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2004 Sustainability Report (February 2005) | International Finance Corporation | Sustainability
2004 Sustainability Report (February 2005)Uploaded by IFC SustainabilityRelated InterestsInternational Finance CorporationSustainabilitySmall And Medium Sized EnterprisesPrivate Sector DevelopmentCorporate Social ResponsibilityRating and Stats0.0 (0)Document ActionsDownloadShare or Embed DocumentEmbedDescription: Over the last few years, sustainability has become a core operating principle of IFC’s work. This third annual Sustainability Report showcases the impressive range of social, environmental, and gov...View MoreOver the last few years, sustainability has become a core operating principle of IFC’s work. This third annual Sustainability Report showcases the impressive range of social, environmental, and governance initiatives underway at IFC that serve to maintain the Corporation's catalytic role in private sector development in emerging markets. Highlights in 2004 include the overhaul of IFC's policy architecture; IFC’s leadership on sustainability services for emerging market banks and private equity funds; IFC's new gender initiative, and commitment to grow IFC's portfolio of renewable energy and energy efficiency projects through direct and indirect investments in the sector. Ongoing challenges covered in the report include developing an institutional approach to human rights, implementing recommendations from the Extractive Industries Review, and minimizing IFC's own corporate footprint.Copyright: Attribution Non-Commercial (BY-NC)Download as PDF or read online from ScribdFlag for inappropriate contentINTERNATIONALFINANCE CORPORATION
IFC MISSION STATEMENT
IFC’s mission is to promote sustainable private sector investment in developing countries, helping to reduce poverty and improve people’s lives.
Foreword —Message from Peter Woicke, EVP ......................................... 4
Introduction—Rachel Kyte, Director ......................................................... 5
2004 Sustainability Snapshot: The Year’s Highlights and Challenges .... 6
PART 1 Sustainability as a Business Strategy ..................................................... 8
PART 2 Sustainable Financial Markets and Private Equity ............................... 10
PART 3 Building Sustainable Business ............................................................... 14
PART 4 Promoting Markets for Sustainable Resource Use .............................. 24
PART 5 Challenges of Development—The BTC Pipeline and Extractive Industries Review ................................................................. 32
PART 6 Improving Our Policies and Processes .................................................. 36
PART 7 IFC’s Corporate Footprint ...................................................................... 44
Sustainability Facts & Figures ................................................................ 50
IFC and the Millennium Development Goals ........................................ 54
IFC and the Global Compact .................................................................. 56
Frequently Asked Questions about IFC ................................................. 57
IFC Organizational Structure ................................................................. 58
IFC Project Cycle ..................................................................................... 59
Report Commentary—Corporate Citizenship Company ........................ 60
Acronyms ................................................................................................. 61
Acknowledgments .................................................................................. 62
IFC’s Social and Environmental Principles ................... Inside Back Cover
COVER PHOTOS: S. RUCK, V. TIGKARAKIS, H. NGUYEN, J. ZEVALLOS
4 IFC Sustainability Report 2004
As we publish our third Sustainability Report, we can be proud of our progress. In the past couple of years, the advance of sustainability as a core operating principle within IFC has been remarkable. In 2001, we launched a corporate-
wide sustainability training program. In 2002, we partnered with two other organizations to promote the business case for sustainability with the publication of Developing Value. In 2003, we launched a realignment of our internal resources to ensure that our social and environmental expertise is mainstreamed into all operational activities of our invest-
ment departments. In 2004, we started to overhaul the policy architecture which governs the way in which IFC—and over two dozen Equator Banks—commit to engage on social and environmental issues. So in three years, we have planned, implemented, and reviewed—a cycle of continuous improve-
ment any institution should be proud of.
Most important, we see our clients doing much the same. They spend far less time debating the pros and cons of corporate social responsibility, and far time more practicing it. As more markets become subject to global competition, companies recognize that global standards of performance are the norm. Sustainability is about competition and long term proﬁt. Companies with poor corporate governance will not survive. Nor will those that are proﬂigate with raw mate-
rials. Nor those who fail to build trust with stakeholders who inﬂuence their business—workforces, regulators, and the communities in which they operate. Many factors affect a company’s ability to turn a proﬁt, and they all need to be managed effectively if that proﬁt is to be sustained.
To help clients with that challenge, we need to tailor and reﬁne our products and services accordingly. This report testiﬁes that there is a wide range of offerings on show.
While we are proud of the manner in which we have moved sustainability to the center of our business strategy and the pace at which we have innovated, we are also aware that there is a tremendous amount of work still to be done. We have important initiatives underway that must be followed through—implementing the new safeguard and disclosure policies; building on the progress we have made in support-
ing small and medium enterprises (SMEs) and microﬁnance; rolling out technical assistance and advisory services to ensure that they become an integral part of our investments. Then there are the challenges ahead—our work on sustain-
ability with the ﬁnancial sector, with the Equator Banks, and providing leadership to socially responsible investors, making good on our renewable energy commitment, developing an approach to human rights, launching a new gender initiative, and continuing to help our clients tackle HIV/AIDS in their communities. Within IFC, we must continue the mainstream-
ing of our social and environmental capacity across the Cor-
poration and improve diversity in our workplace—something we are looking at carefully in our recruitment process.
To conclude, I hope that this report has something for all readers. Those who seek rapid change will ﬁnd many new initiatives and programs described. Those who seek reas-
surance that we are spending sufﬁcient time learning and sharing our experiences will ﬁnd evidence that these pro-
cesses are alive and well in the Corporation. Sustainability is here to stay, and IFC will continue to provide leadership, assist clients, and contribute to poverty reduction in the countries and communities affected by our investments.
Executive Vice President, IFC
IFC Sustainability Report 2004 5
Since taking up my post in January 2004, I have seen how sustainability has become part of IFC’s strategic fabric. Some argue that we have been “doing sustainability” for many years, while others see it as a recent arrival, but nobody questions its existence. Sustainability is a belief in the way that development can be achieved. Yet, like many beliefs, it is not easily character-
ized, prompting some to debate its various forms. Sustainability, corporate social responsibility, the triple bottom line, ethical business—all hail from the same conviction. We have chosen the term sustainability because it is so encompassing. Given the breadth of work IFC undertakes around the world, it suits us well.
As this report shows, there are many ways to practice what you believe. I am excited by the range of sustainability initia-
tives underway at IFC and the way they have energized our staff, clients, and stakeholders. Some will be outstanding successes, others will need restructuring, and some may fail. However, more important to us is that the ideas and innova-
tion continue to ﬂow. Leadership on sustainability cannot be achieved by being comfortable 100 percent of the time. We must take some calculated risks, celebrate our achievements, learn from mistakes, and share the lessons of our experience.
Updating our safeguard and disclosure policies is an example of this approach. We will never meet the expectations of each indi-
vidual stakeholder, but we endeavor to recognize, respect, and respond to their concerns. Leadership involves as much listening as talking. IFC welcomes opportunities for constructive engage-
ment with those who can help us further our mission of poverty reduction though sustainable private sector investment.
The big initiatives, such as IFC’s policy overhaul, the Equator Principles, or the BTC Pipeline project, will always receive the lion’s share of attention. We have therefore devoted consider-
able space in this report to these aspects of our work, but I urge you to look at the dozens of other sustainability activities described within these pages. IFC’s ability to engage across a broad spectrum of projects, clients, sectors, and countries is our core strength and we work hard to maintain it.
Our approach to sustainability is a challenging one. Internally, we continue to look at our procedures, staff, and corporate footprint. Externally, we seek ways to inﬂuence behavior and markets. To help us with this task, this report includes a number of actions where we will report on progress via our Web site, www.ifc.org/
enviro. We are honest enough with ourselves to see where we have fallen behind our own expectation curve—for example, in quantifying the carbon footprint of our portfolio—and will need to prioritize these aspects accordingly as we move forward.
In closing, I would like to return to the basics of what will make sustainability work. Of thirty-four services listed in IFC’s 2004 Client Survey, “environmental and social knowledge” scored 71 percent in terms of importance to our clients—a healthy percentage. Clients ranked “perceived stamp of approval for environmental, social and corporate governance matters” several places higher. The top-rank-
ing service, scoring 97 percent, was IFC’s understanding of its cli-
ents and partnering with them for the long term. Clearly the depth of the relationship, and the trust that stems from it, is just as impor-
tant in the business context as it is for any other aspect of our lives.
The same principle applies to sustainability. We are looking for partners, be they clients, shareholder countries, or civil society organizations, who have an interest in engaging in sustainability for the long term. If we do our job well, the results on the ground will speak for themselves.
Director, Environment and Social Development Department
6 IFC Sustainability Report 2004
2004 Sustainability Snapshot
The Year’s Highlights and Challenges
Mainstreaming Social and Environmental Expertise As part of IFC’s mainstreaming initiative, we continue to integrate our social and environmental capacity into IFC’s core business functions. Over 60 percent of IFC’s social and environmental specialists are now co-located within investment departments and regional ofﬁces. This shift allows our specialists to engage at an earlier stage of the project processing cycle, resulting in better integration of the ﬁnancial and nonﬁnancial services that IFC offers its clients. We also continue to recruit, with eight new positions in the Environment and Social Development Department coming on line during FY05. See page 40 or www.ifc.org/enviro
IFC is in the process of updating its Environmental and Social Safeguard Poli-
cies. Regional multi-stakeholder consultations have commenced on the draft of IFC’s new Policy and Performance Standards on Social and Environmental Sus-
tainability. IFC embarked on the update process following a review of its exist-
ing safeguard policies by its Compliance Advisor/Ombudsman (CAO) in 2003. The draft Performance Standards are expected to address key gaps and provide greater clarity for private sector clients and other stakeholders. See page 36 or www.ifc.org/policyreview
The Equator Principles, a voluntary set of social and environmental standards based on IFC’s policies and guidelines, have been adopted by 28 ﬁnancial institutions (includ-
ing three emerging market banks) since 2003. These Equator Banks are estimated to have arranged about 80 percent of global project ﬁnance lending in 2003, sending a strong signal to the market on the importance of nonﬁnancial risks in project ﬁnance. This builds on a decade of IFC experience in working with over 400 emerging market ﬁnancial institutions to apply social and environmental standards to their investments. See page 13 or www.ifc.org/equatorprinciples and www.equator-principles.com
In 2004, the World Bank Group reached the culmination of an intensive, independent three-year review of its role in oil, gas, and mining projects—the extractive industries. Rec-
ommendations being implemented during FY05 will help IFC achieve higher standards on governance, transparency, revenue management, and community consultation to improve poverty reduction around extractive industry investments. The World Bank Group has committed to an average growth rate of 20 percent per year over the next ﬁve years in its annual ﬁnancial commitments for renewable energy and energy efﬁciency projects. See page 35 or www.worldbank.org/ogmc and www.worldbank.org/eirresponse
IFC achieved a record ﬁnancial performance in FY04 with operating income reach-
ing $982 million, an 86 percent increase over the previous year. In the year 217 new projects were approved, representing over $5.6 billion of investment. New business was distributed widely across sectors, with investments more than dou-
bling in Sub-Saharan Africa. Contributions from donors to all of IFC-managed tech-
nical assistance programs reached $90 million during FY04. Nearly one third of IFC staff now work in donor-funded operations. See www.ifc.org/ar2004
IFC Sustainability Report 2004 7
One of IFC’s most challenging projects is the 1,760-km Baku-Tbilisi-Ceyhan (BTC) Pipeline, a world-class oil pipeline through Azerbaijan, Georgia, and Turkey, led by a consortium of international oil companies with US$3.6 billion in total project costs. Projects in high-risk environments, and of the scale of BTC, present complex social and environmental challenges. BTC has become a test for IFC’s ability to mobilize communities, clients, and partner institutions to work toward achieving sustainable project outcomes. See page 32 or www.ifc.org/btc
Women comprise the majority of the world’s poor yet are less likely to access busi-
ness credit than men. This means that promoting gender equality and women’s private sector participation is essential for IFC to enhance its development impact. As such, IFC is mainstreaming its focus on gender with the establishment of Gen-
der Entrepreneurship Markets (GEM) in FY05, a program that will seek to advance gender equality and women’s business opportunities in emerging markets. See page 20 or www.ifc.org/gem
The Sustainable Business Assistance Program (SBAP) is a joint IFC/donor-funded program comprising four different facilities that catalyze socially and environ-
mentally responsible business. The facilities ﬁnance strategic interventions in key areas where the demonstration of sustainable business practices offers poten-
tially signiﬁcant beneﬁts. Donor commitments to SBAP approximately doubled to US$3.56 million in FY04, with the number of active projects increasing from 38 to 82 in the same period. See page 17 or www.ifc.org/enviro
Ninety-ﬁve percent of those living with HIV/AIDS reside in the developing world. The magnitude of this impact on productivity and long term economic growth cre-
ates a strong business case for IFC to work with its client companies to combat the disease. During FY04, the IFC Against AIDS program gained pace, with 15 cli-
ent initiatives spanning 17 countries, a training program targeted at African Small and Medium Enterprises, and the addition of two new staff based in Africa. See page 22 or www.ifc.org/ifcagainstaids
Transparency and Disclosure Review
IFC is reviewing its Disclosure Policy in consultation with clients, civil society, industry groups, and governments. The aim is to continue respecting the legiti-
mate business conﬁdentiality of our clients while fostering a culture of transpar-
ency and greater openness. The draft new policy seeks to clarify disclosure obligations and encourages clients to engage with their stakeholders earlier in the project cycle, particularly with respect to social and environmental impacts. See page 38 or www.ifc.org/policyreview
This is the third year in which IFC is reporting on its corporate footprint—the impact of our physical facilities on the environment, on staff and their families, and on the local communities in which we work and live. We are increasing our efforts to monitor our own energy use, recycling, and procurement practices, and improve our local commu-
nity outreach in Washington and in our offices around the world. In FY05, we will extend our corporate greening efforts with the appointment of a dedicated footprint ofﬁcer to devise a strategic plan for our corporate footprint-related activities. See page 44.
