 2 February.
2. CDC is committed to investing in a socially
responsible way and makes every effort to ensure that the underlying
businesses in which it invests also "buy in" to its
ethical approach towards doing business. This goes much further
than notional adherence to a set of headline principles whose
sole purpose is to boost CDC's corporate reputation.
3. CDC has a dedicated business principles
unit in place which looks after social issues, health and safety
and the environment. The unit works hard to make sure that:
business principles are part of the
new investment process
existing investments are randomly
monitored, checked and measured, and that these results are then
CDC exists from businesses in a socially
4. CDC also has a business principles committee
which meets regularly and is chaired by a DFID-appointed non-executive
director. This committee reviews progress in the implementation
and monitoring of CDC's business principles. CDC's effectiveness
at implementing business principles across its portfolio of investments
is discussed each year in its annual report and accounts.
5. In 2001, CDC commissioned the Ashridge
Centre for Business and Society to provide an independent assessment
of CDC's adherence to its business principles. The following summary
from Ashridge appears in CDC's annual review for 2001:
"There is clear evidence that potential and
existing investments are being assessed and managed with regard
to health, safety, environmental and social (HSES) performance.
To ensure that good practice is applied consistently across CDC,
we recommend the continued development of their HSES training
programmes and a more systematic approach to assessing HSES issues."
6. Ashridge's full report is available on
the CDC web site at www.cdcgroup.com.
7. A copy of CDC's business principles is
8. CDC's investment policy, as agreed in
1999 and set out in its company Memorandum, states the following:
"To implement policies designed to maximise
the creation and long term growth of viable businesses in developing
countries, especially poorer countries, to achieve attractive
returns to its shareholders and to implement social, environmental
and ethical best practice in the conduct of its and its subsidiary
9. In many of these developing countries,
particularly in Africa, there are no other major venture capital
firms investing in these economies. CDC is therefore providing
a vital role in achieving sustainable development, as it is often
the only provider of permanent equity finance.
CDC UNDERSTAND BY
10. CDC's purpose is to provide and encourage
private sector equity investment into the poorer countries, to
enable the growth and development of their economies. This growth
and development needs to be sustainable. In other words, it needs
to help to ensure a better quality of life for everyone, both
now and in the generations to come.
11. CDC's investment criteria guide CDC
to select commercially viable businesses which treat people in
the company and in the wider community fairly, and which take
steps to protect the enviroment by mitigating any adverse impacts.
Each of these three areaseconomic performance, human rights
and the environmentis an important component of sustainable
development and successful investment. If a company does not meet
CDC's criteria on any one of the three areas of then CDC will
not invest, however attractive it may seem to be in the other
areas. Once a company is within CDC's portfolio, its performance
in all three areas in monitored and CDC takes action over any
12. The concept of sustainable development
is also relevant to CDC when it decides to exit its investments.
In every case CDC aims to ensure that any potential purchaser
of its stake will continue to encourage the business to operate
in a sustainable way.
13. Three examples are given below:
1. CDC, as an investor in palm oil in
Papua New Guinea, is mindful of the environmental impact of the
palm oil industry. CDC's subsidiary in the country uses independent
environmental and social specialists to advise on the selection
of appropriate degraded land for planting, as opposed to primary
rainforest, and on land clearance techniques which promote biodiversity.
CDC is also continuing to work with others in the supply chain,
including Unilever, on the designation of ethically labelled palm
oil, produced with proper regard for people and the environment.
2. During 2001, as part of the due diligence
work being carried out on potential investment NorthPole in China,
which makes tents and mobile furniture, CDC conducted a social
audit of labour practices at the company and among its sub-contractors.
The aim was to ensure that acceptable practices were in place,
and to identify any areas of possible improvement. As a result
of the social audit, CDC agreed with NorthPole's management a
corrective action plan and is continually monitoring its implementation.
