International Finance Corporation’s
Policy on Environmental and Social
Sustainability

January 1, 2012

Policy on Environmental and Social Sustainability
January 1, 2012

TABLE OF CONTENTS

I.

Purpose of this Policy………………………………………………………………….. 1

II.

IFC’s Commitments…………………………………………………………………… 2

III.

IFC’s Roles and Responsibilities…………………………………………………… 4
Environmental and Social Due Diligence…………………………………………………. 4
Environmental and Social Categorization………………..………………………………... 8
Supervision………………………………………………………………………………… 9IV.

Collaboration with Partners……………………………………………………….. 10
Collaboration and Liaison with Public and Private Sector Institutions…………………... 10
Additional Reference and Supporting Documents for Policy Implementation…………... 11V.

Sector Specific Initiatives on Governance and Disclosure…………………..11

VI.

Compliance Advisor/Ombudsman……………………………….………………..12ii

Policy on Environmental and Social Sustainability
January 1, 2012

I. Purpose of this Policy
1. IFC strives for positive development outcomes in the activities it supports in developing
countries. These activities include (i) investments financed directly by IFC; (ii) investments
implemented through financial intermediaries (FIs) or managed by IFC’s Asset Management
Company or any other IFC subsidiary, as well as investments funded in part or in whole by donors;and (iii) advisory services. IFC believes that an important component of achieving positive
development outcomes is the environmental and social sustainability of these activities, which IFC
pursues and expects to achieve through the application of this Policy on Environmental and Social
Sustainability (the Sustainability Policy or the Policy), and a comprehensive set of environmental andsocial Performance Standards.
2. Through this Policy, IFC puts into practice its commitments to environmental and social
sustainability. These commitments are based on IFC’s mission and mandate, as presented in
section II of this Policy. Translating these commitments into successful outcomes depends on the
joint efforts of IFC, its clients, and, in many cases, that of third parties. Consistent with thesecommitments, IFC carries out the actions described in section III of this Policy, including its
responsibility to conduct environmental and social due diligence of activities proposed for its support.
3. Activities supported and financed by IFC include a wide range of investment and advisory
products. Investment products with longer tenor include (i) direct lending to private sector companies(including corporate and project finance); (ii) lending to various types of FIs as well as through funds
and facilities; (iii) minority equity stakes in companies, including in financial institutions; and(iv) guarantee facilities, municipal finance, as well as investments managed by IFC’s AssetManagement Company or any other IFC subsidiary. Investment products with shorter tenor include
short-term loans, guarantees, and trade finance products, with maturities of up to three years.
Proposed investments that are determined to have moderate to high levels of environmental and/or
social risk, 1 or the potential for adverse environmental and/or social impacts 2 will be carried out inaccordance with the requirements of the Performance Standards.
4. Advisory products include technical, financial and/or regulatory advice, project structuring as wellas training to companies, industries, and governments. Each advisory activity is different in focus andscope. An advisory activity delivered to government clients may include advice on how to improve
the investment climate or how to structure bankable public-private partnerships, while advice tocompanies and financial institutions may help them sharpen their competitive edge, improve
corporate governance, or help them become more sustainable. Within the scope of an agreed
advisory activity, all advice and training will be consistent with the Performance Standards.
5.

The Performance Standards consist of the following:

Performance Standard 1: Assessment and Management of Environmental and Social Risks andImpacts
Performance Standard 2: Labor and Working Conditions
Performance Standard 3: Resource Efficiency and Pollution Prevention
Performance Standard 4: Community Health, Safety, and Security
1
Environmental and social risk is a combination of the probability of certain hazard occurrences and the severityof impacts resulting from such an occurrence.
2

Environmental and social impacts refer to any change, potential or actual, to (i) the physical, natural, or culturalenvironment, and (ii) impacts on surrounding community and workers, resulting from the business activity to besupported.