8 IFC Sustainability Report 2004
IFC regards sustainable development as a process rather than a single event, phase, or goal. Sustainable development entails constant adaptation to changing circumstances—
both risks and opportunities—in communities, institutions, markets, and, of course, the global environment. Speciﬁcally, it requires a perpetual and sophisticated recalibra-
tion of how well we, as an organization, produce an internal “good”—proﬁtability—
while we aim toward the creation of more and better public “goods” such as healthy ecosystems, thriving societies, stable nations, and productive economies.
IFC Sustainability Report 2004 9
Our mandate is to encourage this dynamism within the context of ﬁve strategic priorities:
■ Investing in low-income, high-risk countries or regions (“frontier mar-
kets”) where the private sector faces a challenging investment climate and paying special attention to the needs of small businesses
■ Developing domestic ﬁnancial mar-
kets through investments, capacity building for institutions, and innova-
tive ﬁnancial products
■ Building long-term partnerships with clients, helping them emerge as regional and global market players, and promoting sustainable business practices
■ Promoting private sector invest-
ment in infrastructure, health, and education, especially by addressing investment constraints, encouraging public-private sector partnership and providing innovative ﬁnancing and advice, and developing projects at the regional, state, and city levels
■ Providing leadership, both for ﬁrms and for ﬁnancial institutions, on environmental, social, and corpo-
rate governance issues by helping improve their performance.
As this report details, in the past year IFC witnessed an unprecedented amount of activity along three dimen-
sions: improving our own perfor-
mance and capacity, collaborating with our clients and partners on inno-
vative projects and policy initiatives, and helping set reform agendas and catalyze progress among ﬁrms and markets in general.
Catalyzing Broader Progress on Sustainable Development
An increasing number of companies, ﬁnancial institutions, and investors are looking to IFC for leadership on sustainability. They look to IFC to develop and implement new metrics on sustainability, enhance reporting, and set standards for project ﬁnance in emerging markets. The challenge ahead is for IFC to continue innovat-
ing in ways that help the private sec-
tor realize the many opportunities that sustainability offers their business.
As a multilateral ﬁnancial institution serving the private sector, IFC has changed the way it does business in order to meet client expectations. While our traditional role has been to enforce minimum standards and ensure that the private sector activity of our clients does not lead to social and envi-
ronmental harm, today we note that our clients are aware of, and committed to, the broader value of corporate respon-
sibility. We will continue to monitor our clients’ performance while recognizing that both the playing ﬁeld and the rules of the game are rapidly evolving.
Among the vehicles fostering this evolu-
tion is the UN Global Compact, under which thousands of companies world-
wide have come together in support of basic principles on human rights, labor, the environment, and anticorruption (see IFC and The Global Compact, p. 56). We also recognize that companies around the world are now reporting voluntarily on nonﬁnancial aspects of their busi-
ness, with many following guidelines established by the Global Reporting Initiative. IFC’s experience and guidance on these issues may become increas-
ingly inﬂuential.
Toward Better Sustain-
We are devoting a great deal of time and energy to process improvements so that we can operate more effectively in this changing global business landscape. In this vein, IFC is undertaking a comprehen-
sive overhaul of the environmental and social safeguard policies and guidelines that have guided our work on sustainabil-
ity since 1998 and have constituted the minimum standards that IFC clients must satisfy to access our funding.
IFC’s new approach to sustainability will be to establish performance standards that build on our minimum expectations by providing clients with a solid frame-
work to manage business risks and promote consistent improvements in their sustainability performance. We see project appraisal as an entry point from which a long partnership can develop—
and we hope to use this mutual engage-
ment as an opportunity to encourage a change in approach to social and envi-
ronmental stewardship. The process of drafting our new policy and performance standards is ongoing at publication of this report as we consult widely with stakeholders and experts.
10 IFC Sustainability Report 2004
Investment in ﬁnancial intermediary (FI) projects now accounts for roughly 40 per-
cent of IFC’s total portfolio, making IFC well placed to play a leadership role in encouraging its FI clients to pursue sustainable lending and investment practices. IFC continues to build on its relationship with over 400 regional and local banks, as well as with 120 private equity funds in emerging markets which have been applying our social and environmental standards for many years. And we are now supporting the Equator Banks in applying these standards to global project ﬁnance.
By working through FIs, IFC can sup-
port transactions signiﬁcantly smaller than those we ﬁnance directly, with an important aggregate impact on business growth in our client countries. In FY04, IFC committed $641 million in investments that targeted SMEs through microﬁnance institutions, leasing companies, banks, and credit bureaus. Since 2002, IFC has worked to strengthen the capacity of FI clients through our Sustainable Financial Markets Facility (SFMF). Funded by IFC and donors with a total target value of $15 million, SFMF is IFC’s vehicle for provid-
ing training and best practice guidance to FIs on sustainable banking and ﬁnance, in partnership with local and regional orga-
nizations. FI clients attend sustainability training and implement social and environ-
mental management systems in accor-
dance with IFC policies and guidelines.
IFC Sustainability Report 2004 11
the Lagos Business School, the Asso-
ciation for Sustainable and Responsible Investment in Asia (AsrIA), and the Union of Arab Banks, we have expanded our training programs worldwide with over 200 ﬁnancial institutions participating in the past year.
The African Institute of Corporate Citizen-
ship’s (AICC) Center for Sustainable Invest-
ing, funded by IFC and launched in June 2004, is a focal point for research and net-
working on sustainable ﬁnance in Africa, and is IFC’s main partner for delivery of training and technical assistance to FI clients in the region. In FY04, we worked with the Center to provide consulting support to Africa Bank on its social and environmental management system and annual sustainability reporting. The project improved the bank’s transparency with measurable business beneﬁts, serving as a case study for other emerging market banks as they start to focus on the Global Reporting Initiative, and best practices for disclosure. SFMF is also providing a range of services to private equity investment funds, for instance, working with Tunin-
vest, a Tunisian investment fund, to iden-
tify value-adding social and environmental performance opportunities in its portfolio of 17 Tunisian companies from the agri-
business, light manufacturing, and retail sectors. We have since provided a grant to Tuninvest to implement cleaner produc-
tion projects in two of these companies.
To highlight the market relevance of sustainability issues, IFC disseminates best practice publications to target senior decision makers in emerging market ﬁnancial institutions. Our Market Intel-
ligence Briefs (MIBs) are distributed free of charge via e-mail to subscribers and analyze diverse topics such as sustain-
able ﬁnance activities and trends in Brazil, and carbon trading opportunities for emerging market FIs. Through strategic partnerships with other development banks, business schools, industry asso-
ciations, and grassroots organizations, IFC is successfully disseminating its knowledge resources and supporting partners to develop regional expertise to share across the global ﬁnancial sec-
tor. For example, IFC recently partnered with UNEP-FI to co-ﬁnance a publication on Sustainable Finance in Sub-Saharan Africa and currently provides a quarterly supplement on sustainability issues for the Union of Arab Banks newsletter, which is distributed to over 6,000 bank-
ers in the Middle East.
Through strategic partnerships and net-
work building with local and regional orga-
nizations, IFC has now extended its reach beyond its FI client base to impact more broadly on ﬁnancial markets. Through SFMF, in November 2004, IFC co-hosted the First “International Conference on Sustainable Finance in Emerging Markets” with the Center for Sustainability Studies of the Fundação Getulio Vargas Business School in Brazil. The conference gathered together the world’s foremost specialists in the ﬁeld of sustainable ﬁnance to dis-
cuss how the ﬁnancial sector’s investment and lending practices can minimize social and environmental impacts, while foster-
ing sustainable development in emerging markets. IFC is also collaborating with the UN Global Compact (see p. 56) to help extend the compact’s reach beyond pri-
vate sector ﬁrms to ﬁnancial markets.
Moving forward, IFC is implementing an integrated program to identify value-add-
ing sustainability opportunities in private equity fund portfolios, as well as develop-
ing a program for sustainable portfolio investment (see box on SRI in Emerging Markets, p. 12).
SFMF convenes Competitive Business Advantage (CBA) workshops that build the business case for sustainable ﬁnance by improving ﬁnancial institutions’ under-
standing of the social and environmental risks and opportunities faced by compa-
nies in emerging markets. With a focus on banks, leasing, and insurance companies, training is tailored to meet local market needs by equipping managers with the skills to identify investment opportunities in new areas, such as cleaner production and renewable energy. It is also designed to develop social and environmental man-
agement systems, in compliance with IFC policies and guidelines, to enhance FI nonﬁnancial risk management. In collabo-
ration with regional partners such as the African Institute of Corporate Citizenship, Z
12 IFC Sustainability Report 2004
Environmental Business Finance
SMEs engaged in environmental activi-
ties face a double challenge in carving a niche in the market: they commonly lack access to ﬁnance from local FIs (banks and microﬁnance institutions), and when they do find FIs willing to give funding, those FIs are often averse to acquir-
SUSTAINABLE AND RESPONSIBLE INVESTMENT (SRI) IN EMERGING MARKETS
As the links between sustainability performance and busi-
ness competitiveness become better understood, SRI is starting to gain visibility in the mainstream investment man-
agement community. To better understand the prospects for SRI in emerging markets, IFC commissioned a study of SRI trends in FY04. The report, Toward Sustainable and Responsible Investment in Emerging Markets, found that, of $2.7 trillion under SRI fund management worldwide, less than 0.1 percent is in emerging market assets. This indicates vast growth potential for SRI in developing countries, as well as huge opportunities to do good. The signiﬁcance of SRI is that it has the potential to increase the volume and quality of domestic and international portfolio investment in emerging market companies that operate to high corporate governance, social, and environmental standards—a win-win outcome for business growth and sustainable development.
With the Association for Sustainable and Responsible Invest-
ment in Asia (AsrIA), and close involvement with the UN Global Compact’s “Who Cares Wins” initiative, SFMF is tak-
ing steps to develop SRI in emerging markets by conducting extensive market research and increasing awareness among institutional investors and pension fund and mutual fund managers. IFC worked with AsrIA to research the potential for developing SRI in Asian emerging markets, publishing a report in FY04 to share insights with global investors, and is also helping BOVESPA—the Sao Paulo stock exchange—to develop a “Sustainability Index” of publicly listed Brazilian companies. The Index will help stimulate Brazil’s nascent SRI industry and serve as an example to other emerging markets.
ecotourism, sustainable agriculture, and agroforestry. The program will proactively develop markets for environmental busi-
ness by improving access to ﬁnance and by building the technical, managerial, and ﬁnancial capacity of SMEs and FIs. This will enable small enterprises to capitalize on environmental business opportunities, while allowing the banks to tap proﬁtable new markets. For details on the EBFP, see www.ifc.org/ebfp.
Emerging Market Bank Adopts Sustainability Agenda
In FY05, IFC provided a US$50 million credit line to Brazilian bank Banco ABN AMRO Real to support sustainability-
targeted, long term on-lending. Banco Real is Brazil’s ﬁfth-largest private bank, with US$19.2 billion-equivalent in total assets as of December 2003.
The credit line will support two forms of sustainability-related activities: the ﬁrst tranche of US$25 million will be used for medium- to long-term funding for environment-related projects and com-
panies; the second tranche of US$25 million will make medium- to long-
term funding available to companies ing any environmental project portfolio due to the perceived risk of investing in new or untested technologies outside the mainstream. To address this, IFC launched the Environmental Business Finance Program (EBFP) in FY04, with $20 million in funds from the Global Environment Facility (GEF), to support the growth of small businesses active in renewable energy and energy efﬁciency, IFC Sustainability Report 2004 13
that meet predetermined corporate governance threshholds and commit to improve their practices within an agreed timeframe. Banco Real will be the ﬁrst bank to use IFC’s sustainabil-
ity methodology to help make credit decisions for transactions funded by a credit line.
In addition to the credit line, IFC’s Envi-
ronmental Business Finance Program is providing Banco Real with an additional US$1 million in loan ﬁnancing and techni-
cal assistance for an on-lending program that will beneﬁt SMEs with investment projects that target climate change, biodi-
versity loss, land degradation, and persis-
tent organic pollutants (POPs).
The Equator Principles—a voluntary set of social and environmental standards based on IFC’s Safeguard Policies—
have been adopted by 28 ﬁnancial institutions since 2003, including three emerging market banks. They send an overwhelming signal to the market that nonﬁnancial risk management is now a core attribute of project ﬁnance. The Equator Banks are estimated to have arranged about 80 percent of global project ﬁnance lending in 2003.
With IFC policies at the heart of the Equa-
tor Principles, we have a genuine stake in ensuring that these standards are under-
stood and implemented within each ﬁnancial institution. We will continue to offer training and guidance to the Equa-
tor institutions on applying our social and environmental performance standards.
The Equator Principles have demon-
strated the readiness of the ﬁnancial sector to take a lead in nonﬁnancial risk management. The principles are affecting other areas of these banks’ operations, with some adapting these social and environmental standards to corporate lending or exploring ways to promote sustainable and responsible investment (SRI). With momentum gathering in this area, we hope that the work on the principles will help IFC pro-
mote sustainability in new markets and with new ﬁnancial players.
INSURANCE —IMPROVING RISK MANAGEMENT AND SUSTAINABILITY PERFORMANCE
IFC’s Insurance Services Group works in close collaboration with our indus-
try, social, and environmental specialists to ensure that IFC offers a cohesive approach to business risk management. To support this growing role, the Insur-
ance Services Group is conducting research to highlight the critical importance of risk management issues in IFC’s business case for social and environmental sustainability. The objective of the study is to quantify the relationship between IFC’s work with clients on improving the sustainability of projects and the cor-
responding measurable beneﬁts achieved from better risk management and lower insurance costs. By comparing average industry insurance loss numbers with similar data from IFC projects, we aim to demonstrate the advantage of cutting-edge social and environmental sustainability performance in contribut-
ing to a stronger bottom line for our clients.
