IFC’S SUSTAINABILITY FRAMEWORK

SUSTAINABILITY POLICY AND PERFORMANCE STANDARDS OVERVIEW

Diana Baird, Principal Social Development Specialist

Raymi Beltran, Principal Environmental Specialist

March 6, 2020
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Securing Better Outcomes For IFC and Our Clients

Today’s Discussion

Sustainability Policy
• Overview
• How it’s Made a Difference for IFC

Performance Standards
• The “Why” for each Standard
• Examples of Where and How the Performance Standards have Supported our Clients
 IFC’s ESG approach has evolved over the last 25 years
The ‘90s: The ‘00s: ‘11-present:
Pioneering Setting the Standard Refining & Implementing
World Bank Safeguard Policies
Key Dates

• April 2006
IFC’s Sustainability Framework is adopted
• September 2009 – March 2011
Review and consultation process to update and clarify the Framework
• May 12, 2011
IFC’s Board approves updated Sustainability Framework
• January 1, 2012
Revised Policies and Performance Standards become effective
Policy updates are intermittent, but production of guidance on practical
implementation is continuous and accelerating

E&S Guidance Produced over the years

1990s 2000-2006 2007-2012 2013-2018

IFC Sustainability Framework Investment Projects Context

Responsibilities Implementation Tools

Access to
IFC Sustainability Environmental and Social
Information
Policy Review Procedure
Policy

Guidance Notes
8 Performance Standards on
CLIENT Environmental, Health &
Environmental and Social
Safety Guidelines
Sustainability
Good Practice Materials
Sustainability Policy

Defines IFC’s commitments toward sustainability

• Manage risk
• Hierarchy:
▪ Anticipate, avoid
▪ Minimize
▪ Compensate or offset

• Identify opportunities
Sustainability Policy

• Articulates IFC commitments to

▪ Low carbon growth and climate change
▪ Human rights
▪ Corporate Governance
▪ Gender
▪ Ecosystems

• Defines roles, responsibilities of IFC

and clients
Are There Activities IFC Will Not Finance?
IFC’s Accountability

Grievance
Commitment to
Internal Oversight Mechanism for
Transparency
External Parties
• Access to • Independent • 1999: Compliance
Information Policy Evaluation Group Advisor
(AIP) (IEG) Ombudsman (CAO)
• Investment and • Reports to the • Reports to WBG
Advisory projects Board President
• Overhauled in 2012 • Objective • Responds to
• Alignment with assessment of complaints from
Bank’s AIP, in development project-affected
private-sector impact/results groups
context • World Bank Group • IFC and MIGA
E&S support at every stage of the investment process (FIs and DIs)
E&S staff role
described in green
- Capacity Building

Business
Development
- Go/no-go
- E&S Risk Rating (ESRR) - Categorization
- Review Client Reporting Portfolio - Which PSs are
- Site Supervision (depends Concept Stage
on ESRR but all Category Management triggered?
- Contextual Risk
As)

- Gap Analysis (client approach vs. IFC

- CP’s to expectations)
disbursement Disbursement Appraisal - Negotiate Action Plan
- Require client to engage communities
& create grievance mechanism

- Sector Lead review

- Investment Agreement Investment - Peer review meeting
includes covenants, CP’s Commitment
and action plan. Review for high risk projects

Board Approval

- ES input to AIMM
- IFC Disclosure
IFC’s Performance Standards

PS1: Assessment and PS2: Labor and Working PS3: Resource Efficiency and PS4: Community Health,
Management of E&S Conditions Pollution Prevention Safety and Security
Risks and Impacts

PS5: Land Acquisition and PS6: Biodiversity Conservation PS7: Indigenous Peoples PS8: Cultural Heritage
Involuntary Resettlement and Sustainable Management
of Living Natural Resources
Are all 8 Standards Triggered?

PS1-100% PS2-99% PS3-95% PS4-87%

PS1: Assessment and PS2: Labor and Working PS3: Resource Efficiency PS4: Community Health,
Management of E&S Conditions and Pollution Prevention Safety and Security
Risks and Impacts

PS5-44% PS6-27% PS7-5% PS8-16%

PS5: Land Acquisition PS6: Biodiversity PS7: Indigenous Peoples PS8: Cultural Heritage
and Involuntary Conservation and
Resettlement Sustainable Management
of Living Natural Resources
PS1: Assessment and Management of Environmental and Social Risks and
Impacts

Objectives
• Identify project E&S risks and impacts

• Adopt mitigation hierarchy

▪ Anticipate, avoid
▪ Minimize
▪ Compensate or offset

• Improve performance through an Environmental

and Social Management System (ESMS)

• Engagement with Affected Communities, other

stakeholders
▪ Throughout project cycle
▪ Includes communications, grievance mechanisms
Why a PS 1?

And why do we consider it our “umbrella” PS?