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Policy on Environmental and Social Sustainability
January 1, 2012

Performance Standard 5: Land Acquisition and Involuntary Resettlement
Performance Standard 6: Biodiversity Conservation and Sustainable Management of Living Natural
Resources
Performance Standard 7: Indigenous Peoples
Performance Standard 8: Cultural Heritage
6. These Performance Standards help IFC investment and advisory clients manage and improvetheir environmental and social performance through a risk and outcomes based approach. The
desired outcomes are described in the objectives of each Performance Standard, followed by specificrequirements to help clients achieve these outcomes through means that are appropriate to thenature and scale of the activity and commensurate with the level of environmental and social risks
and/or impacts. Central to these requirements is the application of a mitigation hierarchy to anticipate
and avoid adverse impacts on workers, communities, and the environment, or where avoidance is
not possible, to minimize, and where residual impacts remain, compensate/offset for the risks andimpacts, as appropriate. IFC believes that the Performance Standards also provide a solid base on
which clients may increase the overall sustainability of their operations, identify new opportunities togrow their business, and build their competitive advantage in the marketplace.
7. While managing environmental and social risks and impacts in a manner consistent with the
Performance Standards is the responsibility of the client, IFC seeks to ensure, through its due
diligence, monitoring, and supervision efforts, that the business activities it finances are implemented
in accordance with the requirements of the Performance Standards. As a result, the outcome of IFC’s
environmental and social due diligence of a proposed business activity is an important factor in its
approval process, and will determine the scope of the environmental and social conditions of IFC
financing. By adhering to this Policy, IFC seeks to (i) enhance the predictability, transparency, andaccountability of its actions and decision making; (ii) help clients manage their environmental andsocial risks and impacts and improve their performance; and (iii) enhance positive development
outcomes on the ground.

II. IFC’s Commitments
8. IFC’s mission is to fight poverty with passion and professionalism for lasting results; to help
people help themselves and their environment by providing resources, sharing knowledge, building
capacity, and forging partnerships in the public and private sectors. IFC believes that soundeconomic growth, grounded in sustainable private investment, is crucial to poverty reduction. IFC
investment and advisory services will be developed and delivered in accordance with IFC’s mission,
strategic pillars, and operational strategies.
9. Central to IFC’s development mission are its efforts to carry out investment and advisory
activities with the intent to “do no harm” to people and the environment, to enhance the sustainabilityof private sector operations and the markets they work in, and to achieve positive development
outcomes. IFC is committed to ensuring that the costs of economic development do not fall
disproportionately on those who are poor or vulnerable, that the environment is not degraded in theprocess, and that renewable natural resources are managed sustainably. IFC believes that theclient’s regular engagement with stakeholders about matters that directly affect them plays animportant role in avoiding or minimizing risks and impacts to people and the environment. IFC also
recognizes the importance of supporting sector-wide market transformation initiatives that areconsistent with sustainable development objectives.

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Policy on Environmental and Social Sustainability
January 1, 2012

10. IFC recognizes that climate change is a serious global challenge and that climate-related
impacts may impede economic and social well-being and development efforts. Working with theprivate sector and other parties to address climate change is therefore a strategic priority for IFC.
Given the importance of the private sector’s role in the reduction of greenhouse gas (GHG)
emissions, IFC will engage in innovative investments and advisory services to support
climate-friendly solutions and opportunities for business. IFC will also support adaptation measuresthat promote sustainable investments.
11. IFC support for low-carbon economic development is one dimension of a balanced approach todevelopment, including supporting access to modern, clean, and reliable energy services. IFC
pursues this objective through the use and development of relevant products, instruments, markets,and advisory services as well as through the adoption of appropriate technologies, processes, andpractices in the activities it supports. IFC also recognizes the importance of ecosystem services andtheir role in climate change mitigation as well as adaptation. It is committed to minimizing businessactivities-related impacts on areas providing such services. IFC, in its efforts to support its
climate-related commitments, will build on its experience in energy efficiency, cleaner production,
renewable energy, and carbon markets as well as in the development of GHG accounting andapproaches to climate change risk assessment, to produce instruments and develop practices that3
allow its clients to consider climate-related risks and opportunities in their investment decisions.
Finally, as the practice and tools for GHG accounting are mainstreamed, IFC will require its clients toinclude GHG emissions in their regular reporting to IFC in accordance with the PerformanceStandard 3 quantification threshold. This will allow IFC to quantify, manage and report on the carbon
footprint of its direct investment portfolio in accordance with the emerging state of practice on
accounting and reporting.
4