The Equator Banks
As of December 2004, a total of 28 ﬁnancial institutions, including three emerging market banks, have adopted the Equator Principles.
ABN AMRO Bank Eksport Kredit Fonden
Banco Bradesco HSBC
Banco Itaú HVB Group
Banco Itaú BBA ING
Bank of America KBC
Barclays Microcredito Centrale
BBVA Mizuho Corporate Bank
Calyon Rabobank Group
CIBC Royal Bank of Canada
Citigroup The Royal Bank of Scotland
Credit Lyonnais Standard Chartered Bank
Credit Suisse Group Unibanco
Dexia Group WestLB
Dresdner Bank Westpac
For more information: www.equator-principles.com, www.ifc.org/equatorprinciples
Building Sustainable Business 3
14 IFC Sustainability Report 2004
IFC has accepted the challenge of ensuring that our investments do more than sim-
ply improve a company’s balance sheet. We strive to make ourselves a valued partner by helping clients adopt practices that strengthen their business while simultaneously enhancing the development impact of the investment. To most effectively catalyze the kind of changes we seek, IFC has undertaken a broad spectrum of initiatives to ramp up the resources we can make available to clients on the technical assistance and advisory fronts. I
IFC Sustainability Report 2004 15
We provide tailored guidance to com-
panies through programs on corporate governance, HIV/AIDs, and gender. We provide support to clients through our Sustainable Business Assistance Program (SBAP), for instance, on com-
munity development, energy efﬁciency, and cleaner production, and have a network of 11 SME development facili-
ties around the globe. Our SME Link-
age Program links small businesses to larger projects to stimulate local supply networks for products and services. All serve as a means of operationalizing IFC’s end goal to promote sustainable private sector development—locally, nationally, and regionally.
Working with Small and Medium Enterprises
SME development is a core compo-
nent of IFC’s corporate strategy. SMEs account for over 90 percent of ﬁrms in some economies and can contrib-
ute signiﬁcantly to a country’s GDP. In emerging markets, however, SMEs commonly face barriers to ﬁnance, or may be held back by a business envi-
ronment where larger, uncompetitive ﬁrms dominate the market. Supporting small business growth is essential for long term economic growth—allowing small ﬁrms to thrive and become larger ﬁrms, increasing market competition and innovation, and most importantly, creating sustainable jobs.
IFC leverages support for SMEs through investments in local ﬁnancial intermediaries and private equity partners, also strengthening SME business skills so they can qualify for credit. We also maintain a strong presence in low-income countries and regions through our network of Project Development Facilities (PDFs) (see box p. 18), which allows us to work closely with SME clients on an ongoing basis and build support of the local business community and policy makers. Through the PDFs, IFC works with SMEs to promote good corporate governance and build management capacity, to improve the business envi-
ronment, to address HIV/AIDS, and to promote opportunities for women.
Linking SMEs to IFC Investment Projects
Linkage programs are a tangible example of our SME work in catalyzing market growth around our larger invest-
ments. We do this by linking SMEs to our larger companies as suppliers, in order to increase local SME participation in the project and to bring additional beneﬁts to the surrounding communi-
ties. At the same time, these programs may reduce costs to IFC’s clients by simplifying procurement processes and, in the case of production inputs, improve quality control as a result of their proximity to suppliers.
IFC’s SME Linkages Program aims to strengthen local supply and distribu-
tion networks in two main ways: (i) by improving local SME business skills to qualify businesses for contracts to sell goods and services that generate sustainable sources of income; and (ii) by facilitating access to ﬁnance for local suppliers. To date, IFC has implemented linkage programs in 14 countries tied to more than $1 billion in IFC investments. We have leveraged $4.7 million for our own account in linkage technical assis-
tance, with contributions of more than $12 million from private sponsors and other sources.
One linkage success can be seen in Tanzania, where an IFC-supported linkage program is allowing subsis-
tence farmers and micro-enterprises to beneﬁt from a secure local market for their sugarcane as they become suppliers to an IFC client, Kilombero Sugar Company. Since the program was established in 2002, results have been encouraging—the number of sugarcane farmers has increased from 2,760 to over 5,000 and annual sugar-
cane sales have more than doubled to 450,000 tonnes. The success of this program has mobilized more than $1 million from donors to help ﬁnance roads and bridges, strengthen farmers associations and microﬁnance groups, and develop agriculture and business training for local SMEs. Now, IFC is accelerating small business develop-
ment, and almost 7,000 farmers could see their incomes increase by becom-
ing sustainable suppliers to Kilombero. Building on Kilombero’s success, IFC is looking to replicate the program in up to nine new agribusiness linkage projects through the Africa Project Development Facility. Another good example of IFC’s linkage work is the BTC Pipeline project (see p. 32).
“SMEs account for over 90 percent of ﬁrms in some economies and can contribute signiﬁcantly to a country’s GDP.”
16 IFC Sustainability Report 2004
Supporting Social Enter-
prises at the Grassroots
Whether it is a cooperative of organic honey farmers in Africa, women’s self-
help organizations in South and East Asia, or indigenous crafts enterprises in Latin America, IFC has witnessed increasing efforts by nonproﬁt entities to encourage business development as a means of improving the lives of their disadvantaged members and reducing dependence on donor funding. IFC has been working through its regional SME facilities to transform these socially driven, income-generating projects into sustainable businesses by strengthen-
ing management capacity, quality con-
trol, access to local and international markets, and in some cases by raising capital. Building on the success of these projects, IFC established a new program in FY04 to assist nongovern-
mental organizations (NGOs) and grass-
roots business organizations (GBOs).
IFC’s Strengthening Grassroots Business Initiative
Launched jointly with the World Bank, IFC’s Strengthening Grassroots Business Initiative (SGBI) aims to have a catalytic impact through funding and technical assistance to strengthen enterprises creating sustainable economic opportu-
nities for poor and marginalized people in Latin America, Africa, and Asia. In Africa, IFC is supporting a South African company, Roundabout Outdoor Ltd., to construct “Playpumps” in Mozambican primary schools. Playpumps are innova-
tive devices that serve as both children’s merry-go-rounds and sources of rural water supply. Installed above water wells at rural schools, the pumps har-
ness the energy of children at play to supply villages with 1,400 liters of clean drinking water an hour. Local microen-
terprises manufacture the pumps at an average cost of $7,000 each, and com-
mercial advertising sales, half of which is focused on HIV/AIDS awareness, support the pumps’ maintenance. With over 500 pumps beneﬁting communi-
ties across South Africa, IFC’s loan and grant ﬁnancing of $125,000 and $90,000, respectively, will provide 30 playpumps to supply free, potable water to over 23,000 people in Mozambique, and test whether the concept can moved to a broader commercial model.
Development Opportunities for Indigenous Peoples
Due to geographical remoteness, cultural and language barriers, and historical discrimination, Indigenous Peoples are frequently overlooked by mainstream markets and ﬁnancial institutions. They often lack access to credit due to the fact that their informal economies and dis-
tance from markets result in higher per-
ceived ﬁnancial risk. Indigenous Peoples are also vulnerable to change resulting from large development projects, par-
ticularly from the extractive industries, due to their frequent proximity to bio-
diversity hotspots and dependence on mineral resources. Consequently, IFC is exploring partnerships with indigenous TOURISM: A TARGET SME SECTOR IFC committed $50 million to tourism projects in FY04. While this represents a small percentage of the total portfolio, it is an inﬂuential sector in terms of impact: both in terms of generating local employment and business opportunities and on the host environment and com-
munities. IFC has increased support in recent years for small, innovative tourism initiatives through regional SME programs, where tourism is a target sector. For example, in Cambodia, Vietnam, and Lao PDR, we are supporting a unique approach to e-commerce that makes it possible for around 300 small hotel owners to market their properties and compete for business with larger hotels. This initiative, which serves nearly 30 cities and towns across the region, was started by IFC’s Mekong Private Sector Development Facility, and in two years it has created Web portals in all three countries. Travelers book online, and booking com-
missions, ranging from 15 to 40 percent, ﬁlter back to cover local overheads through local hotel and guesthouse associations and tour operators. Worldhotel-link.com (WHL) is now replicating the project’s success through IFC’s SME programs in other regions.
IFC Sustainability Report 2004 17
groups, the mining industry, donors, and the SRI community to assess the busi-
ness dimensions of Indigenous Peoples’ enterprise development. Beyond the initiatives underway through our regional SME programs (see box, p. 18) and Grassroots Business Initiative, IFC is appraising the concept of a dedicated ﬁnancing facility to develop business services to indigenous communities, in conjunction with US Tribes and Cana-
dian First Nations, and donors.
IFC’s Social and Environmental Facilities
The Sustainable Business Assistance Program (SBAP) is a joint IFC donor-
funded program to facilitate socially and environmentally responsible business. Established in 2002, the program is man-
aged by IFC’s Environment and Social Development Department, and comprises four distinct but synergistic facilities. These facilities provide a platform for mak-
ing highly selective, strategic interventions in key areas where the demonstration of sustainable business practices offers potentially signiﬁcant beneﬁts to clients and the societies in which they operate. SBAP funding enables IFC and its clients to go well beyond standard compliance requirements on projects.
FY04 saw a successful second year of operations for SBAP. Expenditures rose 120 percent, from $1.62 million in FY03, the ﬁrst year of operations, to $3.56 million in FY04. The number of active projects increased from 38 to 82, and related project implementation costs rose to $2.25 million from $476,000. Despite the dramatic increase in proj-
ects processed during FY04, nonpro-
ject-related costs, in terms of staff and other resources, remained steady. The 2004 SBAP Report to Donors can be found at: http://www.ifc.org/ifcext/
enviro.nsf/Content/Publications
Corporate Citizenship Facility (CCF) promotes corporate social responsibility in IFC client companies. CCF focuses on helping IFC clients to seize opportunities and avoid risks arising from environmen-
tal and social areas relevant to their busi-
ness, and to engage effectively with local stakeholders. Project examples can be found on p. 30.
Environmental Opportunities Facility (EOF) ﬁnances innovative projects that promote local environmental beneﬁts. To this end, EOF provides catalytic fund-
ing for projects in areas such as water, LINKING INDIGENOUS ENTERPRISES TO MARKETS
To foster indigenous business opportunities, IFC’s Latin America SME facility initiated an Indigenous Enterprise Development pilot in Bolivia and Peru during FY04, aimed at linking indigenous crafts producers to new markets. IFC provided assistance to enterprises with export potential to improve their production lines, partnering with an international retailer of global handicrafts to identify opportunities for introducing indigenous products to the market. Five indigenous enterprises have now fulﬁlled two international orders, one of which is Senor de Mayo, started by 600 Que-
chua and Aymara Indian women from El Alto, near the Bolivian capital of La Paz. Their hand-dyed, knitted alpaca wool scarves, and other woven garments, are being sold through the Business Council for Peace and COLORS magazine, with all proceeds donated to the UN Development Fund for Women (www.unifem.
org). During 2005, the program will focus on assisting less market-ready indigenous enterprises in Bolivia to develop their businesses.
“The Sustainable Business Assistance Program (SBAP) enables IFC and its clients to go well beyond standard compliance requirements on projects.”
18 IFC Sustainability Report 2004
IFC’S FACILITIES TARGETING SME DEVELOPMENT IFC and its donor partners fund a network of 11 Project Development Facilities (PDFs) around the globe, with com-
bined spending of over $50 million and more than 400 staff. They are managed by IFC’s regional departments.
China Project Development Facility
Latin America and Caribbean SME Facility
Bolivia, Honduras, Nicaragua, Peru
Paciﬁc Enterprise Development Facility
Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyz Republic, Mongolia, Russia, Tajikistan, Ukraine, Uzbekistan
Afghanistan, Algeria, Bahrain, Egypt, Iran, Iraq, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Pakistan, Saudi Arabia, Syria, Tunisia, UAE, West Bank and Gaza, Yemen
Program for Eastern Indonesia SME Assistance
Eastern islands of Indonesia
South Asia Enterprise Development Facility
Bangladesh, Bhutan, northeast India, Nepal
Albania, Bosnia and Herzegovina, Kosovo, FYR Macedonia, Serbia and Montenegro
wastewater and solid waste manage-
ment, pollution reduction or abatement, sustainable resource use, and eco-
efﬁciency/cleaner production. Project examples can be found on pp. 26, 27.
Environmental Business Finance Program (EBFP) works to develop a sustainable market for SMEs whose activities beneﬁt the global environ-
ment (renewable energy and energy efﬁciency; ecotourism; sustainable agriculture and agro-forestry; and certiﬁed ﬁshing). Project examples can be found on p. 29.
Sustainable Financial Markets Facility (SFMF) provides advisory and techni-
cal assistance to enhance the social and environmental impact of ﬁnancial intermediaries and the broader ﬁnancial sector in IFC member countries, and promote increased private sector invest-
ment in emerging markets. Project examples can be found on p. 12.
IFC also administers the following environmental facilities:
Carbon Finance Facility—to purchase GHG emission reductions
Global Environment Facility (GEF)—
to address global environmental concerns.
IFC Sustainability Report 2004 19
Strengthening Business through Good Corporate Governance
Good corporate governance is essential to long term private sector growth in developing countries. It is also at the core of sustainability, since companies that have effective structures and pro-
cesses for direction and control are more likely to manage their social and environmental responsibilities well. IFC incorporates governance analysis in its investment appraisals and helps lead global dialogue on corporate governance in emerging markets. Our Corporate Governance Department has developed a Web-based methodology to provide staff with tools to evaluate the governance of potential clients and help improve their practices. The curriculum has also been used by the Netherlands Development Finance Company (FMO) and the Inter-American Investment Corporation, among others.