A systematic approach to managing

environmental and social performance…
Applies to 100% of
our investment
… is an investment that enables clients
projects to identify and manage E&S risks that
can affect the viability of their business
PS2: Labor and Working Conditions

Objectives
• Fair treatment, non-discrimination, equal
opportunity
• Good worker – management relationship
• Comply with national employment and labor laws
• Protect workers, in particular vulnerable
categories
• Promote safety and health
• Avoid use of forced labor or child labor
PS3: Resource Efficiency and Pollution Prevention

Objectives
• Avoid, minimize, and reduce project-related
pollution
• Energy efficiency and more sustainable use of
resources, including energy and water
• Reduced project-related Greenhouse Gas
(GHG) emissions
PS4: Community Health, Safety and Security​

Objectives
• To anticipate and avoid adverse impacts on the
health and safety of the Affected Community
• To safeguard personnel and property in
accordance with relevant human rights principles
PS5: Land Acquisition and Involuntary Resettlement​

Objectives
• Avoid, minimize adverse social and economic
impacts from land acquisition or restrictions on
land use
▪ Avoid, minimize displacement
▪ Alternative project designs
▪ Avoid forced eviction
• Improve or restore livelihoods and standards of
living
• Improve living conditions among displaced
persons
▪ Adequate housing
▪ Security of tenure
Why does Involuntary Resettlement Matter?

Triggered in 44% of
our Investment
projects
PS6: Biodiversity Conservation and Sustainable Management of Living
Natural Resources​

Objectives
• Protection and conservation of biodiversity
• Maintenance of benefits from ecosystem
services
• Promotion of sustainable management of
living natural resources
• Integration of conservation needs and
development priorities
PS7: Indigenous Peoples (IPs)​

Objectives
• Ensure full respect for IPs
▪ Human rights, dignity, aspirations
▪ Livelihoods
▪ Culture, knowledge, practices
• Avoid, minimize adverse impacts
• Sustainable and culturally appropriate
development benefits and opportunities
• Free, Prior and Informed Consent (FPIC)
in certain circumstances
PS8: Cultural Heritage

Objectives
• Protection and preservation of cultural
heritage
• Promotion of equitable sharing of cultural
heritage benefits

Triggered in 16% of our

Investment projects
IFC has built unrivalled capacity of E&S expertise and co-financiers often seek
our lead on complex transactions

Specialists in the following topics:

• Biodiversity
• Labor
• Human rights
• Security forces
• Life and fire safety
• Gender-based violence

Example of co-lender reliance:

Project Issues Example of co-financiers IFC’s role

Oyu Tolgoi – Mining - Resettlement, economic EBRD, BNP Paribas, ING, Soc Gen, IFC as lead E&S agent from 2010-2016. IFC as single
Mongolia displacement, livelihood Sumitomo, Standard Chartered, Crédit point of contact between OT and lenders, coordinating
restoration, biodiversity Agricole, Intesa Sanpaolo, National alignment on risks and mitigates across banks.
Australia Bank, Natixis, HSBC Bank,
The Bank of Tokyo-Mitsubishi UFJ, KfW,
etc.
Emerging E&S ISSUES

• Gender Based Violence

▪ Sexual Exploitation, Abuse and Sexual Harassment

• Modern Slavery
▪ Child and Forced Labour/Trafficking

• Diversity and Inclusion

▪ Equal Opportunity: Gender and Disability

• Greenhouse Gases
EQUATOR PRINCIPLES

Martine Valcin, Manager, IFC

March 6, 2020

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Equator principles offer a common E&S risk management framework

What
• Systematic approach
• Minimum standards for project finance
• Based on IFC Performance Standards & World Bank Group EHS Guidelines

Why
• Levels the playing field
• Reduces due diligence costs

Who
• 101 banks in 38 countries 80% of project financing in emerging markets
• 80% of project financing in emerging markets.

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EPA has adopted governance structure to ensure its long term viability

Steering
Chair Secretariat Working Groups
Committee

Coordination across Manages and Manages Formed at discretion

the Steering develops the EPs on administrative of Steering
Committee, the behalf of the matters Committee to
working groups and members progress on specific
the members issues

IFC
• IFC provides technical and strategic support to the EPA
• Manages Annual “Performance Standards Community of Learning” event on IFC
Performance Standards & World Bank Group EHS Guidelines
• Supports client banks to adopt EPs in emerging markets
• MoU signed in February 2020 to formalize and strengthen relationship

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The 10 Equator Principles

Review and Categorization E&S Assessment Applicable E&S Standards

E&S Management System

Stakeholder Engagement Grievance Mechanism
and EP Action Plan

Independent Monitoring and

Independent Review Covenants
Review

Reporting & Transparency

Equator Principles & Performance Standards helped broader Market Adoption
of E&S Standards in emerging markets
Sustainable Banking Network – Creating Sustainable Financial Markets

39 member countries
account for
2020 $43Trillion
in bank assets, or
86% of the total in
emerging markets

# of SBN members
# of member countries with sustainable
finance framework

EM banking assets covered by sustainable

finance policies to enable
ESG/climate/green financing

SBN members are committed to moving their financial sectors towards sustainability, with the twin goals of:
▪ improved ESG risk management (including disclosure of climate risks); and
▪ increased capital flows to activities with positive climate impact.