12. IFC recognizes the responsibility of business to respect human rights, independently of thestate duties to respect, protect, and fulfill human rights. This responsibility means to avoid infringing
on the human rights of others and to address adverse human rights impacts business may cause orcontribute to. Meeting this responsibility also means creating access to an effective grievancemechanism that can facilitate early indication of, and prompt remediation of various project-related
grievances. IFC’s Performance Standards support this responsibility of the private sector. Each of the
Performance Standards has elements related to human rights dimensions that businesses may facein the course of their operations. Consistent with this responsibility, IFC undertakes due diligence ofthe level and quality of the risks and impacts identification process carried out by its clients against
the requirements of the Performance Standards, informed by country, sector, and sponsor
knowledge.
13. IFC believes that women have a crucial role in achieving sound economic growth and poverty
reduction. They are an essential part of private sector development. IFC expects its clients tominimize gender-related risks from business activities and unintended gender differentiated impacts.
Recognizing that women are often prevented from realizing their economic potential because ofgender inequity, IFC is committed to creating opportunities for women through its investment andadvisory activities.
14. IFC seeks to provide accurate and timely information regarding its investment and advisory
activities as well as more general institutional information in accordance with its Access to
3

The Sustainability Policy supports the implementation of the 2008 World Bank Group’s “Strategic Framework forDevelopment and Climate Change.”4
For purposes of this policy, IFC will be guided by the International Bill of Human Rights and the eight core
conventions of the International Labour Organization.

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Policy on Environmental and Social Sustainability
January 1, 2012

Information Policy. IFC also recognizes the importance of disclosure of information, both for itself andits clients, as a means of managing environmental, social, and governance risks.
15. In order to accomplish its mission and achieve its commitments, IFC endeavors to collaborate
with clients who identify and manage environmental and social risks and who pursue environmental
and social opportunities and outcomes in their business activities with a view to continually improving
their sustainability performance. IFC recognizes the relationship between a strong culture ofcorporate integrity and governance, and sustainability performance, and that a company’s
management and board of directors play important roles in driving risk management and sustainablegrowth. IFC believes that this approach helps improve the financial, social, and environmental
sustainability of investments, and enhances the public trust in its operations.
16. IFC offers specifically targeted advisory services, working at the company, sector, and statelevels to contribute to the development of inclusive, sustainable, and efficient markets. While suchservices vary across countries and regions, a common feature is the intent to promote broad uptakeof good environmental and social performance in business decisions and operations, a focus on cost
efficiency in delivery, and consistency in impact measurement. These services may involve individual
clients or groups of clients including FIs as well as companies in infrastructure or manufacturingsectors.
17. IFC has made a commitment to manage the footprint associated with its internal operations.
Through its corporate Footprint Program, IFC makes sustainability an integral part of its day-to-day
work in IFC offices around the world, and continually improves the environmental performance of its
internal business operations. This commitment includes pursuing best practices in environmental andsocial management with the objective of achieving carbon neutrality of its global internal business
operations, and providing a positive social contribution to local communities through outreach efforts.
IFC raises staff awareness of their role in fulfilling this commitment, and on relevant sustainability
issues and reports both internally and externally on the Footprint Program’s achievements.
18. Finally, IFC is committed to notifying countries potentially affected by the transboundary effects
of proposed business activities, so they can determine whether the proposed business activity has
the potential for causing adverse effects through air pollution or deprivation of water from, or pollutionof international waterways.

III. IFC’s Roles and Responsibilities
19. IFC assumes several roles and responsibilities under this Policy. With respect to any particular
activity, the level of IFC’s engagement is determined by the nature and scope of the proposed
investment or advisory activity, as well as the specific circumstances of the collaboration andrelationship with the client. IFC considers the risks and impacts of the proposed investment oradvisory activity, and whether and how such investment or advisory activity can be expected tocontribute to the development of the host country and to broadly benefit its relevant stakeholders ineconomic, social, and/or environmental terms. There are several types of activities that IFC does notsupport, either through its investments or advisory services. These activities are set out in the IFC
Exclusion List.

Environmental and Social Due Diligence
Overall Approach for Investment Activities
20. Environmental and social due diligence applies to all IFC investment activities.