IFC staff provide guidance to regula-
tors, stock markets, members of boards, and other corporate gover-
nance advocates, as well as to client companies. IFC has co-sponsored the Latin America Corporate Governance Roundtable with OECD since 2000 and provides support to similar round-
tables in Asia, Eurasia, and Russia. IFC houses the secretariat for the “Private Sector Advisory Group of the Global Corporate Governance Forum,” a joint effort of the World Bank Group, OECD, and donor countries, to improve policy and practices in emerging markets. At the local level, IFC staff manage the corporate governance work of the Private Enterprise Partnership in the former Soviet Union and of the China Project Development Facility. In addition, in FY04 IFC staff helped more than 40 companies and ﬁnancial institutions review and enhance their corporate governance practices. Such efforts aim to increase the attractive-
ness of the emerging markets as an investment destination.
Building Local Management Capacity
As part of its overall push to enhance private sector activity in its member countries, IFC is working to build the capacity of universities in emerging markets to offer world class business education opportunities. Through the newly created Global Business School Network, IFC has partnered with leading international business schools such as Columbia, Harvard, and the University of Pennsylvania (Wharton) in the United States, INSEAD in France, and the Lon-
don Business School in the U.K.
Through this partnership, these schools will make faculty and other resources available to emerging market business schools as they develop new curricula and seek to ensure rewarding intern-
ship opportunities for students. Building capacity in Sub-Saharan Africa is a top priority for the Global Business School Network, given the challenge in attract-
ing private investment and building local businesses in the region. Pilot programs are now underway in Kenya, Nigeria, and Ghana, where IFC is helping develop high-quality management and leadership training, and creating links between the business schools and the local business community to capitalize on available tal-
ent and knowledge locally.
IMPROVING CORPORATE GOVERNANCE IN UKRAINE
Galnaftogaz is a leading petroleum distributor in western Ukraine with ambitious plans to increase the company’s share of the Ukrainian market to 10 percent by 2008 and reposition the company as a national chain. The cost of expansion is high, and access to ﬁnance for Ukrainian companies is difﬁcult—poor transparency and gover-
nance mean that foreign investors are unwilling to take risks in the Ukrainian market. Galnaftogaz approached IFC’s Ukraine Corporate Governance Project for assistance in improving the company’s internal documentation and ﬁnancial practices as a ﬁrst step. The company has gone much further by developing one of the ﬁrst private sector corporate governance codes in Ukraine. Improvements to Galnaftogaz’s practices have reduced investment risk in the company and may enable it to access debt ﬁnancing for its ambitious $90 million expansion project.
“As we realized that investors are becom-
ing increasingly concerned about corpo-
rate governance, we decided to improve our governance practices and turned to IFC for assistance.” Chief Analyst Andriy Khudo
20 IFC Sustainability Report 2004
Promoting gender equality is an inter-
national development priority and one of the Millennium Development Goals (see IFC and MDGs, p. 54). Given that women comprise the majority of the poorest 1.3 billion people who subsist on less than $1 a day, increasing wom-
en’s participation in the private sector in emerging markets is essential to reducing poverty.
To address the legal, regulatory, and cultural impediments that often restrict women’s access to jobs and credit, IFC will be implementing a gender mainstreaming program during FY05. IFC’S CLIENT LEADERSHIP AWARD
IFC’s Client Leadership Award recognizes a highly success-
ful corporate client who has made a signiﬁcant contribution to sustainable development. We spotlight companies that fully endorse IFC’s values and go beyond basic compliance to demonstrate excellence in management commitment and corporate governance, environmental practices, and socioeconomic development. In 2004, IFC awarded its ﬁrst annual Client Leadership Award to Celtel International B.V., a pan-African provider of cellular telephone services and an IFC client for more than 10 years. Celtel provides affordable cellular services to over 4 million people in Africa, and its business is growing by roughly 50 percent each year. The company has invested more than $600 million in mobile phone operating companies in 13 countries, including Chad, the Democratic Republic of Congo, Sierra Leone, Sudan, and Kenya. IFC’s investments have helped the company to modernize networks and increase mobile phone usage, as well as increase competition, which has led to lower tariffs and increased local private participation in the telecoms sector.
Celtel has achieved its business goals while committing to strong corporate governance and community development. Operating in some of the world’s most difﬁcult markets, Celtel is committed to transparency and high standards of ethics and integrity. The company has embraced HIV/AIDS as a business and community issue and has worked with IFC Against AIDS on its HIV policy for workers and their families. Celtel has also supported schools and health clinics, started a community phone initiative, and installed solar panels for recharging phone handsets.
“The winner of IFC’s Client Leadership Award should be a company that sets the gold standard for its peers any-
where in the world, a company that is a role model for others, regardless of sector, region, or country.”
Gender Entrepreneurship Markets (GEM) will advance the business case for gender equality. The program will target opportunities for women entrepreneurs through our work with ﬁnancial intermediaries and SMEs, provide advisory and best practice assistance on delivering proﬁtable ﬁnancial services and business sup-
port to women, and address gender barriers in the business environment. The primary focus of the program for the ﬁrst two years is Africa, through a “Women Mean Business in Africa” initiative. At the inception of the pro-
gram, three gender specialists will be based at headquarters in Washington, and one in the ﬁeld.
As part of our broader efforts to mainstream gender expertise at IFC, our policy framework and project evaluation tools are being aligned to address gender issues. IFC is also working in partnership with other organizations to promote best practices and quantify bottom-line beneﬁts to clients in supporting women in their business. Gender issues and business opportunities will be incorporated in IFC training, and in our good practice materials as we develop a Global Directory of Women’s Business Associations as a resource for IFC clients and staff. C
IFC Sustainability Report 2004 21
We are also partnering with external parties, establishing an Advisory Board comprising successful women business owners and women minis-
ters, and developing a ﬁlm series on African women entrepreneurs (see CineArts Afrika box, above).
SUPPORT FOR WOMEN ENTREPRENEURS IN SOUTH AFRICA IFC is providing $150,000 in grant funding in FY05 to scale up the Women Entrepreneurship Program it initiated in South Africa in 2002. The program targets viable women-owned SMEs and offers high-quality training, mentor-
ing, marketing advice, and assistance in developing a business plan to help secure loans from local banks. Run by IFC’s Africa Project Development Facility, the program has trained 45 women in its pilot phase, and support-
ing partners include the Amalgamated Bank of South Africa, the University of Pretoria, and the South African Department of Trade and Industry.
In FY04, IFC extended a $250,000 grant to CineArts Afrika to help fund its general budget and business plan. The founder of this Kenyan ﬁlm company, Jane Murago-
Munene, ﬁrst approached IFC in 1997 for help in accessing ﬁnance to buy production equip-
ment. Since then, the company has produced ﬁlms to raise awareness on critical develop-
ment issues, such as gender and HIV/AIDS. As part of IFC’s new gender program in FY05/6, CineArts Afrika will produce a video/TV series on African women entrepreneurs.
“…the company has produced ﬁlms to raise awareness on critical development issues, such as gender and HIV/AIDS.”
22 IFC Sustainability Report 2004
Helping Companies Fight HIV/AIDS Across the globe between 35 and 42 million people now live with HIV/
AIDS—95 percent of whom reside in the developing world. Given the anticipated impact of the disease in inhibiting productivity and long term economic growth, IFC is help-
ing clients to mitigate the impact of HIV/AIDS on their businesses. The IFC Against AIDS program helps IFC clients analyze the risks that the dis-
ease presents to their business and provides guidance on establishing education, prevention, and care pro-
grams for workforces and surrounding communities.
In FY04, IFC Against AIDS provided guidance to a beverage company in Nigeria, a forestry company in South Africa, and a microﬁnance bank in Kenya. A cellular telephone company operating in 13 African countries received guidance to reﬁne its HIV policy and develop an AIDS action plan, including anti-retroviral treat-
ment for employees and dependents (see Client Leadership Award, p. 20). IFC’s program also provided cus-
tomized tools to support HIV/AIDS workplace policies and community programs for a mining company in Madagascar, a tea company in Kenya, a cotton manufacturer in Zambia, and an electricity company in Jamaica.
SMEs are particularly vulnerable to HIV/AIDS due to the devastating impact the disease can have on their small workforces. Increased absen-
teeism and lower productivity can jeopardize their very survival—one study in South Africa found that HIV/
AIDS is one of three factors caus-
ing 80 percent of bankruptcies in SMEs’ ﬁrst year of operation. To help address these challenges, IFC Against AIDS launched a training program for African SMEs in FY04 in cooperation with the Africa Project Development Facility. To date, 70 small businesses in South Africa, Kenya, Mozambique, and Tanzania have participated in the training program, which works intensively with the businesses over a year and encourages networking with other parties, local governmental and nongovernmental organizations, to support their needs after the pro-
gram is complete. A program will be developed for India during FY05. For more information, see www.ifc.org/
ifcagainstaids
IFC Sustainability Report 2004 23
BEST PRACTICE GUIDANCE ON HIV/AIDS FOR THE MINING SECTOR IFC’s new HIV/AIDS Guide for the Mining Sector provides mining companies with advice on strategies to manage and mitigate the impact of HIV/AIDS—detailing processes for prevention in the workplace, mitigation programs to stem new infections, and care programs to provide holistic support to workers affected by HIV/AIDS. Based on IFC’s experience in southern Africa, the guide provides informa-
tion, tools, and case studies for stakeholders and orga-
nizations working in the region’s mining communities. It addresses emerging mining companies, trade unions, con-
tactors, and service providers, as well as larger companies with established HIV/AIDS programs and their partners.
In focusing on the mining sector, the guide aims to support a key business driver in southern Africa, an industry that is also one of the hardest hit by HIV/
AIDS. At the same time, it provides a model for other industries, including oil and gas, transportation, and construction.
Developed with the support of $300,000 from the Canadian Trust Fund, IFC ofﬁcially launched the guide at World AIDS Day 2004. The guide is part of the IFC Against AIDS program tools and is available free of charge at: www.worldbank.org/ogmc/wbmining-
hivaidstoolkit.htm
“IFC’s new HIV/AIDS Guide for the Mining Sector provides mining companies with advice on strategies to manage and mitigate the impact of HIV/AIDS—detailing processes for prevention in the workplace, mitigation programs to stem new infections, and care programs to provide holistic support to workers affected by HIV/AIDS.”
Promoting Markets for Sustainable Resource Use 4
24 IFC Sustainability Report 2004
IFC is positioned to make its most signiﬁcant environmental impact through commercial investments that are geared to serve major sustainability goals. We work across many sectors in pursuit of these goals, encouraging private sector investment in renewable energy and energy efﬁciency, cleaner production, green-
house gas emissions reduction, environmental infrastructure, and sustainable natural resource management, including agribusiness, forestry, and ecotourism.
In addition to investing IFC’s own capital, we make funding available as a private sector implementer through the Global Environment Facility (GEF), through our specialized social and environmental business facilities (SBAP), and regional SME facilities. These investments high-
light the alignment of IFC activities and resources across the Corporation and how we leverage them to achieve high sustainability impact through building markets for sustainable resource use.
Part of the challenge as we align this internal work will be measuring our sustainability impact—for example, how to quantify our cumulative con-
tribution to renewable energy and energy efﬁciency through our invest-
ments in ﬁnancial intermediaries or how to assess the carbon footprint of our portfolio. Our approach to measur-
ing the contribution of our investments to sustainability goals will evolve in response to these challenges.
In this section, we provide a thematic overview of our work in sustainable energy, water and sanitation, biodiversity, and natural resource management.
IFC Sustainability Report 2004 25
IFC’s activities in carbon ﬁnance sup-
port the Kyoto Protocol, which calls upon industrialized nations to reduce their greenhouse gas (GHG) emissions. Now ratiﬁed by Russia, this global cli-
mate pact will come into force in 2005.
IFC manages the IFC-Netherlands Carbon Facility (INCaF), through which it purchases GHG emission reductions (also called carbon credits) from proj-
ects in Latin America, Asia, and Africa. A second facility, the Netherlands European Carbon Facility (NECaF), in collaboration with the Government of the Netherlands and the World Bank, enables the purchase of carbon credits from projects in Central and Eastern Europe. Launched in August 2004, this facility brings US$80 million in funds under IFC management for the pur-
chase of carbon credits. We are also designing and delivering value-added ﬁnancial products that will leverage IFC’s ability to take long term credit risk in emerging markets and help unlock latent ﬁnancial value in contracts to pur-
chase carbon credits.
During FY05, IFC’s Carbon Finance Unit expects to commit some $20-30 million in four to six projects. This is expected to include about $9 million for Balram-
pur Chini Mills, an IFC client in India, to purchase credits that will be created by the company’s use of sugarcane waste to generate 40 MW of electricity.
IFC provides direct investments, co-
ﬁnances programs with ﬁnancial inter-
mediaries, and leverages donor funds to support renewable energy projects, espe-
cially those that commercialize new tech-
nologies. In FY04, IFC helped develop an initiative, funded by the GEF, to provide up to US$54 million for the develop-
ment of stationary fuel cell applications in developing countries. IFC continued to administer the Photovoltaic Market Transformation Initiative (PVMTI) to Sustainable Energy and Industrial Efﬁciency
Since 1990, IFC has taken an active role in promoting sustainable energy in emerging markets, ﬁnancing projects that provide clean, reliable power for industry and communities. During this time, we have committed US$767 million to renewable energy projects and US$93 million to energy efﬁciency projects—21 projects in 11 countries worldwide. Most of these projects are run-of-river hydropower, with other investments in geothermal, biomass cogeneration, wind, energy service companies, and ﬁnancial inter-
mediaries.
In FY04, our active, mainstream investment portfolio in renewable energy and energy efﬁciency projects totaled US$227 million, nearly 20 percent of IFC’s entire power port-
folio. This includes 11 sustainable energy projects with US$123 million in support from the GEF, and other co-ﬁnancing of US$108 million; it also includes a large portfolio of off-grid and grid-connected solar photovoltaic projects. IFC is also actively develop-
ing the carbon ﬁnance market for greenhouse gas emission reductions with companies in emerging markets and buyers in industrialized countries.
