Balancing Purpose and Profit in Foreign Direct Investment: How Development Finance Institutions Promote the SDGs While Being Profitable

Abstract

A growing number of multinational enterprises (MNEs) are engaging with the United Nation’s sustainable development goals (SDGs) and trying to link the SDGs to their foreign direct investments (FDI). They are searching for ways in which they can contribute to the economic, social, and environmental dimensions of the sustainable development of host countries while pursuing their commercial and competitive objectives, that is, creating shared value (CSV). One type of foreign direct investor that has long-standing experience with balancing profit and impact is development finance institutions (DFIs), that is, public, or semi-public institutions investing in private commercial projects in developing countries with the aim of creating impact. Through the conceptual lens of organizational theory of hybrid organizations, this chapter analyzes how the large Danish DFI Investment Fund for Developing Countries (IFU) has balanced its SDG mission with financial profitability. This balance is achieved by focusing on the SDGs as the value driver at the organizational level; by applying a portfolio perspective on the balance between SDGs and profitability; and by applying rigorous impact measurement methodologies along with financial accounting at the project level. The chapter suggests that this kind of experience from DFIs may have important implications for other foreign direct investors, such as MNEs, seeking to engage with the SDGs. It also contributes to the literature by bringing an understudied foreign direct investor, that is, DFIs, into the international business (IB) literature on SDGs and by providing a conceptual framework for analyzing how MNEs can create shared value in their FDI.

Citation

Oh, S. and Hansen, M.W. (2023), "Balancing Purpose and Profit in Foreign Direct Investment: How Development Finance Institutions Promote the SDGs While Being Profitable", van Tulder, R., Giuliani, E. and Álvarez, I. (Ed.) International Business and Sustainable Development Goals (Progress in International Business Research, Vol. 17), Emerald Publishing Limited, Leeds, pp. 135-150. https://doi.org/10.1108/S1745-886220230000017008