4Policy on Environmental and Social Sustainability
January 1, 2012

21. IFC’s environmental and social due diligence is integrated into IFC’s overall due diligence of thebusiness activity under consideration, including the review of financial and reputational risks. IFC
weighs the costs and benefits of proposed business activities and articulates its rationale and specificconditions for the proposed activity. These are provided to IFC’s Board of Directors when theinvestment activity is presented for approval.
22. IFC will only finance investment activities that are expected to meet the requirements of the
Performance Standards within a reasonable period of time. Persistent delays in meeting theserequirements can lead to loss of financial support from IFC.
23. At times, the client’s ability to achieve environmental or social outcomes consistent with the
Performance Standards will be dependent on third party actions. A third party may be a government
agency in a regulator capacity or contract party, a contractor or primary supplier with whom thebusiness activity has a substantial involvement, or an operator of an associated facility (as defined in
Performance Standard 1). IFC, as part of its own due diligence process, will review clients’
identification of third party risks, and will determine whether such risks are manageable, and if so
under what conditions, so as to create outcomes consistent with the Performance Standards. Certain
risks may require IFC to refrain from supporting the proposed business activity.
24. IFC’s agreements pertaining to the financing of clients’ activities include specific provisions withwhich clients undertake to comply. These include complying with the applicable requirements of the
Performance Standards and specific conditions included in action plans, as well as relevant
provisions for environmental and social reporting, and supervision visits by IFC staff orrepresentatives, as appropriate. If the client fails to comply with its environmental and social
commitments as expressed in the legal agreements and associated documents, IFC will work withthe client to bring it back into compliance , and if the client fails to reestablish compliance, IFC will
exercise its rights and remedies, as appropriate.
25. IFC requires that clients inform IFC when there is a material change 5 in their businesses or when
they plan to enter into a new business area that is materially different from what was represented
when IFC obtained Board approval. In such circumstances, IFC will assess whether the new
business area poses environmental and/or social risks and/or impacts, and if so, IFC will require theclient to adjust its Environmental and Social Management System (ESMS) in a manner consistent
with (i) potential environmental and social risks and impacts associated with material changes ofthese new businesses; (ii) this policy; and (iii) applicable requirements of the Performance Standards.
IFC may request the client to provide results of its environmental and social due diligence foractivities financed in these new businesses areas.

Direct Investments
26. IFC’s environmental and social due diligence is commensurate with the nature, scale, and stageof the business activity, and with the level of environmental and social risks and impacts. IFC
conducts due diligence of all new direct investments that are being considered for IFC support,
whether in the design, construction, or operational stage. Where the proposed use of funds is not
fully defined at the time of the due diligence, IFC’s environmental and social due diligence may be
expanded to cover other business activities of the client as part of IFC’s risk management
considerations. Where there are significant environmental or social impacts associated with thebusiness activity, including past or present adverse impacts caused by others, IFC works with its
client to determine possible remediation measures.

5

Material change may include change in environmental and/or social risk profile.

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Policy on Environmental and Social Sustainability
January 1, 2012

27. IFC investment timing in relation to a client’s business activity varies from transaction totransaction. IFC’s engagement often occurs well after the business activity is conceived, with the site
selected and development started. In such cases, IFC will review the ESMS and risk management
practices already in place, as well as the environmental and social assessment and community
engagement undertaken by the client and/or any third party before IFC’s consideration of theinvestment. When IFC’s involvement occurs in the early stages of investment design, IFC is able tosupport the client more effectively in anticipating and addressing specific risks and impacts; inidentifying opportunities; and in managing these throughout the life of the investment.
28. Environmental and social due diligence typically includes the following key components:(i) reviewing all available information, records, and documentation related to the environmental andsocial risks and impacts of the business activity; (ii) conducting site inspections and interviews ofclient personnel and relevant stakeholders, where appropriate; (iii) analyzing the business activity’senvironmental and social performance in relation to the requirements of the Performance Standards
and provisions of the World Bank Group Environmental, Health and Safety Guidelines or otherinternationally recognized sources, as appropriate; and (iv) identifying any gaps therewith, andcorresponding additional measures and actions beyond those identified by the client’s in-place
management practices. To ensure the business activity meets the Performance Standards, IFC
makes these supplemental actions (Environmental and Social Action Plan) necessary conditions of
IFC’s investment.
29. In cases of business activities with defined use of proceeds and a clearly defined environmental
and social footprint, IFC's requirements regarding environmental and social risk management will
apply to the business activities financed from funds provided by IFC. However, IFC will encourage its
clients to manage environmental and social risks consistently in all their operations.
30. In cases where the business activity to be financed is likely to generate potential significant
adverse impacts on communities (i.e., Affected Communities) or is likely to generate potential
adverse impacts on Indigenous Peoples, IFC expects clients to engage in a process of Informed
Consultation and Participation (ICP). 6 In such cases, through its own investigation, IFC will determine
whether the client’s community engagement is one that involves ICP and enables the participation of
the Affected Communities, leading to Broad Community Support for the business activity by Affected
Communities. Broad Community Support is a collection of expressions by Affected Communities,
through individuals or their recognized representatives, in support of the proposed business activity.
There may be BCS even if some individuals or groups object to the business activity. After the Board
approval of the business activity, IFC continues to monitor the client’s community engagement
process as part of its portfolio supervision.
31. In addition, where a proposed business activity triggers the Performance Standard 7
requirement of Free, Prior, and Informed Consent of Indigenous Peoples, IFC will undertake anin-depth review of the process conducted by the client as part of its environmental and social due
diligence.