As announced at the 2004 Interna-
tional Conference on Renewable Energies in Bonn, Germany, the World Bank Group has committed to an average growth rate of 20 percent per year over the next ﬁve years in its annual ﬁnancial commitments for renewable energy and energy efﬁciency projects. This will increase investments in this sector to over $400 million per year; the target will be reviewed on a regular basis.
26 IFC Sustainability Report 2004
develop examples of successful sus-
tainable and replicable business mod-
els in the photovoltaic sector in India, Kenya, and Morocco. Looking ahead, a GEF grant funding of US$725,000 is being used to develop the regula-
tory, legal, and contractual framework necessary for the development of wind power projects in Russia. Another tech-
nical feasibility study funded by GEF is examining the potential for Externally Fired Combined Cycle (EFCC) technol-
ogy using bagasse as fuel.
Energy Efﬁciency and Cleaner Production IFC works directly with clients in the power, infrastructure, and manufactur-
ing sectors to develop energy efﬁciency and cleaner production opportunities. By providing technical support and innova-
tive ﬁnancing, IFC helps clients improve their operational efﬁciency by optimiz-
ing resource use. This approach, which reinforces good business practice, is the fundamental principle behind cleaner production. In this way, IFC enhances its sustainability impact across our invest-
ment portfolio while responding to clients’ competitive needs.
The bottom line impact from these efforts can be startling. In FY04, IFC helped a Chinese ﬁberboard producer reduce its trimming allowances, increasing its salable output by 6 per-
cent. While consumption of raw mate-
rial and energy remains the same, we expect these improvements to increase the company’s annual proﬁts by 20 percent. In Indonesia, IFC ﬁnanced a cogeneration facility for a textile plant that has reduced the plant’s energy consumption by 7.5 megawatts despite the fact that the plant is expanding its operations. This energy efﬁciency solu-
tion puts enough electricity back on the grid to power 30,000 households.
On a smaller scale, in FY04 our Envi-
ronmental Opportunities Facility (EOF) supported innovative projects that deliver local environmental beneﬁts. For example, in FY04, EOF made a US$600,000 equity investment in TurboTech Precision Engi-
neering in India, a company that produces an Energy Conservation Turbine that gen-
erates electricity at a fraction of the cost of power from the national grid. This small, low-price steam turbine has the potential to bring distributed cogeneration to busi-
nesses throughout India, greatly reducing the emission of carbon dioxide and sul-
phur dioxide per kWh consumed.
AN INNOVATIVE MIX OF HYDRO AND SOLAR POWER In FY04, IFC supported a path-breaking renewable energy project that matches hydropower and solar power for the ﬁrst time anywhere in the world. Cagayan Electric Power and Light Company (CEPALCO), the third largest electric utility in the Philippines, was considering increasing its fossil fuel generation to meet growing energy demand. Instead, IFC facilitated a $4 million grant from GEF to keep the project green by developing a solar photovoltaic plant to enhance the capacity of CEPALCO’s existing 7 MW run-of-river hydroelectric facility. The project, the largest grid-connected solar photovoltaic installation in the developing world, demonstrates the economic viability of matching two inherently complementary technologies—solar with reliable hydropower—to supply electricity to the grid. The project also has demonstration potential for developing state-of-the-art renewable energy projects in a developing country context. The project began commercial operations in September 2004.
IFC Sustainability Report 2004 27
ELI SUCCESS STORIES
The innovative Efﬁcient Lighting Initiative targeted the market development for efﬁcient lighting in Argentina, the Czech Republic, Hungary, Latvia, Peru, the Philippines, and South Africa. Tailored to local conditions in each country, with a focus on long term market growth, the program has achieved impressive results over three years. In Peru, annual sales of compact ﬂuorescent lamps (CFLs) increased 20-fold, from 250,000 to 5 million per year. In Argentina, the price of CFLs dropped eightfold due to ELI-inspired industry promotion and competition; in South Africa, sales of CFLs increased 123 percent. In addition, ELI has yielded a variety of self-sustaining market activities, as exempliﬁed by the three electric utilities in Argentina that now offer CFLs to their customers. This service is funded through “rental” fees paid through the customers’ utility bills in an amount that is less than the value of the energy cost savings they get from using the bulbs. The ELI experience demonstrates IFC’s role as a mar-
ket leader able to coordinate the shared interests of multiple entities and chan-
nel resources in a manner that truly moves—and even transforms—markets.
Local Commercial Lending for Sustainable Energy
IFC has developed a range of credit facilities, operated through local FIs, which mobilize local capital invest-
ment for energy efﬁciency and cleaner production improvements in SMEs. IFC is presently managing ﬁnancing facilities to support FI lending for energy efﬁciency improvements and environmental SMEs with a total lend-
ing capacity of over $300 million. These facilities are generating new ﬁnancial products and ﬁnancing models that IFC has begun rolling out across the emerging market world. Through its Sustainable Financial Markets Facility (SFMF), IFC is applying the experiences of these pilot efforts to mainstream environmental ﬁnance products in IFC’s core ﬁnancial markets business.
Market Development for Energy Technologies
IFC also leverages its market knowledge and visibility in the energy efﬁciency sector to develop new markets for emerging technologies with substantial environmental beneﬁts. The IFC/GEF Efﬁcient Lighting Initiative (ELI) estab-
lished IFC as an innovative leader in this area. ELI has achieved substantial mar-
ket growth in seven developing country markets while creating a self-sustaining product certiﬁcation institute. The insti-
tute works with the support of the light-
ing industry to inform consumer choice and provide quality assurance for new efﬁcient lighting technology. Building on ELI, IFC continues to play a role in the renewable and energy efﬁciency mar-
kets by providing leadership that facili-
tates government, NGO, and industry collaboration to support market develop-
ment and improve the accessibility of energy-saving technologies. In 2004, IFC launched initiatives to support station-
ary fuel cells and light-emitting diodes for households presently dependent on fuel-based lighting.
ELI spotlights IFC’s “honest broker” role in leveraging multiple enti-
ties and resources to transform nascent mar-
kets for energy efficient technology.
28 IFC Sustainability Report 2004
World Bank Group Renewable Energy and Energy Efficiency Commitments (millions of U.S. dollars)
(Amounts committed since 1990)
Renewable Energy Sources Total
Energy Efﬁciency and District Heating
Hydropower Greater than 10MW
Solar, Wind, Geothermal, Sustainable Biomass & Hydropower Less than 10MW
6,001 3,154 1,157 1,690
860 563 204 93
1,059 n.a. 698 362
Financing that leverages investments
428 113 311 5
IBRD Carbon Finance 68 19 36 13
Special Financing 20 n.a. n.a. 20
TOTAL 8,437 3,849 2,405 2,183
The commitment amounts provided in this table differ from the amounts provided in the World Bank publication “Renewable Energy for Development: The Role of the World Bank Group.” The changes are due to corrections made in the classiﬁcation of some projects and also due to the dataset’s being updated to June 30, 2004.
Loan and Credit Board approvals in 45 countries up to World Bank Group FY2004.
Mainstream investment portfolio. The value of these investments is measured at gross original commitment levels (IFC equity and loans) and excludes the value of any associated ﬁnancing within the transactions (that is, sponsor equity, other co-ﬁnancing, and GEF co-ﬁnancing or carbon ﬁnance).
GEF Council co-ﬁnancing commitments for 98 projects implemented or to be implemented by the World Bank Group. This includes all climate change projects approved by the GEF Council for work program entry.
For renewable energy, the following have been grouped together:
OP6—Promoting the Adoption of Renewable Energy by Removing Barriers and Reducing Implementation Costs;
OP7—Reducing the long term Costs of Low Greenhouse Gas Emitting Energy Technologies; and STRM (Short Term Response Measures).
For energy efﬁciency the following have been grouped together:
OP5—Removal of Barriers to Energy Efﬁciency and Energy Conservation;
OP11—Promoting Environmentally Sustainable Transport.
Carbon Finance Business (CFB) and MIGA ﬁnancing leverages mainly private sector investments—they do not directly invest in a project. CFB typically leverages ﬁve to six times the value of the carbon emission reductions purchases in investments. Figures since CFB inception in 2000.
Note that IFC Carbon Finance Business amounts are not included in this table, as the commitments have not yet been made.
Figures state gross coverage for investments. Guarantees in support of US$2.3 billion of investments in renewable energy.
Source: World Bank Group, October 2004.
CEMENT SUSTAINABILITY ROUNDTABLE The energy-intensive production process of the cement industry means that it is a signiﬁcant contributor to carbon dioxide emissions, one of the principal gases responsible for climate change. With the establishment of the Cement Sustainability Initiative (CSI) in 2003, the industry is starting to address its environmental responsibilities through emissions reporting, use of alternative fuels, and improved health and safety practices. In June 2004, IFC and the CSI of the World Business Council for Sustainable Development co-hosted a roundtable event in Washington, D.C., to discuss the key sustainability issues affecting the cement sector. Delegates included CSI members from large cement multinationals, IFC portfolio clients operating at the regional level, Equator Banks, and representatives from the World Bank Group. Discussion topics included climate change, safety, dis-
closure and reporting, and limestone biodiversity management. For more details, see www.ifc.org/ifcext/enviro.nsf/Content/cement1
IFC Sustainability Report 2004 29
“…MAMTI’s goal is to convert over 15 percent of the global supply in marine orna-
mentals to certiﬁed sustainable practices.”
IFC’s investments must always meet our minimum criteria for safeguard-
ing the environment, but there are many opportunities for companies to increase proﬁts and reduce operating risks while helping to conserve nature’s biodiversity. New markets are emerging for businesses to use biodiversity in a sustainable way, such as in ecotourism and sustainable wood and agricultural products. Specialists in IFC’s Environ-
mental Finance Group work closely with our investment departments to enhance biodiversity beneﬁts in main-
stream projects such as extractive industry investments. We also establish innovative partnerships with civil society organizations and have access to fund-
ing for biodiversity projects through the Global Environment Facility.
For example, in FY04, IFC provided a $1.6 million GEF grant for a private sector initiative that aims to preserve more than 90,000 hectares of sensi-
tive marine and coastal habitat in the Philippines, including coral reefs, mangroves, and tropical forest. The funding will be provided to the El Nido Foundation, a nonproﬁt organization that will collaborate with 19 local com-
munities to mitigate threats to the marine ecosystem, including illegal ﬁshing, overﬁshing, and sedimentation.
Also in FY04, IFC approved a $6.6 million GEF grant for the Marine Aquarium Market Transformation Initiative (MAMTI) to shift the marine aquarium trade toward certiﬁed sus-
tainable practices. Where ﬁshermen in the Philippines and Indonesia have traditionally used cyanide to catch ﬁsh for the pet trade—with a devastating effect on coral reefs—this initiative will help them to adopt sustainable net-
based practices. Through point-of-sale campaigns and other public education methods, the initiative will help to con-
vince consumers in the United States to purchase certiﬁed ﬁsh, as opposed to those caught with cyanide. If suc-
cessful, MAMTI’s goal is to convert over 15 percent of the global supply in marine ornamentals to certiﬁed sus-
Our collective experience with clients on protecting and enhancing biodi-
versity in emerging markets provides valuable lessons that we have collated in a Biodiversity Good Practice Guide due to be launched in FY05. The guide reﬂects IFC’s evolving expectations relating to biodiversity and natural resource management, particularly in light of our new Performance Stan-
dards, and provides detailed analysis for companies working in emerging markets on how to realize biodiversity opportunities in their business. See www.ifc.org/enviro
This ﬁrst publication produced by IFC’s new Environmental Busi-
ness Finance Program summarizes the results of research into the sus-
tainability of ecolodges. Ecolodges are of particular interest to the sus-
tainable development community, because they are small businesses that can generate positive eco-
nomic returns in highly rural biodi-
verse areas. The report is a useful resource for donors, ﬁnanciers, and ecolodge owners on the growth of ecotourist market and associated sustainable business opportunities. See www.ifc.org/ebfp
30 IFC Sustainability Report 2004
THEME 1: SUSTAINABLE FORESTRY
Deforestation is occurring at an alarming rate around the world with serious environmental consequences including biodiversity loss, increased ﬂooding and landslides, and ris-
ing carbon emissions due to “slash and burn” farming tech-
niques. Sustainable forestry management is an approach that protects forests while harnessing their potential for economic growth. In line with the World Bank’s revised forestry strategy, IFC is working through its regional SME and SBAP to promote responsible forestry practices at the sector and company levels.
At the sector level, IFC is working with the World Wildlife Fund (WWF) and committed clients to develop a competi-
tive, sustainable wood trade in Indonesia, Africa (Ghana and Gabon) and Latin America (Bolivia, Honduras, Nicaragua, and Peru). Many of our forestry clients want to demonstrate high levels of corporate responsibility in their sourcing of wood because it can determine their access to international mar-
kets. These programs help forestry managers, sawmills, fur-
niture manufacturers, and buyers capitalize on the business potential for producing certiﬁed wood products for export. By promoting sustainability throughout the supply chain—
from community-run forests to retail outlets—we hope to stimulate market supply and demand for certiﬁed wood products and demonstrate the business case for sustainable forestry to other timber producers and manufacturers.
At the company level, adopting sustainable forestry prac-
tices is already boosting international business for some of IFC’s clients in Russia. IFC’s Northwest Russia Forest Investment Project has contributed to turning the timber company Progress into the largest wood harvesting busi-
ness in the region, with 1,000 employees and annual revenues in 2002 of $11 million. The company’s reputa-
tion for good corporate governance, sustainable forestry management, and environmentally sound wood harvesting has enabled it to develop valuable contacts with European sawmills and pulp companies. In Brazil, the Environmental Opportunities Facility granted $125,000 to Precious Woods, a forest products company, certiﬁed by the Forest Steward-
ship Council, to develop new business lines in non-forest timber products and botanicals. The project also improves the company’s operating efﬁciency with a biogas plant that recycles waste wood chips to generate electricity.
