Financial advisors and wealth managers who invest internationally should be looking for country certification of environmental, social and governance issues.
The Millennium Challenge Corporation, a government agency (mcc.gov), issues these approvals in the form of "compacts." Compacts are aid packages for developing countries that are only given out when a country meets strict guidelines. For example, a country must be politically stable, enforce human rights laws, as well as labor laws-and be transparent about it by issuing audited reports.
By checking to see if a country is MCC-certified, investors can mitigate risk.
President George W. Bush in 2005 approved the MCC (then called the Millennium Challenge Account) to link aid to strong governance and thereby engender reform from corruption and political instability. (The Millennium piece of the title harkens back to the Millennium Development Goals devised by the United Nations to address poverty worldwide.)
At a recent meeting in New York City, examples shone of the MCC's success.
MCC CEO Daniel Yohannes said it is the focus on public-private partnerships in places like Africa that will help open markets. Moreover, it creates opportunities for U.S. companies and creates jobs. When a country receives MCC funding it often provides procurement contracts for companies, many of which are U.S. based.
Take the case of the tiny West African country Benin. The MCC helped fund a redevelopment of Benin's port, bringing in trade (including U.S. goods) and giving the country access to world markets. Now the port is thriving. Benin has a five-year compact worth $307 million. Microfinance opportunities are also cropping up, as well as land rights, gender equality and education.
Benin's President Boni Yayi says the MCC's investment alone has contributed to 2% of its gross domestic product. Yayi spoke at the MCC meeting in New York along with the president of Senegal and the foreign minuter of Niger.
The president of the Council of Foreign Relations, Richard Haass, moderated the discussion, which promoted the idea of political stability leading to economic reform and international trade. An interesting comment he made was, "The parts of the world I hear least about have the least amount of problems." Which is something to reflect on given all the problems in Greece and Spain, and throughout the Arab world. Indeed, it makes one ponder whether MCC certification should be required of all nations that receive US aid, not just the developing ones.
In any event, as the global impact investing industry expands, and as exchange traded funds represent more but lesser known countries and regions, the MCC label is something to look for to mitigate risk and perhaps profit from reform.
-Thomas M. Kostigen