Investments Through Financial Intermediaries
32. IFC is committed to supporting sustainable capital market and financial sector development. To
this end, IFC has developed a significant program of indirect investments that is implemented
through FIs. Through this program, IFC helps strengthen domestic capital and financial markets that
support economic development at a scale of activity that is smaller than would be possible through6

In accordance with Performance Standard 1.

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Policy on Environmental and Social Sustainability
January 1, 2012

direct IFC investments. IFC’s FI clients are engaged in a diverse range of activities consisting largelyof medium and small enterprise finance, microfinance, leasing, trade finance, guarantees, housing
finance, consumer finance, and in some cases corporate and project finance and equity, each with its
own environmental and social risk profile.
33. Through its engagement with FIs, IFC supports the capacity development of the banking andfinancial sector to manage environmental and social risks. This is achieved in part through thedevelopment and implementation of an ESMS, and by enhancing FIs’ in-house capacity for the
day-to-day management of portfolio risks, including environmental and social risk. Environmental andsocial risk management is part of the responsibilities that FIs assume. IFC requires FIs to carry out
individual transaction appraisal and monitoring as well as overall portfolio management inaccordance with the environmental and social risk profile of its activities and that of individualtransactions.
34. In order to appropriately identify the environmental and social risks related to FI investments
during the appraisal process, IFC reviews the existing portfolio and prospective business activities of
its FI clients to identify activities where the FIs and IFC could be exposed to risks as a result of theirinvestments, and defines requirements for managing these risks. IFC reviews the implementation
capacity of FIs as well as their ESMS, as required by Performance Standard 1.
35. IFC’s requirements and the scope of their application for FI clients depend on IFC’s investment
type, the use of proceeds from the IFC investment, and the level of risk associated with the FI’s
portfolio. In particular:






FI clients are required to develop and operate an ESMS that is commensurate with the levelof environmental and social risks in its portfolio, and prospective business activities. The
ESMS 7 should incorporate relevant principles of Performance Standard 1;
FI clients are required to apply relevant aspects of Performance Standard 2 to their workers;
FIs will apply the IFC Exclusion List and follow respective national law; andFIs with portfolio and/or prospective business activities that present moderate to highenvironmental or social risks (i.e., Category FI-1 and FI-2) will require higher risk businessactivities they support to apply relevant requirements of the Performance Standards.

36. In cases where IFC's investment is targeted to a specified end use (e.g., credit lines for
microfinance), IFC's requirements regarding environmental and social risk management as describedin paragraph 33 will cover the specified end use only. However, if the FI supports similar activities
from its own account, then IFC’s requirements will apply to the entire asset class. IFC will also
encourage its clients to manage environmental and social risks throughout their entire portfolio.
37. In cases where IFC provides equity or financial support of a general purpose, without a specified
end use, IFC requirements regarding environmental and social risk management as described inparagraph 33 will apply to the entire portfolio of the FI that is originated from the time IFC became ashareholder or investor.

Overall Approach for Advisory Services
38. IFC’s environmental and social due diligence is integrated into IFC’s overall due diligence of theadvisory activity under consideration, including the review of financial and reputational risks. IFC
weighs the costs and benefits of proposed advisory activities and articulates its rationale and7
In the case of FIs categorized as FI-3, this will be screening of business activities they support against IFC
Exclusion List and national law.

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Policy on Environmental and Social Sustainability
January 1, 2012

project-specific conditions for the proposed activity. These are provided to IFC management when
the advisory activity is presented for approval.
39. IFC screens each advisory activity against the IFC Exclusion List. IFC also reviews each
proposed advisory activity for environmental and social risk. Should the review result in theidentification of environmental and/or social risks, the advice provided to clients shall be consistent
8
with the Performance Standards as a framework of good international industry practice (GIIP) in
environmental and social risk management. IFC also recognizes that it can work with advisory clientsto achieve positive improvements in environmental and social performance, and help clients movetowards greater consistency with the Performance Standards, even if they are not able to meet theirfull intent during the life of the advisory activity.