Beyond the forestry sector itself, there are other ways IFC promotes sustainable resource management. In Guatemala, IFC, through its Corporate Citizenship Facility (CCF), is working with a mining company and with communities to develop a forest nursery project, run by local residents, where seedlings are used for compulsory reforestation activities in connection with the Marlin gold mine. The project combines company needs (reforestation of the mine site) and community needs (economic opportunities) in a sustainable business approach.
IFC Sustainability Report 2004 31
THEME 2: WATER AND SANITATION
The demand for clean water in the developing world is staggering. In many countries the private sector is step-
ping into the breach to provide basic services to commu-
nities. IFC is working with a number of clients to ﬁnance water services through mainstream investments, in addi-
tion to work through our sustainable business facilities, SME and grassroots programs.
In the Philippines, an IFC client, Manila Water Company (MWC), is one of two private companies providing water and sanitation services to Metropolitan Manila since utility privatization in 1997. MWC serves over 4.7 million resi-
dents in the city, and under the company’s watch, many poor and underserved consumers now enjoy lower prices and improved access to water services. IFC has made two investments in MWC to support the company’s capi-
tal expenditure programs; these have reduced system losses from water leaks and bad connections from 63 per-
cent to 46 percent. The company now provides 24-hour water service to 87 percent of the consumers within its central distribution network, compared to just 26 percent when it took over the concession.
IFC is supporting an American company, WaterHealth International (WHI), to roll out its commercial model for decentralized water puriﬁcation systems in the developing world. With low capital expenditures and operating costs, the company can provide drinking water to communities at an annual cost of $2 per person. Through its Environmental Opportunities Facility, IFC is providing a $1.2 million equity investment to WaterHealth to help expand its operations in Ghana, India, Mexico, and the Philippines (see EOF, p. 17).
In addition, IFC and the World Bank have established the Municipal Fund, a joint initiative to make investments in municipalities, municipal entities, and other tiers of local government, without taking sovereign guarantees. The objective is to strengthen municipalities’ ability to deliver key infrastructure services, such as water and sanita-
tion, by improving their access to private capital markets. Following a groundbreaking investment in a municipal water company in Tlalnepantla, Mexico last year, IFC col-
laborated with the African Development Bank to provide a partial credit guarantee to the city of Johannesburg for a bond issue in the South African capital market that will help ﬁnance high-priority infrastructure investments in water services, energy, and roads.
32 IFC Sustainability Report 2004
Large, complex projects in high-risk environments, such as the Baku-Tbilisi-Ceyhan (BTC) Pipeline development, make up a small proportion of IFC’s overall portfolio yet receive the largest amount of scrutiny—both externally by concerned parties, and internally in terms of staff time and resources required for social and environmental supervision. Generating good project outcomes requires extensive consultation to involve all stakeholders in the decision-making process—from the project spon-
sor and local communities, to ﬁnancial partners, governments, and international NGOs. Accommodating all these interests involves complexity and trade-offs, and remains one of the challenges of development for IFC.
Challenges of Development The BTC Pipeline and Extractive Industries Review
IFC Sustainability Report 2004 33
The 1,760 km BTC Pipeline is a multibil-
lion-dollar oil pipeline through Azerbaijan, Georgia, and Turkey, led by a consortium of international oil companies. IFC and the European Bank for Reconstruction and Development (EBRD) are spearhead-
ing a group of lenders providing $2.6 bil-
lion in ﬁnancing.
Despite the high level of commitment demonstrated by the project sponsors, regional investment projects of the scale of BTC present complex social and environmental challenges. In this atmo-
sphere of increasing expectations, BTC has become a test case for IFC’s ability to mobilize communities, clients, and partner institutions toward sustainable project outcomes. Three IFC social and environmental specialists worked almost full-time on the BTC project for nearly two years, and two specialists continue to work full-time on the project.
Community Consultation and Disclosure Project disclosure and transparency remain a controversial issue in extrac-
tive industry projects, as affected com-
munities rightly demand forums for public consultation and greater access to project information. At IFC’s request, the project sponsors and governments released the Production Sharing Agree-
ments (PSA) and the Host Government Agreement (HGA) in order to inform civil society and reduce misinformation regarding the project. Additionally, the BTC consortium and IFC have con-
ducted extensive consultation with a wide range of potentially affected and interested parties. In this ongoing pro-
cess, we engaged communities, local and national authorities, and NGOs through face-to-face discussions and formal meetings. A multi-stakeholder consultation program was conducted in all three countries, together with EBRD, and attended by more than 800 locally affected people. The process provided a number of lessons on improving facil-
itation and mediation between diverse interest groups.
The BTC project generated probably the largest, most comprehensive set of Environmental and Social Impact Assessment (ESIA) documentation ever released by an IFC client—46 volumes with more than 11,000 pages. IFC worked with BTC to ensure that the ﬁndings of the assessment were articulated meaningfully to affected par-
ties, distributing 100,000 nontechnical summaries in relevant languages, and took the step of producing a detailed public response to comments received in the 120-day disclosure period for the impact assessment, prior to consider-
ation of the project by IFC’s Board.
The pipeline traverses 17,700 individual land parcels with a total of 60,000 landowners involving complex land tenure systems across three countries. IFC and BTC worked to ensure there was no physical displacement of any households along the entire 1,760 km pipeline route.
IFC provided substantial guidance to BTC on the Resettlement Action Plan and the preparation of the user-friendly summary documents known as the Guide to Land Acquisition and Com-
pensation (GLAC). Over two and a half years, BTC consulted every current land user, including all villages within 2 km of the pipeline and those villages within 5 km of construction camps and facili-
ties. Although groundbreaking, the pro-
cess would have greatly beneﬁted from T
34 IFC Sustainability Report 2004
improved communication between consultation teams to disseminate real-
time lessons. The use of independent NGOs to assist in the land acquisition process was effective and could be replicated in other projects.
The GLAC proved to be a valuable docu-
ment in consultation and disclosure. Less than 2 percent of affected land-
owners have raised issues or complaints related to land compensation, indicat-
ing that local people are aware of, and satisﬁed with, compensation rates that are higher than local market rates. On projects that have numerous landown-
ers and complicated land tenure sys-
tems, clients should be encouraged to provide a GLAC as best practice.
Community Investment and Business Linkages IFC has helped BTC develop a Commu-
nity Investment Programme (CIP) to help local communities beneﬁt from socio-
economic opportunities. Engaging with implementing partners and local NGOs and with the active participation of com-
munities, the CIP has developed a variety of projects in Azerbaijan, Georgia, and Turkey related to community healthcare, microﬁnance, upgrading of local infra-
structure, agricultural support, and energy efﬁciency. Successful linkage projects have provided technical assistance to 30 SMEs in Azerbaijan which have received $50 million in new supplier contracts to BTC. A new initiative is the mobile “Energy Bus” equipped with inex-
pensive renewable energy and energy efﬁciency products to beneﬁt rural com-
munities in Azerbaijan and Georgia. The bus, supported by IFC, British Petroleum, and the Organization for Security and Co-
operation in Europe (OSCE), demonstrates solar water heaters, sawdust heaters, wind-powered generators, and biogas units to produce cooking gas. IFC will assist local enterprises in manufacturing these products by helping them to raise funds from local microﬁnance institutions.
Despite the efforts undertaken to date, many challenges remain for the BTC project. Civil society lodged 14 separate complaints to IFC’s Compli-
ance Advisor/Ombudsman during FY04 regarding social and environ-
mental aspects of the project. These complaints raise concerns over the effects of the BTC pipeline develop-
ment on sensitive natural areas and natural resources, including water sources along the pipeline route; on aspects relating to pipeline safety and construction, including disruption and damage to property and services and inadequate mitigation measures; on the actual and potential impact of oil spills and other potential negative project impacts on local communi-
ties; and concerns related to infor-
mation sharing, consultation, loss of income, and compensation. IFC will continue to work with the CAO, BTC, and affected stakeholders to resolve outstanding issues. For full details of these complaints, see www.cao-
ombudsman.org. For more informa-
tion on the BTC Pipeline, see www.
ifc.org/BTC
IFC Sustainability Report 2004 35
REVISING OUR APPROACH TO EXTRACTIVE INDUSTRIES
A three-year independent review of the World Bank’s role in the extractive industries solicited inputs from a wide range of stakeholders—governments, civil society, indus-
try, and academics—on key issues facing the World Bank Group in oil, gas, and mining. The Extractive Industries Review’s ﬁndings revealed that our projects had a strong track record of positive economic impacts in terms of generating tax revenue, jobs, technology transfer, and the introduction of higher social and environmental standards. Nevertheless, the central message that emerged from the process was that the World Bank Group must improve its approach on three levels: at the country level, by help-
ing to ensure that governments make the best energy choices and manage project revenues wisely; at the sec-
tor level, by ensuring full implementation of our social and environmental standards; and at the project level, by plac-
ing greater emphasis on local community concerns.
While the World Bank Group will continue to help its member countries to develop extractive industries, we will also work actively with governments, stakeholders and other investors to ensure greater focus in a number of key areas. IFC’s Board has agreed on the steps neces-
sary to move forward and will be monitoring implementa-
tion of these measures with our management.
To ensure a shared understanding of development goals, we will develop more explicit ways of measuring how extractive industry projects impact the poor. We will agree with stakeholders on good governance indicators in the assessment and design of projects, and use those indica-
tors to track and report on progress.
To ensure the transparency of project revenues, we will immediately begin requiring disclosure of revenue ﬁgures for all new major extractive industry projects. We are already working with several countries, such as Azerbai-
jan, Kyrgyzstan, and Nigeria, to do so through the Extrac-
tive Industries Transparency Initiative.
To ensure that the governments of poor nations are offered cleaner energy alternatives, we will increase our lending for natural gas projects, and, as announced at the 2004 International Conference on Renewable Energies in Bonn, Germany, the World Bank Group has committed to an average growth rate of 20 percent per year over the next ﬁve years in its annual ﬁnancial commitments for renewable energy and energy efﬁciency projects. IFC, as a part of the World Bank Group, will contribute toward the achievement of this objective. We are also stepping up our leadership role to develop a broader agenda on renewable energy—one that includes policy reform, research, and ﬁnancing.
To protect the interests of local people directly affected by extractive industry investments, we will only support projects in which the affected communities, including indigenous peoples, are engaged through meaningful consultation that is timely, well-informed, and uncoerced, and that leads to broad community support.
For more information, see www.worldbank.org/ogmc and www.worldbank.org/eirresponse
“…the central message that emerged from the process was that the Bank Group must improve its approach on three levels: at the country level, by helping to ensure that governments make the best energy choices and manage project revenues wisely; at the sector level, by ensuring full implementation of our social and environmental standards; and at the project level, by placing greater emphasis on local community concerns.”
Improving Our Policies and Processes 6
36 IFC Sustainability Report 2004
As we learn from our experience and face new challenges, we are evolving IFC’s policies and internal review processes to deepen our sustainability capabilities, improve our service to clients, and increase our accountability to stakeholders.
Updating Our Standards
IFC’s social, environmental, and gov-
ernance standards are the building blocks of our approach to sustainability and are embodied in IFC’s Safeguard Policies, Environmental, Health and Safety Guidelines, and Disclosure Policy. Together these provide a framework to help our clients manage project risks, account for stakeholder interests, and maximize the development impact of our investments. To ensure that the projects C
we ﬁnance continue to meet evolving sustainability expectations, IFC embarked on a review of our Safeguard Policies in FY04 in line with recommendations by the Compliance Advisor/Ombudsman.
From Safeguards to a Sustainability Policy
With current policies serving as a baseline for minimum standards, the safeguards will be recast as IFC’s Policy and Performance Standards on Social and Environmental Sustainability. The draft policy underpins IFC’s cor-
porate commitment to sustainability, and includes social and environmental Performance Standards that equip clients with a new generation of risk management tools. The draft policy is supported by a set of Guidance Notes, further supplemented by IFC’s good practice publications, to help IFC and clients apply the standards to operations.
IFC Sustainability Report 2004 37
Improved Risk Management for Clients
The draft Performance Standards encour-
age IFC’s clients to address sustainability issues in their business strategy, such that operational risks are identiﬁed and managed upfront rather than on an ad-
hoc, reactive basis. We also hope to bet-
ter assist clients in capitalizing on social and environmental opportunities that enhance business proﬁtability and beneﬁt local communities.
Consultation on the New Policy
To obtain feedback on the content and applicability of the draft Performance Standards, we have endeavored to consult broadly with clients and stake-
holders during 2004, holding regional consultations in Rio de Janeiro, Manila, Nairobi, and Istanbul. Given the rele-
vance of our policies to other parties, we have also met with conservation groups, NGOs, trade unions, industry, the Equa-
tor Banks, the SRI community, and part-
ner institutions to solicit their input.
Toward a Global Benchmark
In updating our policies, IFC recog-
nizes its responsibility in maintaining an effective global benchmark for the private sector in emerging markets. IFC standards will need to evolve to meet new sustainability challenges, and we will continue to work with our partners in the wider ﬁnancial sector as they incorporate non-ﬁnancial risks into business decision-making. Further information is available at: www.ifc.
org/policyreview
At a Glance: IFC’s Policy and Performance Standards on Social and Environmental Sustainability
Emphasis on Social Goals
The draft Performance Standards place increased emphasis on social goals, integrating social and environmental impact assessment and providing new, comprehensive treatment of labor and working conditions and community health and safety. Signiﬁcantly, the labor standard articulates worker rights in accordance with the International Labour Organization (ILO) Core Labor Standards. This is an example of how human rights have been incorporated in the new policy (see box, p. 39). The draft standards also cover in detail major environmental concerns, such as biodiversity and climate change.
