National Audit Office assessed Finnfund’s investments and risk management

On 13 February, the National Audit Office of Finland issued its audit report on Finnfund’s investments and risk management. Finnfund is an impact investment company that is almost entirely state-owned. It has a statutory duty to promote the social and economic development of developing countries.

The National Audit Office recommends in its report that the Ministry for Foreign Affairs define in more detail what kinds of development impacts Finnfund should primarily try to achieve. The Foreign Ministry has assigned Finnfund a number of targets, such as the UN Sustainable Development Goals. The Foreign Ministry subscribes to the National Audit Office’s observation that Finnfund’s development objectives are defined broadly and there is room for improvement in their definition. Therefore the Ministry should develop its ownership steering further. Generating sustainable and profitable businesses in developing countries is at the core of Finnfund’s activities and its most important development impact.

“Developing countries, too, need a well-functioning economic base so that the states can develop their country and look after their people. Profitable business promotes the economic and social development of developing countries through many channels of influence,” says Under-Secretary of State for Development Policy Pasi Hellman.

Since 2011, the Foreign Ministry has actively instructed Finnfund to target its investments to lower middle-income or low-income countries, as the financial markets necessary for businesses do not function properly in these countries. It is not free from risk to pursue business in these countries, and the key task of development finance institutions is to supplement the market. Achieving development impacts means that development finance institutions must take risks that market operators cannot take. Despite the pandemic, Finnfund has mainly managed to remain self-sustaining, and people working in its investment targets did not lose their jobs. In its audit report, the National Audit Office states that Finnfund is systematic in its risk management and assesses risks from many different perspectives. 

“Finnfund has channelled more of its investments to the poorest countries, while keeping its operations profitable. It is a strong indication that Finnfund has succeeded in observing the Government’s development policy guidelines. In addition, it has been able to find sensible investments and advance the achievement of the Sustainable Development Goals,” Hellman says.

Finnfund’s investments have also been channelled to companies contributing to climate change mitigation and adaptation and to gender equality efforts. These are the cross-cutting themes of Finland’s development policy, and there is broad political consensus behind their promotion. Finnfund is the first development finance institution in the world to have a carbon-net-negative investment portfolio.

The Ministry for Foreign Affairs thanks the National Audit Office for highlighting in its report the completed and ongoing active work to assess development impacts. The Ministry’s goal is that Finnfund will further improve its ability to report on the development impacts it has achieved.
When financing Finnfund, it should be carefully considered what forms of financing is used and in which circumstances this happens. Increasing Finnfund’s activities has been in line with the Finnish Government’s development policy will. Finnfund’s ability to attract significant amounts of private capital to the financing of Sustainable Development Goal projects is an important quality in Finland’s development policy mix of instruments. The Sustainable Development Goals will not be achieved with public investment alone.