Environmental and Social Categorization
40. As part of the review of environmental and social risks and impacts of a proposed investment,
IFC uses a process of environmental and social categorization to reflect the magnitude of risks andimpacts. The resulting category also specifies IFC’s institutional requirements for disclosure inaccordance with IFC’s Access to Information Policy. These categories are:






Category A: Business activities with potential significant adverse environmental or social
risks and/or impacts that are diverse, irreversible, or unprecedented.
Category B: Business activities with potential limited adverse environmental or social risks
and/or impacts that are few in number, generally site-specific, largely reversible, and readily
addressed through mitigation measures.
Category C: Business activities with minimal or no adverse environmental or social risks
and/or impacts.
Category FI: Business activities involving investments in FIs or through delivery
mechanisms involving financial intermediation. This category is further divided into:• FI–1: when an FI’s existing or proposed portfolio includes, or is expected toinclude, substantial financial exposure to business activities with potential
significant adverse environmental or social risks or impacts that are diverse,
irreversible, or unprecedented.
• FI–2: when an FI’s existing or proposed portfolio is comprised of, or is
expected to be comprised of, business activities that have potential limited
adverse environmental or social risks or impacts that are few in number,generally site-specific, largely reversible, and readily addressed throughmitigation measures; or includes a very limited number of business activities
with potential significant adverse environmental or social risks or impacts thatare diverse, irreversible, or unprecedented.
• FI–3: when an FI’s existing or proposed portfolio includes financial exposure
to business activities that predominantly have minimal or no adverse
environmental or social impacts.

41. IFC recognizes that the various investment activities it considers for financing have different
levels of information available at the time of IFC’s due diligence. In some cases, the use of proceedsfrom IFC’s investment, and the associated environmental and social footprint are known and largely
understood at the time of IFC’s decision to invest, as is typical in traditional project finance. In other8

Defined as the exercise of professional skill, diligence, prudence, and foresight that would reasonably be
expected from skilled and experienced professionals engaged in the same type of undertaking under the same orsimilar circumstances globally or regionally.

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Policy on Environmental and Social Sustainability
January 1, 2012

cases however, IFC’s investment is not directed at specific physical assets (such as working capitalfinance and some types of equity investments) or will lead to future investments (such as some FI
operations or investment facilities), and the use of proceeds and the environmental and social
footprint are therefore largely indeterminate at the time of IFC’s decision to invest.
42. Where the use of proceeds of IFC financing and the associated environmental and social
footprint of the business activity are known at the time of the decision to invest, IFC will determine thebusiness activity’s environmental and social category based on its potential environmental and social
risks and/or impacts. For an existing operation, this will include its known operational impacts. In its
9determination of the risk category, IFC will also consider inherent environmental and social risks
related to a particular sector as well as the context of the business activity’s setting.
43. Where the use of proceeds of IFC financing and the environmental and social footprint of thebusiness activity are not fully specified at the time of IFC due diligence, or IFC invests in a
pre-development phase of a business activity, IFC will determine the category based on risks
inherent to the particular sector and the context of the business activity’s setting. Furthermore, insuch circumstances, there is often very limited information available on the physical footprint andassociated risks and/or impacts for consideration by IFC’s Board of Directors because the relevant
studies and assessments and/or the process of consultation, where required, are in very early stages
or have not yet been launched. In such cases IFC will complete its environmental and social due
diligence after Board approval on the basis of relevant environmental and social documentation as
well as evidence of consultation, where required, provided by the client once the footprint and risks
and/or impacts are better understood. The outcome of the due diligence will inform IFC’s decisions
going forward. Disclosure of business activity-related information post-Board commitment will bedone in accordance with the requirements of the Access to Information Policy.
44. For FI investments where IFC’s funds are traceable and intended for a specified end use, IFC
will determine the environmental and social category based on risks associated with the specified
end use. Where IFC’s funds provide general financial support to an FI (such as equity in a Bank) theentire portfolio of the FI will be considered in the determination of the category. In its determination of
FI–1, FI–2, or FI–3 designation, IFC will consider tenor, size, and type of investments as well as thesectoral exposure of investments.

Supervision
45. IFC carries out the following actions to monitor its investments and advisory activities as part ofits portfolio supervision program:

Direct InvestmentsImplement a regular program of supervision for business activities with environmental andsocial risks and/or impacts in accordance with the requirements of IFC’s Environmental andSocial Review Procedures.
Review implementation performance, as reported in the client’s Annual Monitoring Report10
and updates on the Environmental and Social Action Plan, against the environmental andsocial conditions for investment and the client’s commitments. Where relevant, identify andreview opportunities for further improving client performance on the sustainability front.