IFC ONLY IFC & CLIENTS IFC & CLIENTS
IFC Policy Statement Performance Standards Implementation
■ IFC’s Commitment
■ IFC’s Responsibilities
■ How IFC Helps Clients
PS1 Social and Environmental Assessment
PS2 Labor and Working Conditions
PS3 Pollution Prevention and Abatement
PS4 Community Health & Safety
PS5 Land Acquisition and Involuntary Resettlement
PS6 Conservation of Biodiversity and Sustainable Natural Resource Management
PS7 Indigenous Peoples and Natural Resource Dependent Communities
PS8 Cultural Heritage
PS9 Social and Environmental Management System
■ Environmental, Health and Safety Guidelines
■ Guidance Notes
■ Good Practice Publications
38 IFC Sustainability Report 2004
Updating IFC’s Environmental Guidelines
IFC’s policy review includes an ambi-
tious two-year program to update the Environmental, Health and Safety Guidelines, which address our expecta-
tions for managing industrial impacts, speciﬁcally pollution prevention and control. The 73 guidelines cover a wide range of activities from oil, mining, and chemicals, to forestry and wind energy conversion. They are used by industry, regulators, academics, and ﬁnancial institutions worldwide in addition to our clients as a source of reference on envi-
ronmental performance.
IFC is consulting with technical experts to maintain the high standard and applicability of the guidelines across the market sectors we ﬁnance. The update will incorporate cleaner production and good management practices and will encourage industry performance in line with internationally accepted emissions and efﬂuent stan-
dards to reduce overall loading to the environment. The process will stream-
line the guidelines for our clients and improve their applicability to projects, and provide performance benchmarks and indicators, thus improving their utility to the diverse community of external users. For more information on the guidelines update, see www.ifc.
org/ehsguidelinesupdate
Improving Transparency and Disclosure
A critical element of IFC’s approach to sustainability is reﬂected in our approach to transparency. We know that disclosure builds trust, promotes efﬁciency and accountability, and enhances the develop-
ment impact of our investments. Since IFC last updated its Policy on Disclosure of Information in 1998, public expectations concerning the level of transparency of publicly owned institutions and the private sector have increased. We are, therefore, reviewing our Disclosure Policy in close consultation with clients, industry groups, civil society, and government.
Balancing Conﬁdentiality with Transparency
This review of our disclosure policy requires respecting the legitimate busi-
ness conﬁdentiality of our clients while fostering a culture of transparency and greater openness. The draft policy clariﬁes the roles and responsibili-
ties of both IFC and clients regarding disclosure. It also elaborates general principles to guide our work, given the dynamic nature of the business climate in which IFC operates and our need to respond to unforeseen circumstances.
Reporting on Impacts and Development Outcomes
The draft Disclosure Policy acknowl-
edges the importance of ﬁnancial and nonﬁnancial reporting and the impact this has on performance—in particular, how such reporting can be used to assess IFC’s development outcomes. This means a renewed commitment to being open about our activities to the widest audi-
ence, facilitating inputs from affected communities, stakeholders, and the pub-
lic. The draft policy also makes clear our clients’ obligations to inform and consult affected communities and other local stakeholders on issues of concern, impact mitigation, and project monitoring. It reﬂects a view that building trust through disclosure and consultation can deliver tangible beneﬁts to clients by reducing project risks and enhancing outcomes. For more information on the Disclosure Policy review see www.ifc.org/disclosurereview
IFC Sustainability Report 2004 39
IFC AND HUMAN RIGHTS
IFC has provided guidance to companies for many years on how they can support human rights in their business opera-
tions. For example, IFC has encouraged clients to empower women and to provide healthcare to workers and clean water to communities. IFC, along with private sector compa-
nies and their stakeholders, have begun to understand that such services, community investments, and hiring policies have a human rights dimension that should be respected and supported. The challenge in this process is to identify the appropriate boundary between public and private responsi-
bility, because human rights conventions were originally drafted to be applied principally by governments, not private parties. This conundrum is at the heart of the current busi-
ness and human rights debate.
The exception to this boundary is the set of human rights that address the rights of workers, where employers clearly have a role to play in respecting and promoting labor rights. As atten-
tion to working conditions and respect for labor rights extend further and further down supply chains, and as emerging mar-
ket companies strive to become global players, these com-
panies will increasingly be expected to demonstrate that they are meeting international labor standards. We are providing more detailed requirements and guidance for clients on this issue by adopting a draft Performance Standard speciﬁcally on labor issues, accompanied by a Guidance Note and further Good Practice Notes to help clients interpret the international standards and apply them in their business.
IFC has chosen to weave other human rights principles into our draft Performance Standards (rather than prepare a stand-alone human rights Performance Standard). For exam-
ple, several of the draft Performance Standards speciﬁcally address vulnerable groups that are often subject to discrimi-
nation. In some cases, clients may be asked to disaggregate their evaluation of project impacts and adopt differentiated mitigation and beneﬁt-sharing measures as necessary to ensure that vulnerable persons are not discriminated against during project development and operation. The Performance Standard on Land Acquisition and Involuntary Resettlement, for example, reﬂects human rights considerations from a right-to-housing perspective.
As the discussion on private sector responsibility for human rights evolves, IFC will continue to engage with a wide range of actors to help develop practical tools that aid businesses in understanding their responsibilities in this area. For example, we are providing funding to the Danish Institute for Human Rights to develop a Web-based version of the Institute’s human rights compliance assessment tool for business. We are also participating in a project led by the International Business Leaders Forum to develop an introductory guide to human rights impact assessment for business, with inputs from business and NGOs. IFC will use lessons learned from these collaborations and from addressing human rights issues in the projects it funds to develop a tangible methodology for companies to address human rights in a way that adds value to their business and furthers IFC’s development goals.
40 IFC Sustainability Report 2004
Mainstreaming IFC’s Environmental and Social Expertise
To meet our goal of differentiating IFC from other lending institutions through our sustainability services, we are mainstreaming the principles and com-
petencies that guide the work of our 40 social and environmental specialists throughout IFC’s investment depart-
ments. There are many challenges to reorienting the Corporation along these lines, but we hope this process of decentralization and co-location will better equip us to accomplish our development mission.
During 2004, we co-located over 60 percent of specialists in industry or regional departments. These “main-
streamed” social and environmental staff are engaged more frequently at all stages of the project cycle. This shift is allowing our specialists to engage at an earlier stage on projects, resulting in better integration of the ﬁnancial and nonﬁnancial services that IFC offers cli-
ents. Mainstreaming has also resulted in our social and environmental special-
ists playing a more active role in busi-
ness development for IFC, particularly in regional ofﬁces. This upstream involvement makes it easier for IFC to make the business case for sound social and environmental management, as opposed to relying solely on compli-
ance requirements.
Sustainability Learning for IFC Staff
The Sustainability Learning Program (SLP) is designed to familiarize our investment staff with IFC’s many in-house resources to enhance the added value of an investment and the rationale behind a sustainable business approach for clients. Practical exercises and case studies are used to highlight speciﬁc ways that IFC can build better business by improving clients’ ability to identify social and environmental risks and opportunities. During FY04, 226 of our staff participated in sustainability training, joined at each session by NGO representatives, executives from IFC client companies, and industry experts. We are developing an updated train-
ing program for FY05 for selected IFC ﬁeld ofﬁces, in addition to sessions for Washington-based staff.
Capturing the cumulative years of IFC’s project experience, knowledge, and lessons learned is essential to improv-
ing our work quality and development impact. As part of our commitment to learning and knowledge sharing, we continue to gather and disseminate sec-
tor-speciﬁc guidance, topical research, and good practice on sustainability issues relevant to the private sector.
We have highlighted earlier in this report some examples of publications on sustainability-related issues, such as IFC’s new HIV/AIDS guide for min-
ing companies, research on ecolodge business viability, and SRI in emerging markets. IFC also produces a regular series of Good Practice Notes written by our social and environmental spe-
cialists to guide clients and the wider private sector. Previous publications cover issues such as the workplace impacts of HIV/AIDS and Harmful DISCLOSURE POLICY: PROPOSED NEW FEATURES
■ The Summary of Proposed Investment (SPI) is to include a description of expected project development impacts and IFC’s development contribution.
■ Timing of disclosure of the SPI for Category A projects prior to Board review may be extended from 30 to 60 days.
■ Commitment to report annually, in aggregate, on the development impact of IFC’s projects.
■ Clients are encouraged to engage with project stakeholders earlier in their project cycle, particularly on social and environmental impacts.
■ Clients will disclose an Action Plan documenting how mitigation of project impacts and opportunities will be achieved, and report on its implementation.
IFC Sustainability Report 2004 41
Child Labor, Resettlement, Community Development, and Public Consultation. In FY04, we produced Addressing the Social Dimensions of Private Sector Projects to guide companies seeking to analyze the impact of their operations on communities. Social assessment is presented as an integral part of IFC’s environmental assessment process and as a tool for companies to identify value-adding opportunities that go beyond traditional mitigation measures to deliver broad development beneﬁts. New in FY05 is IFC’s Biodiversity Good Practice Guide (see p. 29), and a series on labor and workplace practices.
Currently, we are ramping up our knowl-
edge-building capacity to improve inter-
nal coordination and communication with the addition in 2005 of two new knowledge management ofﬁcers based in our Environment and Social Develop-
ment Department. They will help us to better capture IFC’s institutional learn-
ing to beneﬁt staff and clients and to inform other stakeholders as they seek to understand IFC’s approach to sus-
tainable development.
Evaluating IFC’s Development Impact
IFC’s Operations Evaluation Group (OEG) is responsible for the post-
evaluation function within IFC and reports to IFC’s Board. OEG’s work aims to: (i) help provide accountability for achievement of IFC’s objectives; (ii) identify lessons from past experi-
ence to improve IFC’s operational performance and achieve better development results; and, (iii) help reinforce corporate objectives and val-
ues among staff. IFC’s self-evaluation system is based on guidelines estab-
lished by OEG and provides feed-
back on the effects that IFC-funded projects have on companies, their ﬁnanciers and clients, workforces, the environment, governments, and communities. For about half of IFC’s portfolio of ﬁve-year-old projects, evaluation teams examine the extent to which approval expectations and objectives were met, and why there were material variances. OEG independently validates the ratings, ﬁndings, and lessons which are then used to help inform decisions related to new projects.
Evaluating Sustainability Across the Board
Lessons learned from evaluated projects touch on many aspects of sustainability, including the projects’ environmental and social effects and their economic and ﬁnancial viability. Completed self-evaluations are often the focus of management meetings chaired by a senior IFC portfolio or credit ofﬁcer, and provide the material for informal presentations to IFC staff. In 2003, an evaluation of IFC’s invest-
ment in a best-practice Brazilian mining company showcased the company’s assistance to local communities, includ-
ing programs to improve their skills and clean up their environment. Also in Brazil, a privately owned and operated road project was a success commer-
cially and economically since it relieved congestion, but a spike in fatalities was an unanticipated impact. IFC learned that pedestrian and driver road safety awareness programs must be a compo-
nent of future road projects.
Project evaluation is also the building block for other OEG evaluation prod-
ucts, including recent special studies such as country impact assessments for Brazil and China, two of IFC’s big-
gest client countries; sector studies on extractive industries and private sector power generation; and thematic stud-
ies on investment climate and IFC’s assistance to SMEs. Every year, these studies and OEG’s Annual Review of IFC’s Evaluation Findings go to the Board’s Committee on Development Effectiveness (CODE) with recom-
mendations for IFC management that are drawn from recurring ﬁndings. For example, OEG’s Extractive Industries Evaluation (which fed into the Bank Group’s broader Extractive Industries Review) made strong recommenda-
tions related to revenue management, mine closure, prerequisites for funding projects in countries with poor gov-
ernance, and improving community consultation. Another example was OEG’s ﬁnding that poor environmental performance at the project level was closely linked to ineffective regulatory enforcement, often the case in frontier countries, and was the main driver of below-average development outcome ratings in these countries. In response, IFC is considering changing its opera-
tional environmental risk rating system to weight project environmental super-
vision priorities accordingly.
Dynamic Evaluation Framework
IFC’s current practice is to evaluate selected projects once, at early project maturity, but this practice is now chang-
ing. Plans are in place to assess devel-
opment outcome prospects annually for every committed project and to moni-
tor speciﬁc expected project impacts. These changes, and IFC’s intention to reward staff for achieving above-aver-
age developmental results, shows that IFC is committed to mainstreaming sustainability within its operations. OEG has committed to review its existing evaluation guidance and ratings criteria (Web site: http://www.ifc.org/ifcext/oeg.
nsf/Content/xpsr) for 2005 to ensure that IFC’s rapidly evolving corporate standards for sustainable development are coherently embodied in the evalua-
tion scope and ratings standards.
42 IFC Sustainability Report 2004
Compliance Advisor/
The Compliance Advisor/Ombuds-
man is an independent post that reports directly to the President of the World Bank Group with the aim of enhancing the development impact and sustainability of IFC (and MIGA) projects. The CAO responds to complaints from project-affected communities in order to improve HOW DOES IFC EVALUATE A PROJECT’S DEVELOPMENT OUTCOME?
The development outcome is a bottom-line assessment of a project’s success on the ground, relative to what would have occurred without the project. In OEG’s 2004 Annual Review, covering a sample of 1995–1997 investment approvals, 58 percent of operations made positive contributions to devel-
opment based on the top three ratings on a six-point scale from highly successful to highly unsuccessful. The overall rat-
ing is determined by the relative importance of four underly-
ing indicators for each project:
Private Sector Development: 72% Success Rate
IFC projects contribute to private sector development by creat-
ing sustainable enterprises capable of attracting ﬁnance. Proj-
ects tend to have demonstration effects, linkages to suppliers or customers, and/or bringing technology and know-how trans-
fer, training, or increased competition. Some projects also bring about improvements in the regulatory or enabling environment, or improve corporate governance. A high proportion (72 per-
cent) of evaluated projects made such positive contributions.
