Download Symposium on Environment and Engagement of the Private

Achieving Sustainable Growth
Through Engagement with the Private Sector:
Symposium on Environment and Engagement of the Private Sector
Tokyo, March 26, 2008
Motoko Aizawa
Environment and Social Development
Department
Under a Business as Usual Scenario
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Economic development as a pressing global priority
– Emerging markets’ “right to grow”
– North to south/west to east flows
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Trade, investments and projects externalizing
environmental and socioeconomic costs
One-off investments with typically shorter time
horizons and limited geographic scope
Technology risk as a constraint
Limited scope, authority and engagement on areas
traditionally considered the domain of the public
sector
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From Business as Usual to a New Business Model
Private sector as driver of sustainable development through
trade, investments, projects
 Demonstrating corporate responsibility and realizing
business benefits by responding to voluntary codes and
principles
 Partnership with the public sector / emerging markets
players to minimize risks, maximize impacts
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Private Sector as part of the solution for
Global Sustainable Development Challenges
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IFC – A Decade of Experience in
Managing E&S Risks & Creating Opportunities

Built its environmental and social sustainability policy
framework over a decade
– Sustainability Policy & Disclosure Policy
– 8 Performance Standards
– 62 sector-specific Environmental, Health and Safety Guidelines
Internal technical expertise
 Mainstreaming E&S issues in core operations
 Together these provide a framework to:
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– Manage project risks
– Improve IFC performance
– Maximize development impact
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IFC Policy & Performance Standards n Overview
IFC’s Policy Framework
Requirements
IFC –
Institutional
Disclosure Policy
Sustainability Policy
Client –
Project Level
8 Performance Standards
Implementation
Environmental & Social
Review Procedure
 8 Guidance Notes
 Environmental, Health &
Safety Guidelines
 Best Practice Materials
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Function of the Policy Framework at IFC
Designed to address recurring environmental and social
issues in emerging markets
 First of its kind designed for a financial institution
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– Clarifies lender and borrower responsibilities separately

Borrower applies the Standards; lender reviews borrower application of
the Standards
– Applies to IFC investments and advisory services

Risk-based approach
– Draws from relevant international treaties and covenants for
areas that can pose project risks
– IFC Corporate Investment and Financial Risk Committees

Basis of the Equator Principles
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The Equator Principles in a nutshell
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A voluntary framework for environmental and social risk
management for project finance
Based on IFC’s Performance Standards and
Environmental, Health and Safety Guidelines
First announced in June 2003 with ten banks
Relaunched as “EP2” in July 2006, referring to the new IFC
standards
Now 60 financial institutions, including 11 in emerging
markets
Around 86% of emerging markets cross-border project
finance refers to Equator - Source: Infrastructure Journal
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Convergence of International Standards
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Multilaterals and bilaterals apply the IFC Standards
or ensuring equivalence
32 export credit agencies from 28 OECD countries
benchmark private sector projects against the IFC
Standards
MIGA applies the IFC Standards
Also used by companies, investment funds,
research firms
Now part of China’s Green Credit Policy
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Application of International Standards
Protect the environment, benefit local communities, and
meet expectations of civil society
 Business benefits

– Manage risks, protect reputation
– Level the playing field
– Improve predictability and create efficiencies in large projects and
syndications
– Gain access to global network of knowledge, institutions
Helps guide sustainable private sector projects and
investments in emerging markets
 Most effective when applied in the context of sector
strategies
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Developing Economies and
Climate Change
Under business-as-usual, 80% of incremental CO2 emission growth (2005-2030) will
come from developing countries
The Challenge: How to curb emissions without undermining economic growth?
Incremental CO2 Emission Growth from 2005 under BAU
Developing
Economies
14
Billion Tonnes
12
10
8
Developing
Economies
6
4
2
Transition OECD
Economies
Transition
Economies
OECD
0
2015
Source: IEA “World Energy Outlook 2007
2030
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IFC’s Overall Approach to
Climate Change

Private sector critical in addressing climate change
Potential IFC Role:
–Scope to crowd in substantial private investments
–A role in accelerating technology transfer
–Climate Investment Fund
–Encourage south-south investments
–Leverage Equator banks
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A Balanced Approach
–IFC primary goal of sustainable development - to be balanced with
climate change concerns
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IFC collaboration with World Bank, public sector key
–Integrated WBG approach
–Public-Private Partnerships
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IFC’s Climate Change Strategy:
Near Term Priorities

Mainstreaming climate across IFC
– Double / triple “win-win” investments in renewable energy (RE) and energy
efficiency (EE) across all sectors
– Pursue mitigation opportunities in cleaner fuels, sustainable forestry, agriculture

Transforming economic activity towards low carbon and
climate resilient growth
– E.g., Through CIF: Several dedicated funds with focus on clean technology
investment, adaptation and forestry, etc.
– Concessional loans, guarantees, insurance, grants and risk-management tools
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Scaling up carbon finance
– Carbon market is now €40 billion/year (2007) and growing
– IFC is offering an innovative Carbon Delivery Guarantee
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IFC’s Climate Change Strategy:
New Initiatives
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IFC’s role in adaptation to climate change
– Most urgent for vulnerable emerging markets
– Relevant for risk professionals in FIs
– Piloting projects in Asia, Africa to analyze physical, financial and human risks &
risk reduction opportunities
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Measuring GHGs in IFC’s portfolio
– IFC to begin reporting portfolio GHG emissions in FY08
– Developing tools consistent with WRI/WBCSD GHG protocol, tailored to FIs
– Possible upgrading of IFC’s Performance Standard 3 / Equator Principles
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The pilot use of carbon shadow prices in project appraisal
– Considering the inclusion of a range of “shadow prices” for GHGs in financial
analysis
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Collaboration within the World Bank Group
World
Bank
Group
World Bank Programs
 Policy dialogue to improve regulatory and
market environment
 Subsidy schemes
 Public private partnerships
IFC Programs
 Finance ’subsidized’ components of otherwise
commercial projects
 Innovative financing schemes
 Public private partnerships
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Private Sector: Part of Solution to Climate Change
“The Bali Action Plan calls for the road to Copenhagen to be an
open process – open to the private sector, international
organisations and civil society. This offers opportunities for the
business community to contribute. With private sector
constituting 86 percent of investment financial flows related
to climate change, businesses are vital to the solution.
Business could, for example, explain its views on technology
transfer, contribute to the design of sectoral approaches, and help
to write financial language into the final deal.”
Yvo de Boer, Executive Secretary
UN Framework Convention on Climate Change
Trading Carbon, Feb 2008, p. 18
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