What Is An Investment Chain
Behind every investment project, such as a plantation, a processing plant or a hydropower dam, there are a variety of actors that make the project possible. This section explains key terms and describes the different actors and relationships that make up an investment chain.
What Is An Investment Chain
An investment chain connects all of the actors involved in any investment project. A typical investment chain includes many types of actors, such as companies, banks, suppliers, and development finance institutions. All of the actors in the chain make the project possible.
Money flows in both directions through the investment chain. It can be useful to think of it as a river with a current that flows both upstream and downstream.
We can think of investors and lenders as being upstream. Money flows from these actors to the parent company and then to the business managing the investment project, which is in the middle of the stream (and investment chain).
The buyers of the product and its end users or consumers are downstream. They pay for the product, and by doing so provide money that flows back up the stream to the business. From there, it goes to its parent company, and then on to upstream investors, who now earn financial gains from their investment.
At the heart of the chain – referred to as the midstream – is the company that manages the project. This part of the chain is usually physically visible and is where the companies and communities interact and where decisions about land use and access are made by the government, business and, in some cases, local communities.
When agreements can’t be reached, or local communities are not involved in decision-making, it is also the place where conflict over land and resources may arise. Contractors are also found at this part of the investment chain. They are paid by the company managing the project to carry out services or provide inputs for their operations.
Why Map an Investment Chain?
The actors, relationships and decisions that exist in an investment chain determine the nature of the project, including its negative and positive impacts on local communities, national economies and the environment. By mapping an investment chain, you can better understand who the actors are, and the relationships, movement of money and other types of influence among them.
Actors in one segment of the chain can have influence over actors located in other segments of the investment chain, because of different levels of power. For example, a large investor in a parent company can have a lot of influence over the business managing the project. A major buyer can also influence the business and how it runs the project. If a buyer hears about human rights abuses at the plantation of its supplier, the buyer may threaten to stop purchasing the product from the business managing the project unless the problem is solved.
This is why understanding an investment chain can ultimately help to identify how we might be able to influence a business and its behaviours. This information can be used to design advocacy strategies that influence the social and environmental impacts of a project.