Private Sector Engagement

Private Sector Engagement (PSE) refers to the interest of donors and others to work more strategically and systematically with business to meet the SDGs. The OECD has proposed a very broad definition of PSE as ‘an activity that aims to engage the private sector for development results, and involves the active participation of the private sector’ (OECD, 2016). The DCED PSE Working Group in its Operational Framework (2019) has focused on two specific PSE strategies:

  • Engaging with, primarily large/ international, companies on equal terms to enhance the impact of their core business on the SDGs, e.g. through the joint development and financing of SDG-oriented business models or dialogue platforms on responsible business practices. In contrast, other approaches involving active private sector participation focus more on local business (e.g. MSD) or local business associations and government agencies (e.g. BER), primarily to generate inclusive and sustainable economic opportunities (SDG 8).
  • Engaging with the financial sector, to mobilise private finance for development, e.g. through blended finance instruments. 

For more specific resources on adjusting PSE programmes in response to the COVID-19 pandemic, please refer to the DCED knowledge page on Adjusting PSD interventions in the short term. For practical examples of integrating COVID-19 recovery objectives into PSE programming, please refer to the DCED knowledge page on Promoting economic recovery and resilience in the context of COVID-19.

At a glance: Short reads on PSE by the DCED

Synthesis Note           Two-page Summary

Introductory overview of PSE as a way of operating to achieve the SDGs, as well as a summary of current key issues and practices.

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Demonstrating Additionality, 2017

Summarises the DCED guidelines on demonstrating additionality in one page plus graphics. It targets donor programmes providing grants and/or technical assistance to business.

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Comparison of matching grant schemes and systemic approaches, 2015

Covers both the differences and potential complementarities between matching grant facilities such as challenge funds and systemic approaches to PSD.

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Donor Engagement in Innovative Finance: Opportunities and Obstacles, 2019

Summarises four key issues that donors need to address as a basis for effective engagement in innovative finance, and illustrates key concepts and contested issues.

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Donor funds and facilities for partnering with business, 2017

Gives an overview of design options, current trends and lessons learnt for challenge funds and similar facilities for partnering with business.

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Towards strategic private sector engagement: Programming innovations and institutional change in donor agencies, 2018

Summarises pioneering changes in policies, procedures, and staff capacity that donor agencies are implementing to enable strategic PSE. For a checklist to review organisational readiness for PSE, click here.

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Results Measurement in Impact Investing: A Preliminary Review, 2016

Reviews the ‘state of the art’ in measuring social and environmental impact generated through impact investment.

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DCED guidance and knowledge products

This section provides access to the DCED’s key documents on private sector engagement, based on the experiences of DCED member agencies and other organisations. Click here to learn more about the DCED’s Private Sector Engagement Working Group.

Enhancing staff skills in engaging the private sector more effectively is a priority for many donors. To assist in this effort, this dedicated DCED web page lists training offers on private sector engagement and partnerships.

Global reviews, typologies and agency experiences

This section links to overview documents on how donors and other organisations engage the private sector in development.

Implementing different formats of engagement

1. Engaging with private investors and finance providers

A first set of PSE strategies focuses on donor engagement with private finance providers to mobilise additional private finance and/or for making more effective use of existing funds for the SDGs (DCED, 2019). This section links to cross-cutting overviews, and specific resources on three common innovative finance concepts.

Blended finance

Blended finance

Catalytic approaches used by development actors to mobilise additional private finance for development purposes using a wide range of instruments

Impact investment

Impact investment

The practice of private investors of deploying private capital towards development outcomes, while (according to most definitions) generating a financial return

Results-based finance

Results-based finance

A set of instruments used by development actors to mobilise pre-financing for SDG-relevant projects by agreeing to repay or financially
reward (impact) investors or implementers upon achievement of results

Donors increasingly use blended finance approaches to mobilise private finance for impact investments; impact investors themselves increasingly provide blended finance to encourage financial providers to cater to underserved clients. Result-based finance formats that mobilise additional finance qualify as blended finance instruments.

2. Engaging with companies’ core business

A second set of PSE strategies focuses on supporting or influencing core business investments and practices (DCED, 2019). This section links to cross-cutting advice, as well as specific resources on four common engagement modalities.

2.1 Supporting the development and/ or piloting of new SDG-oriented business ventures

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Co-creation of innovative business ventures

Joint development (and potentially piloting) of new business ventures with SDG impact by donors, companies and possibly other partners

Challenge funds

Challenge funds

Competitive mechanisms that invite business proposals and offer cost-sharing and/or technical assistance to innovative  projects in developing countries

Result reports and evaluations of challenge funds

2.2 Promoting more responsible and sustainable business conduct or sectoral supply chains

Sectoral partnerships

Sectoral partnerships

Partnerships with combined donor and private funding and an agreement of all funding and implementing partners on the sharing of tasks towards a common goal

Multi-stakeholder platforms and processes

Multi-stakeholder platforms

 Dialogue processes with a knowledge-sharing or standard-setting purpose involving multi-stakeholder members, supporters and funders

Photo credits: USAID Ethiopia (flickr.com).

Icons made by dDara, Eucalyp, Freepik, geotatah, and Pixel perfect from www.flaticon.com.