Case Study: Danish investment in India: Financing tools for sustainability

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The foreign investment profile of Denmark has created a new venture after an array of various investment funds promoting other countries’ businesses concentrating on social and economic causes. Although foreign investments by Denmark have been steeping downwards in almost the past ten years, the Investment Fund for Developing Countries (IFU) is coming in with power via its investment in under-developed countries.

What is IFU?

It is an independent financial establishment, which comes under the Denmark government and concentrates majorly on investing in businesses in under-developed countries, including Latin America, Africa, and Southern Asia. The core of this is to boost businesses working in the social and environmental section in such countries to generate and impact and encourage the 17 United Nations SGDs. In 2018, it created the Danish SDG Investment Fund with the joint efforts of private investors with a total capital of DKK 4.86 billion.

What the Danish SDG mainly does is that it invests and advises businesses in the area of renewable energy, agribusiness, infrastructure, etc. Many Danish organizations also aid and mentor these businesses by their expertise and knowledge in those areas. 

Purpose of the Danish SDG Investment Fund

In many developing countries, the Danish SDG Fund has invested, making that model a win-win circumstance for all involved. While the businesses have access to Danish tech and mentorship, the investors gain 10-12% returns. This partnership all-in-all brings about more rapid advancements in areas like renewable energy.

Some recent investments by the Danish SDG Fund include:

  1. Africa: To support more students to pursue higher studies in Africa, which is only 10% of the entire population, the Fund has invested around DKK 47 million in an education platform in Africa.
  2. India: Leap India (a food storage business) has collected about $23 million from the Fund. In the poorer sections of the country, like Jharkhand, Madhya Pradesh, Chhattisgarh, Bihar, etc., Leap India is planning to create essential infrastructures for the storage of food in steel silos.

By creating state-of-the-art technology in sectors like renewable energy, the Danish Investment Funds have authorized many developing countries to play a part in the UN’s Sustainable Development Goals. However, there are many questions in such a model. Investors within the private pension funds of Denmark strive for risk-free investments with higher stability, but these developmental investments mentioned earlier are very risky for such a profile. These projects do not have a say about the future and may put the investors in a situation to pull out their money from the funds at any point. Hence, these pension funds should have a higher contribution from securities backed by governments and the IFU to make them less risky.

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