World Bank to launch new sustainable finance framework

The World Bank’s International Finance Corporation will outline a new framework for assessing the sustainability of private projects in developing countries at next week’s ENVIRO 2002 conference in Melbourne.

Acccording to a paper on “Developing Nations and Developing Markets,” to be given by Gavin Murray, director with IFC’s Environmental and Social Development Department, the so-called “Sustainability Value-Added Framework” is designed to encourage loan officers to push for projects to perform beyond minimum compliance and mitigation of harm, toward sustainability and market leadership.

The International Finance Corporation (IFC), one of the four major finance divisions of the World Bank Group, is charged with promoting economic growth in developing countries by financing sustainable private sector investments. All potential projects are assessed against a range of environmental and social criteria before they proceed.

According to Murray it wasn’t until the late-1980’s that IFC began to consider the environmental and social aspects of investment projects as a priority.

The IFC now employs over 40 environment specialists to oversee compliance with IFC’s social and environmental guidelines. Importantly, the group is now taking its Sustainability Framework beyond mere compliance, Murray says.

“It’s in businesses’ interest to be responsible from an environmental, social and governance perspective. The traditional regulatory model of just meeting standards is a step in the right direction but it doesn’t ultimately link sustainability to the interest of the business. We encourage business to be pro active in this area, they realise it’s better for them to go beyond compliance.

“While we have a strong risk management approach we’re now saying we want to leverage that and take it to another level where our clients can be recognised when they go beyond compliance. We help them find where those opportunities are,” he said.

The advantages of being proactive include better-motivated staff, increased access to markets, reduced risks to lenders and lower capital costs says Murray. Other financial institutions are starting to recognise the benefits of dealing with businesses with superior social and environmental performance, he says.

“Commercial banks are much more in tune [with these developments] because they are often under pressure from their own shareholders or advocacy groups over similar problems they’ve experienced in this area,” said Murray.

The IFC has a 15-person team that seeks out innovative environmental businesses to invest in. The division is partly funded by the Global Environment Facility (GEF), an institution set up by the World Bank and the United Nations to correct global environmental problems.

In the Hungary Energy Efficiency Co-Financing Project the IFC and the GEF contribute $17 million which is used to provide a partial guarantee facility to local banks and finance companies. This mechanism is used to leverage a total of $110 million in private capital to be invested in energy efficient infrastructure, such as street lighting says Murray. The IFC is currently rolling out a region-wide replica of the project in five other Central European countries. Ultimately, $225 million of private sector investment will be leverage into energy efficient projects reducing greenhouse gas emissions in the region by up to 9.9 million metric tons he says.

The day-to-day operations of the IFC aren’t affected by the current boycott of World Bank Bonds organised by a coalition of non-government organisations including the Center for Economic Justice. But protests like this have raised the level of awareness within the Bank that it should be “more proactive and not reactive,” says Murray.

“We can protect the IFC by monitoring the social and environmental performance of our investments but also we have to have better programs and outcomes on the ground,” he said.

The IFC is also criticised for funding projects organised by foreign, multi-national companies rather than local operators says Murray.

“This is a role issue for the IFC. If multi-nationals are prepared to accept our standards and even go further and champion them, then we see a benefit in the demonstration effect. This is a valid role for IFC,” he says.

The IFC has an independent Compliance Advisory Ombudsman that deals with any complaints about its projects or operations. The World Bank has also appointed a consultant, Indonesian environmentalist professor Amil Salim, to advise on policy regarding the bank’s involvement with extractive industries.

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