3. CDC's social issues policy outlines
the basic labour standards which must apply in businesses in which
CDC invests. However, it is very difficult to isolate a business
from the environment in which it operates (for example, in some
countries free trade unions are illegal). In 2001, CDC continued
to develop a framework which helps it also to assess the social
impact of a country's human rights on a business. This framework
guides CDC on (a) whether or not CDC should make investments in
a certain country; and (b) the human rights issues to look out
for during the due diligence work.
14. Over the past three years, CDC has invested
£216 million (US$ 313 million) in 81 separate businesses
in Sub-Saharan Africa. In 2001, almost 50 per cent of CDC's new
investments were in Sub-Saharan Africa.
15. Recent new investments have included:
Healthcareduring the past
two years, as part of a new initiative, CDC has invested in three
primary healthcare projects in South Africa. These include Prime
Cure, South Africa's largest provider of quality, affordable primary
healthcare to lower income families. It currently offers over
50 clinics across the country.
Tsavo PowerUS$18 million invested
in a diesel powered plant in Mombasa, providing Kenya with a much
needed boost to its power generation and reducing its dependence
on unreliable hydro-electric generation.
MSIa further US$ 40 million
in a pan-African mobile phone operator company providing much
needed communications, trading and security facilities to users
in twelve African countries. This greatly facilitates the development
of commerce and modern market economies.
16. CDC has also re-opened an office in
Nigeria (with a national as Country Manager), a huge market with
a population of 110 million and a US$ 319 GDP per capita. CDC
views this as an important regional centre for doing business
in West Africa.
17. CDC is also responsible for jointly
managing a series of private equity funds, dedicated to the SME
sector, nine of which are focused at making investments in designated
Sub-Saharan African countries. These are Ghana (2), Kenya (2),
Tanzania (2), Mozambique, Zimbabwe and Zambia. US$ 114 million
is currently committed by CDC and third party investors within
the region. Three further regional African SME funds are planned.
18. The Committee asked for a response to
issues raised in The Times on 2 February.
19. The decision to transform CDC into a
Public/Private Partnership was announced by the Prime Minister
in October 1997 and was taken in order to increase private sector
investment in developing countries. Despite the major contribution
made by CDC over the years of its existence in promoting economic
development, particularly in Sub-Saharan Africa and South Asia,
it was considered that CDC represented an under-utilised asset
and had the capacity to play a much greater role in raising new
private finance for poor countries. In order to achieve this,
it was decided to enlarge the resources at CDC's disposal by introducing
private sector capital, in a partnership between Government and
the private sector which would see CDC provide leadership as an
ethical and socially responsible investor in poorer countries.
The Government introduced legislation which was debated in both
Houses of Parliament. The Commonwealth Development Corporation
Bill was granted Royal Assent in 1999.
20. CDC's focus on developing countries
was protected when it became a public limited company in December
1999. At the centre of this framework was an Investment Policy
which requires that CDC should make 70 per cent of new investments,
measured over a rolling five year period, in poorer developing
countries, and that each year CDC should aim to make at least
half of new investments in Sub-Saharan Africa and South Asia.
CDC met these targets in 2001. CDC remains a distinctive body
and continues to perform an important development role. All its
business activity is governed by a set of strong business principles
put in place when CDC was transformed into a public limited company.
21. The business of CDC is changing to reflect
the new strategy of the Public/Private Partnership. As part of
this, CDC has reviewed its portfolio and sold off a number of
investments made in the past, which produce low rates of return.
Some are in areas of long-standing involvement, including some
agribusiness in Africa. Where CDC has withdrawn, this has been
done in a responsible manner. If CDC cannot demonstrate that commercial
rates of return can be gained from responsible investment in Africa,
then the prospects for the increased investment the continent
needs are bleak.
22. As CDC operates in a commercial way,
drawing its strength from a diverse portfolio with risk spread
over a number of markets and different types of investment, its
ability to mobilise much needed private capital for the benefit
of poorer countries will be enhanced.
Department for International Development
11 Not printed here. Can be read at www.cdcgroup.com/about.html. Back