Sustainable Lending Guidelines for FIs:
IFC’s E&S Performance Standards
Financing a Sustainable Low Carbon Indian Economy
Mumbai, May 13, 2010
Richard English
Principal Specialist, Environmental & Social Development
IFC South Asia Region, New Delhi, India
Main Topics
• IFC Sustainability Framework & Performance
Standards
• Rationale for managing E&S risks
• What is E&S Risk Management System?
• Case examples
IFC & Sustainability –
Managing Environment & Social Risks
• Integrate E&S risk management into business processes
For IFC:
 Sustainability Policy
 E&S Risk Review and Monitoring Procedures
 Organization, Responsibilities, Resources, and Training
 Reporting
For Clients:
 8 Performance Standards and 63 Environment, Health and Safety
Guidelines
 Applies its Standards and Guidelines to all its investments
 Training, technical assistance, advisory services
Umbrella: PS1: Social and Environmental Assessment &
Management Systems
PS2
PS3
PS 1
PS4
Labour and Working Conditions
Pollution Prevention and Abatement
Community, Health, Safety and Security
PS5
Land Acquisition and Involuntary Resettlement
PS6
Biodiversity Conservation and Sustainable Resource
Management
PS7
Indigenous Peoples
PS8
Cultural Heritage
PS 1: Social & Environmental Assessment and
Management
Systems and Management
PS1: Social & Environmental
Assessment
Systems
Objectives & Outcomes:
•
Identify and assess social and environmental
impacts and risks in the project’s area of influence
•
Avoid if possible, and minimize adverse impacts on
affected communities and the environment
•
Promote improved social and environmental
performance through the use of management
systems
•
Ensure affected communities are appropriately
engaged
PS 2-4: Frequently Used Standards
Applicable in almost all projects
• PS 2: Core labor standards; working conditions;
occupational health and safety; supply chain issues
• PS 3: Pollution prevention, resource conservation
and energy efficiency; wastes and hazardous
materials; green house gases
• PS 4: Safety of communities from project activities
that can cause accidents, diseases, emergencies
PS 5-8: Technical Standards
• Less frequently applied
• Avoidance or mitigation of:
 PS 5: Land acquisition and involuntary
resettlement- whether physical displacement or
economic
 PS 6: Habitat destruction; management and
certification of renewable natural resources
(e.g., forests)
 PS 7: Impacts on Indigenous Peoples when they
are adversely affected by the project
 PS 8: Destruction or damage to cultural heritage
E&S Management System and Financial Sector
• A systematic framework to integrate E&S risk
considerations into a bank’s business processes
• Bank develops its own system reflecting:





Business environment
Investment scope and sizes
Staff capabilities
Risk exposure/Risk appetite
Institutional culture

Cumulative IFC Investments in India
up to March 2010 ($6.8b)
Oil, Gas and Chemicals,
$900m
Subnational Finance,
$50m
Agribusiness, $265m
Information and Comm.
Technologies, $304m
Manufacturing,
$1,915m
Infrastructure,
$1,558m
Health and Education,
$197m
Private Equity and
Investment Funds,
$405m
Financial Markets,
$1,212m
Risks in Banking
• Environmental and social risks present themselves to
companies and financial institutions as business risks
• Main types of risk for banks:
• Credit risk (default probability; loss given default)
• Liability risk
• Reputational risk
• Risks present themselves
• At the level of single transactions
• At the portfolio level
10
Key Social & Environmental Risks Identified by
Commercial Banks
Reputational risk / Negative publicity with customers,
83
shareholders and the general public
Credit risk (defaults, payments rescheduling)
68
49
Security (devalued collateral)
44
Nonperforming loans/investments/leases
Loss of financing from international financial
37
institutions
Liability for clean up of contaminated
34
property/collateral
Reduced access to capital from private financial
27
institutions/international bond market
22
Potential civil or criminal liability for negligence
20
Loss of depositors or retail clients
0
Other
0
10
20
30
40
50
percent
11
60
70
80
90
E&S Management System
• There is no one commonly accepted blue print for
E&S Management System
• Core elements :
 Environmental and Social Policy
 E&S Risk Review and Monitoring Procedures
 Organization, Responsibilities, Resources, and
Training
 Reporting
IFC Requirements for Financial Sector Clients
• Exclusion List
• Local laws and regulations
• Industry EHS Guidelines
• E&S Management System
• Initial screening
• Categorization
• Due diligence
• E&S Covenants (including Action Plan)
• Monitoring
• Reporting
Case Examples
• CGPL – 4000 MW Thermal Power
• Vicat Sagar Cement – 5 mtpa + 60 MW Thermal CPP
• Cairn Energy – Oil field development and pipeline
• Pulp & Paper Producers – Supply chain of 200,000+
farmers