Creating sustainable market systems in developing economies.
In the heart of the City of London, surrounded by a metropolis that is testament to human industry, sits the headquarters for the European Bank for Reconstruction and Development. Founded in 1991 in the wake of the collapse of communism in Eastern Europe, the bank has since invested approximately 140bn euros in over 5,000 different projects spread over three continents. From the beginning, its purpose has been to create sustainable and well-functioning market systems in developing economies. This means directing these economies to be better integrated, greener, more inclusive, more competitive and better governed.
Integral to helping the bank achieve these aims is Alan Rousso, who works as the managing director of external relationships and partnerships, and whose office overlooks some of the skyscrapers that dot London’s modern skyline. At its most fundamental, his job is to build relationships with donors who enable some of the bank’s work and to mobilize their resources.
“Donors are an important stakeholder in the bank. They provide us with billions in donor resources, and we’re sitting on 200 funds provided by them,” he tells Invest for Good.
For instance, he says, they can act as a soft lender or co-financer in risky environments, without which certain EBRD projects wouldn’t go ahead. Or donors can provide grants to push reforms in a certain direction and ultimately create a better investment climate. Increasingly, Rousso explains, the bank’s business model is to blend donor resources together with its own account financing in order to make deals more bankable.
But there have been challenges to overcome, principally what Rousso calls “a certain bravado” about the EBRD’s commercial orientation as a private-sector bank. They invest mainly in commercial projects, but these have to meet certain criteria. The bank is also “additional” in everything it does, meaning it cannot crowd out commercial financing and distort the market.
“Ultimately what it’s doing,” he argues, “is structuring transactions so that they have an intentional impact, either on the firm or on a segment of the economy or on the economy as a whole, and making a sound financial return.”
In other words, it’s the classic definition of impact investing.
The importance of using donor resources to fund a substantial number of projects required thinking about the EBRD as different from one of the big retail banks. Rousso estimates that about 40 percent of the bank’s total number of annual projects are financed by donors and there are between 350 to 400 of them. As donor resources started to increase, Rousso believes the method for dealing with that inside the bank hasn’t been as robust as it could have been, although that’s now changing.
Challenges are something that Rousso, however, seems comfortable with. Originally from New York and formerly a professor of political science at top universities in the United States, he ended up working in Russia as a director of a think tank called the Carnegie Moscow Center. It’s an experience that prepared him well for working inside an organization as diverse as the EBRD, a move he made in 2001. “That [director job] was a cultural awakening. I mean, I knew Russia pretty well, but I’d never managed a team of Russians. That was a challenge,” he admits. Nevertheless, he made the adjustment and he believes his EBRD colleagues make a similar adjustment quite quickly. “I think you do start to recognize that you have to adapt your way of thinking and your way of working to be able to succeed in a multinational organization. I think, overall, it’s been a tremendous learning experience and a very, very positive experience.”
Another positive experience is being able to see how some of the work his team does for the EBRD makes a difference around the world. One example was addressing governance and corruption challenges in Ukraine off the back of the revolution in 2014. Out of Rousso’s work came the Investment Climate and Governance Initiative, a way of solving those very challenges that ended up going beyond Ukraine’s borders. There is now a business ombudsman in the country, which Rousso believes is proof of success, and it’s a story that is now being replicated in the Kyrgyz Republic.
There was also the aftermath of the Arab Spring, in which the bank’s shareholders wanted to extend their operations to a new set of countries unfamiliar with the EBRD and its mandate of applying principles of multi-party democracy and pluralism.
“I was very much a part of the team who were first in to talk to those countries that were becoming interested in becoming recipients of EBRD financing,” Rousso recalls, “to explain to them what it meant to be a recipient country of the EBRD, particularly on the political side.”
There is a caveat to these accomplishments and that is that Rousso is not a banker: “Some of the projects that the bank is doing, they’re not mine. I can’t take personal credit or pride in them, although I feel very proud to work in an organization that does that work.” Despite not having a traditional banking background, the managing director does spend a great deal of time thinking about the EBRD’s impact investing mandate. Ultimately, he tells Invest for Good, the bank’s broad purpose is to change people’s lives for the better and that means delivering some sort of positive change.
Rousso recently went to GIIN’s Investor Forum in Amsterdam, where he was part of a panel exploring how to mobilize big money from the likes of pension funds, sovereign wealth funds and insurance companies that could help address some of the sustainable development goals in emerging markets. Multilateral development banks such as the EBRD have the experience in finding clients and doing due diligence, but what they need is co-financing from big institutional investors for these projects to make an impact. So far, the absence of bankable deals is one of the biggest problems. The deal flows on large projects, Rousso concedes, have been “fairly sclerotic”. He contends that the greatest need is in infrastructure finance and while there has been progress, his own view is that the challenges remain “significant”.
Meanwhile, more progress is being made in the green economy space. The EBRD has set a target that 40 percent of its annual commitments should be in the green economy by 2020 — and it’s a target that Rousso thinks they will meet. A large portion of this work is in the climate area: renewable energy, energy efficiency, water and wastewater management and ensuring that economies are prepared for the effects of climate change. They have also issued the world’s first dedicated climate resilience bond, with proceeds going into sustainable infrastructure and things of that nature.
“I think it’s showing the EBRD’s commitment to both innovate and be a first mover,” the MD says, “but also to continue to find new ways of supporting its own activities to support this green economy transition effort.”
Of course, in order to bring about meaningful change, attitudes and behavior have to change first. One positive trend that Rousso has noticed is the way in which impact investing is seen globally:
“I think there’s a lot more support for the idea of being much more open and proud to declare ourselves an impact investor. We are seeing so many more of these large institutions, like the ones I was talking about before — pension funds, insurers, big asset managers, commercial banks and others — getting interested and using their money in a way that is responsible, sustainable and impactful.” He adds: “We’re all converging around this idea that we can have both financially sound, commercial banking type of investments alongside a positive impact.”
However, he sees a danger: that it could just end up being a bubble. “[Impact investing] hasn’t been proven yet as an investment thesis. Someone could pop it at a certain point and then everybody would just go back to saying, ‘You know what, we’ll leave the impact bit to governments. Investors should focus on the bottom line.’” To avoid this possibility, he wonders whether there might need to be a better metric for tracking, monitoring and reporting on impact that is focused on the UN’s 17 sustainable development goals. It might even require standardization across the industry, Rousso concedes, although the challenges of implementation leave him on the fence.
It’s a large question and one that people like Rousso are thinking seriously about. Behind him, there is a bookshelf with academic books that hint at reading material that is largely serious in nature, yet he turns to fiction to relax and escape the pressures of daily life. He also enjoys cooking and going to the theatre, when the time allows. With so many achievements to choose from, the managing director chooses one that is entirely unrelated to his professional life: “This is going to sound sappy, but I’ve just had my 26th wedding anniversary a couple of years ago, and I do think that my biggest achievement is on the family side, of having a happy marriage and two great kids, and I thank my family for that every day.” It’s somewhat reassuring to know that us ordinary mortals who share the same achievement are in such good company.
Alan Rousso is the Managing Director of External Relationships and Partnerships at the EBRD. For more information about the bank’s work, visit the website.