9

Inherent environmental and social risk is the environmental and social risk related to generic aspects of anindustrial sector or commercial activity without consideration of management or mitigation measures.

10
Not all projects have an Environmental and Social Action Plan or reporting requirements (e.g., Category C
projects and some equity investments).

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Policy on Environmental and Social Sustainability
January 1, 2012If changed business activity circumstances might result in altered or adverse environmental
or social impacts, IFC will work with the client to address them.
If the client fails to comply with its environmental and social commitments, as expressed in
the environmental and social conditions for investment, IFC will work with the client to bringit back into compliance to the extent feasible, and if the client fails to reestablish compliance,
IFC will exercise remedies as appropriate.

Investments Through Financial Intermediaries


Implement a regular program of supervision of FI investments with environmental and social
risks and/or impacts in accordance with the requirements of IFC’s Environmental and Social
Review Procedures.
To determine the effectiveness of an FI’s ESMS, IFC will periodically review the process andthe results of the environmental and social due diligence conducted by the FI for its
investments. In addition, as part of its supervision efforts, IFC periodically reviews a sample
of other FI investments, especially for business activities with significant environmental andsocial risks. IFC supervision may include visits at the FI level, as well as to recipients of FIloans/investments, particularly high risk subprojects. The frequency and focus of supervision
visits is commensurate with the identified risks. IFC works with its FI clients to help themaddress any shortcomings in their ESMS.

Advisory Activities

IFC monitors implementation progress of its advisory activities on an ongoing basis, withformal supervision reporting undertaken semi-annually. This process includes the review
and update of all key risks and issues, including environmental and social aspects identified
at the advisory activity approval stage or through previous supervision reports.

IV. Collaboration with Partners
Collaboration and Liaison with Public and Private Sector Institutions
46. IFC, as the private sector arm of the World Bank Group, collaborates with an extensive networkof private and public sector stakeholders to promote a dialogue on sustainable private sector
development in developing countries. Examples of IFC’s collaboration and liaison role include:










Setting standards and supporting sector-wide standard-setting initiatives focused on
management of environmental and social risks and impacts by private sector companies andfinancial institutions;
Identifying and disseminating private sector GIIP in the area of financial, environmental andsocial sustainability;
Promoting sustainable financial markets in developing countries through a dialogue andengagement with Equator Principles Financial Institutions and financial market participants;
Promoting sustainable financial markets in developing countries through a dialogue withcentral banks and regulatory bodies on enabling the business environment for environmental
and social risk management by financial institutions as well as the engagement withindividual financial institutions on the benefits of environmental and social risk management;
Leading on environmental and social matters in syndicated loans and joint projects withother financial institutions, and promoting close coordination and harmonization among theparticipating institutions;
Liaising and coordinating with the World Bank and MIGA, as appropriate, on advisory
products provided to the public sector;

10Policy on Environmental and Social Sustainability
January 1, 2012Liaising with relevant international financial institutions (IFIs) and/or national agencies on
strategic, regional, and/or sectoral environmental assessment, where appropriate, for private
sector business activities with significant environmental or social issues; andIn case of co-investments, cooperating with other IFIs to reach a common understanding on
the findings of their respective due diligence processes and on the supplementary
environmental and social actions required from the client.

Additional Reference and Supporting Documents for Policy Implementation
47. In addition to this Policy, IFC makes reference to other materials to assist its staff and clients,
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including:
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IFC’s Access to Information Policy, which details IFC’s institutional requirements fordisclosure of information;
IFC’s Performance Standards;
IFC’s Performance Standards’ Guidance Notes, which are accompanying documents to the
Performance Standards that offer helpful guidance on the requirements contained in the
Performance Standards (including reference materials) as well as good sustainability
practices to improve business performance and development outcomes;
The World Bank Group’s Environmental, Health and Safety Guidelines on sector andindustry practices and performance levels consistent with Performance Standard 3;
IFC’s Environmental and Social Review Procedures, which document internal procedures forenvironmental and social due diligence; andGood practice notes, handbooks, and other materials that provide examples of GIIP andreference information about these practices.

V. Sector Specific Initiatives on Governance and Disclosure
Sector-Specific Initiatives on Governance and Disclosure
48. In the extractive industries and infrastructure sectors in particular, where a business activity canhave potentially broader implications for the public at large, IFC recognizes the importance ofassessment of governance risks and disclosure of information as a means to manage such risks.
Accordingly, subject to applicable legal restrictions, IFC has the following sector-specific initiatives on
disclosure of business activity-related information, in addition to the disclosure requirements
specified in Performance Standard 1.

