JP Morgan development unit raises questions
Seen with cynical eyes, the launch of JP Morgan’s Development Finance Institution (DFI) is simply an attempt to expand its emerging markets footprint — already the largest in the business — by capitalising on two trends: the wave of cash fleeing low yields for EM, and the unassailable momentum of the socially responsible investment movement.
Rather than lending from its own balance sheet as a development bank typically does, the JPM DFI will “originate and distribute assets” — the work of investment, not development, banks.
Indeed, the part of the endeavour that makes it a development finance institution seems to consist entirely of the “DFI methodology” — a nine page document detailing the criteria through which projects will be selected for their impact in achieving the UN’s Sustainable Development Goals.
This methodology contains an exclusions filter, listing sectors, like illegal logging, that are ineligible for the DFI’s business. But this comes with a note appended that specifies that excluded sectors and clients are only excluded from the classification of “development finance” and “will continue to be governed by its firm-wide risk frameworks”, ensuring there will be no loss of business.
Therefore, JP Morgan as a business will manage no fewer damaging or “non-impactful” products than before.
Bundling up your ESG-friendly investment projects does not justify a development institution tag. It risks looking like virtue signalling and window dressing.
But perhaps this is too cynical. Impact investing is important and it is good to see it being taken seriously by finance heavyweights.
If the DFI is able to channel money towards laudable causes that would otherwise go unfunded, it should be celebrated.
But unlike a development bank, it won’t be reporting on the impact achieved by projects it has financed, so we won’t know if it has actually done any good.