Extractive Industry Projects
49. When IFC invests in extractive industry business activities (oil, gas, and mining), IFC assesses
the governance risks to expected benefits. The expected net benefits and the risks to these businessactivities as a result of weak governance are reviewed. Where the risks supersede benefits, IFC does
not support such projects. IFC also promotes transparency of revenue payments from extractive
industry projects to host governments. Accordingly, IFC requires that clients publicly disclose theirmaterial project payments to the host government (such as royalties, taxes, and profit sharing). Suchdisclosure shall be made on a project basis or on a corporate basis, depending on what is mostappropriate given country taxation and corporate arrangements.
50. IFC will encourage governments and corporations to make extractive industry contracts public,
and two years from the date of its Board approval of this policy it will require that, in the case of
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These materials are available at: (www.ifc.org/sustainability)

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Policy on Environmental and Social Sustainability
January 1, 2012

extractive industries projects it finances, the principal contract with government that sets out the key
terms and conditions under which a resource will be exploited, and any significant amendments tothat contract, be public. IFC will allow the redaction of commercially sensitive information that is notessential to understand the terms and conditions under which the resource is developed.
51. IFC may accept in lieu of contract disclosure, the publication by the client of a summary of the
key terms and conditions under which the resource is being developed. This summary shall include
the life of the contract; any material payments due to government made under it; other material fiscal
terms and conditions; and a summary of any significant stabilization clauses.
52. In cases where IFC provides financing for multiple corporate purposes rather than financing one
specific project, the requirement for contract disclosure shall only apply to the principal investment for
which funds are to be used.

Infrastructure Projects
53. When IFC invests in projects involving the final delivery of essential services, such as the retail
distribution of water, electricity, piped gas, and telecommunications, to the general public undermonopoly conditions, IFC encourages the public disclosure of information relating to household tariffs
and tariff adjustment mechanisms, service standards, investment obligations, and the form andextent of any ongoing government support. If IFC is financing the privatization of such distribution
services, IFC also encourages the public disclosure of concession fees or privatization proceeds.
Such disclosures may be made by the responsible government entity (such as the relevant
regulatory authority) or by the client.

VI. Compliance Advisor/Ombudsman
54. IFC supports its clients in addressing environmental and social issues arising from their businessactivities by requiring them to set up and administer appropriate mechanisms and/or procedures toaddress related grievances and complaints from Affected Communities. In addition to thesemechanisms and procedures, the role of administrative and/or legal procedures available in the hostcountry should also be considered. Nonetheless, there may be cases where grievances andcomplaints from those affected by IFC-supported business activities are not fully resolved at thebusiness activity level or through other established mechanisms.
55. Recognizing the importance of accountability and that the concerns and complaints of Affected
Communities should be addressed in a manner that is fair, objective, and constructive, a mechanism
has been established through the Compliance Advisor/Ombudsman (CAO) to enable individuals andcommunities affected by IFC-supported business activities to raise their concerns to an independent
oversight authority.
56. The CAO is independent of IFC management and reports directly to the President of the WorldBank Group. The CAO responds to complaints from those affected by IFC-supported businessactivities with the goal of enhancing environmental and social outcomes on the ground and fostering
greater public accountability of IFC. The CAO works to resolve complaints using a flexible
problem-solving approach through the CAO’s dispute resolution arm. Through its compliance arm,
the CAO oversees project-level audits of IFC’s environmental and social performance in accordancewith the CAO’s operational guidelines.

12Policy on Environmental and Social Sustainability
January 1, 2012

57. Complaints may relate to any aspect of IFC-supported business activities that is within the
mandate of the CAO. They can be made by any individual, group, community, entity, or other party
affected or likely to be affected by the environmental or social impacts of an IFC-financed businessactivity. Complaints should be submitted to the CAO in writing to the address below:
Compliance Advisor/Ombudsman
International Finance Corporation
2121 Pennsylvania Avenue NW
Room F11K-232
Washington, DC 20433 USA
Tel: 1 202 458 1973
Fax: 1 202 522 7400
E-mail: cao-compliance@ifc.org
The CAO receives and addresses complaints in line with the criteria set out in its Operational
Guidelines for the CAO which are available at: www.cao-ombudsman.org

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