Environmental, Social, Health and Safety Impacts: 64% Success Rate
IFC assesses a project’s impacts on its physical environ-
ment and social, cultural, and worker health and safety issues addressed by our safeguard policies. The project’s environmental, social, and health and safety effects were satisfactory or excellent in 64 percent of cases. Low ratings were due to material performance shortfalls, which, how-
ever, were usually corrected during the life of the project.
Economic Sustainability: 61% Success Rate
IFC rates a project’s economic sustainability on its contri-
bution to economic growth as measured by its economic rate of return (ERR), taking into account net gains or losses by nonﬁnanciers, nonquantiﬁable impacts, and contribu-
tions to widely held development objectives such as direct poverty reduction, social or gender equality, and regional or rural development. Overall, 61 percent of the evaluated projects were judged to be economically sustainable.
Project Business Success: 39% Success Rate
A project’s business success, or ﬁnancial sustainability, is a strong determinant of its wider development impacts. In the real sector, IFC compares returns to the company’s cost of capital. In the ﬁnancial sector, IFC considers how the project contributed to the intermediary’s proﬁtability, ﬁnancial con-
dition, and business objectives. Project business success scored lowest at 39 percent of evaluated projects. This ﬁgure reﬂects the commercial, country, and global business climate risks IFC and its investment partners face. Even when a proj-
ect does not meet IFC’s high standards, typically people other than the project ﬁnanciers (who get paid last) tend to beneﬁt and companies may still be sustainably servicing their debt.
social and environmental outcomes and to promote greater institutional accountability.
The CAO’s broad mandate as an ombudsman, auditor, and advisor means it has ﬂexibility in respond-
ing to a complaint relating to an IFC project, ﬁnding practical solutions where possible, and engaging parties in constructive dialogue. The CAO’s independence and impartiality help foster the trust of local communities, NGOs, and IFC’s clients, and its inde-
pendence from IFC’s management allows the CAO to provide objective advice to improve IFC’s work.
Since 1999, the CAO has received a total of 28 complaints. Ten of these are being assessed; seven were investigated and recommendations made; ﬁve have been rejected; two are involved in large, multiparty mediation; two were closed because the project was dropped or canceled; and two were closed as they could not be pursued further. Complaints have touched on such issues as the adequacy of: consultation and information sharing; compensation or other measures to offset loss of income; protective measures for water resources; mitigation measures more generally; and public safety provisions.
In FY04, the CAO continued to work on, and resolve, a complaint related to the COMSUR/Don Mario Gold Mine in Bolivia, and received 15 new complaints, IFC Sustainability Report 2004 43
A PROJECT WITH A HIGHLY SUCCESSFUL DEVELOPMENT OUTCOME
The project was a two-year capital expenditure program to rehabilitate and expand a recently privatized water and sewerage system in a major capital city.
Project Business Performance: Excellent. The project was completed below budget and on time. Capacity increased by 26 percent, resulting in nearly 1 million new water custom-
ers and about 400,000 additional sewerage customers in a city of 9.4 million people. The company has been operating proﬁtably throughout the IFC investment period.
Economic Sustainability: Excellent. The project made available a reliable, 24-hour, clean water supply for the ﬁrst time in many disadvantaged neighborhoods. The project’s economic return of 36 percent reﬂected taxes paid and the consumer surplus. Also, company employees beneﬁted from secure employment, improved working conditions and better pay. They could also own company shares.
Environmental Impacts: Satisfactory. Without the project, the adverse impacts on health associated with unsafe water would have remained a burden to people’s lives and the economy. The project helped the company work toward full compliance with local environmental obligations.
Private Sector Development: Excellent. The project engaged several contractors with a total of about 11,000 workers; some of these were SMEs set up by former employees. The provision of water enabled the establish-
ment of schools and clinics in areas the company served.
A PROJECT WITH AN UNSUCCESSFUL DEVELOPMENT OUTCOME
The project was a renovation and upgrading of a company’s meat processing plants, aiming to enhance the quality of export products, expand the product range, and improve hygiene standards.
Project Business Performance: Unsatisfactory. The project failed ﬁnancially, having been unsuccessful in positioning the company to expand into the domestic market at a criti-
cal time when export markets collapsed. The project helped improve the company’s overall efﬁciency, but the ﬁrm remained exposed to raw material price volatility, given that the dominant domestic operators controlled cattle supply.
Economic Sustainability: Unsatisfactory. The company beneﬁted from an export subsidy, which helped its owners and ﬁnanciers more than other members of society. A cattle disease outbreak overseas caused the company to restruc-
ture and reduce its labor force by closing two old plants in low-income areas.
Environmental Impacts: Satisfactory. The project created high safety standards for employees at one plant. Management ensured compliance with IFC environmental guidelines and local regulations, including air emissions, safety, and hygiene.
Private Sector Development: Partly Unsatisfactory. The project failed to stimulate a large-scale modernization of the domestic meat processing industry, which continued to be dominated by fragmented and inefﬁcient operators who often violate hygiene standards.
14 of which related to the BTC Pipe-
line project. Four of these have been rejected and 10 are under assess-
ment. One other complaint received and resolved in FY04 related to the Konkola Copper Mine in Zambia. In its advisory role, the CAO continues to actively stimulate debate and internal action on matters such as IFC’s approach to human rights.
During FY04, the CAO released an independent water study of the Yana-
cocha Gold Mine in Peru. The study’s objective was to evaluate whether the quantity of water available for human consumption and agriculture is adversely affected, and whether the quality of water has changed in ways that could make it unsafe for humans, livestock, and wild ﬂora and fauna. The CAO hired independent hydrologists to carry out the work, which was innovative, in that local people—
veedores (observers)—performed the monitoring and veriﬁcation of water data collection. While the study is completed, follow-up work is still continuing as the community works to address the issues and problems raised. The study provides important lessons learned for IFC regarding best practices and participatory planning.
This study, the CAO’s 2003–4 Annual Report, and full details of complaints received, their status, and assessment are available at www.cao-ombudsman.org
“… local people—veedores (observers)—performed the monitoring and veriﬁcation of water data collection.”
44 IFC Sustainability Report 2004
As part of our commitment to sustainable development, IFC tracks and manages the impact of our physical facilities on the environment, on staff and their fami-
lies, and on the local communities in which we work and live. This is the third year we have reported on IFC’s corporate footprint.
IFC Sustainability Report 2004 45
Over the past year, IFC has undertaken new greening initiatives, community out-
reach, and staff development programs, in addition to continuing to improve our footprint in areas previously identified. Some of IFC’s facility operations are man-
aged by the World Bank’s General Services Department (GSD), which jointly facilitates IFC’s engagement in some footprint activi-
ties. As part of our efforts to improve our footprint performance, IFC is recruiting a dedicated Footprint Ofﬁcer in 2005. This member of staff will work full time on a one-year pilot basis to help integrate prior-
ity greening activities at IFC, and imple-
ment methods to improve staff awareness.
Management of energy use in ofﬁce build-
ings often depends on the burning of fossil fuels, resulting in emissions that contribute to climate change. Monitoring our energy usage at IFC headquarters is a key prior-
ity, and an engineering team has worked diligently to improve our operating strategy for saving energy.
Such efforts began when IFC opened its headquarters building in 1997. Major initial improvements led to IFC’s earning the U.S. Environmental Protection Agency’s (EPA) Energy Star Rating for 1999 and 2001, and we continue to identify further energy efﬁciency improvements. IFC has a load shedding program in place for saving electricity costs by reducing con-
sumption. This is accomplished by several means including managing building tem-
perature setpoints, temporary equipment shutdown, and cogeneration of electricity when fuel oil prices are sufﬁciently low. Four large gas-powered water heaters are kept at peak efﬁciency using a ﬂue gas analyzer; this reduces the amount of unburned gas entering the atmosphere as well as maintenance costs. IFC’s annual cost of utilities per square foot for the past 3 years has averaged 33 percent below comparable commercial buildings in downtown Washington, D.C., according to industry standard data from the Build-
ing Owners and Managers Association. In light of this achievement, IFC has applied for EPA’s Energy Star Rating for 2004. IFC’s ofﬁce equipment is also Energy Star-
certiﬁed wherever possible.
In FY04, renewable energy constituted 8 percent of total energy usage at IFC headquarters, up from 6 percent in FY03. IFC’s source for renewable energy is wind power, acquired through a local utility company, generating quantiﬁable environmental beneﬁts. Reductions of sulfur dioxide, nitrogen oxides, and carbon dioxide emissions are quantiﬁed for the utility’s customers in the form of green certiﬁcates or “tags” that are certiﬁed by Green E, an independent organization that monitors electricity generated by renew-
able energy projects. Beginning in ﬁscal year 2005, the World Bank announced it will purchase renewable energy for all of its electricity usage at its Washington, D.C. ofﬁces from WindCurrent, a Maryland-
based company that sells wind power to the mid-Atlantic power grid. This purchase will represent enough electricity to power almost 8,000 average homes a year, and is equivalent to eliminating the carbon diox-
ide emissions of more than 10,000 cars a year or planting roughly 15,000 acres of trees, according to U.S. EPA ﬁgures. Produced using conventional electricity sources, including coal and natural gas, this would have generated an estimated 60,000 tons of carbon dioxide emissions.
Water, Waste, and Recycling
We have installed new recycling contain-
ers throughout our headquarters buildings to capture recyclable paper, glass, plastic, and aluminum, recycling 63 tons of paper material and 7.3 tons of glass, plastic, and aluminum during FY04. IFC is also fol-
lowing the World Bank in using recycled toner cartridges and environmentally friendly restroom supplies. In FY04, IFC reduced total water usage by 1,095 cubic feet (CCF), reducing average water usage employee by 1.07 CCF (see “Environ-
mental Facts and Figures,” p. 46).
DONATING EXCESS OFFICE SUPPLIES TO BENEFIT LOCAL SCHOOLS
In October 2003, IFC’s Environment and Social Development Department (CES) assem-
bled a team to explore ways of reducing its own environmental footprint. The Footprint Reduction Team began by focusing on excess supplies, energy consumption, printing services, and paper reduction. Through the World Bank’s “Recycle Excess Ofﬁce Sup-
plies” program, the team has donated ten boxes of excess supplies to beneﬁt two local D.C. high schools, Cardozo and Bell, in addition to staff donations of books, software, and three computers with monitors. With assistance from volunteer Bank Group staff, students at the high schools prepare a “business plan” to cover inventory, pricing, and sales to local nonproﬁt organizations. The Footprint Reduction Team continues to work with IFC and World Bank colleagues to achieve similar success in other areas. 46 IFC Sustainability Report 2004
Thousands of commuting World Bank Group staff have an impact on local air quality in the Washington, D.C. area, as well as on carbon emis-
sions globally. To reduce the number of cars on the road, IFC has, since 2003, provided an incentive plan for staff by offering subsidies for pub-
lic transportation on Metrorail and Metrobuses for their daily commute. Over 450 IFC staff members are reg-
istered for the incentive. In conjunc-
tion with the World Bank, IFC has also enabled its staff to join a pro-
gram to reduce the use of their own vehicles for local personal and busi-
ness travel by providing easy access to a ﬂeet of shared vehicles for car-
pooling, with the normal application fee being waived for IFC staff.
IFC and the World Bank have identiﬁed opportunities to support sustainable practices in our cafeteria and catering for meetings and confer-
ences. In FY04, IFC’s food services stopped serving several species of seafood considered to be harvested unsustainably: shark, marlin, orange roughy, Chilean sea bass, monkﬁsh, and sailﬁsh. The percentage of coffee sold in IFC’s cafeteria in FY04 that was organic, fair-traded, and shade-
grown increased to about 40 percent from 25 percent the previous year. In IFC STAFF COMMUTING SURVEY
In the summer of 2004, IFC’s Global Manufacturing and Services Department (GMS) undertook a survey of staff commuting habits. This department is the largest at headquarters, so it offers the greatest opportunity among depart-
ments to reduce its commuting footprint. The survey showed the greatest number, 26 percent, using public transport, over 20 percent using carpool-
ing arrangements, 18 percent walking or bicycling, and 22 percent regularly commuting in their own cars. As these results show opportunities for further reducing the commuting footprint, IFC will continue to encourage carpooling and other less carbon-intensive commuting options. 2002 2003 2004
Building Occupants 1,800 1,800 1,800
Building Space (square feet) 819,848 819,848 819,848
Volume of Waste Produced
429.30 324.57 339.94 Metric tons
526 397.42 416.23 lbs/building occupants
Recyclables (Mixed Paper)
x x 63 Metric tons
x x 77 lbs/building occupants
99.56 101.85 110 Metric tons
122 124.71 135 lbs/building occupants
12,855 10,930 9,835 CCF (100 cubic feet)
7.14 6.07 5 CCF/building occupants
16,239,247 16,709,145 16,939,569 Kilowatt hours (KWh)
9,021.8 9,282.8 9,411 KWh/building occupants
Thermal Energy** absolute
18,849 24,867 27,120.70 Therms (Natural Gas)
10.47 13.81 15.06 Therms/building occupants
945 1,692 1,062 Pounds (lbs)
0.525 .94 0.59 lbs/building occupants
Environmental Facts and Figures*
* Several of the ﬁgures quoted in this table have been adjusted to reﬂect corrections.
** In 2002, the winter session in Washington, D.C. was unseasonably warm, resulting in 23% fewer heating days and lower than normal usage of natural gas for heating purposes.
IFC Sustainability Report 2004 47
addition, 15 percent of vendors to IFC’s cafeteria are small and minority-
run businesses. Procurement from these vendors represents approxi-
mately 12 percent of IFC’s total cafe-
teria purchases.
Of IFC’s total building operating budget for products and services, 32 percent goes to small, minority, or women-owned businesses, and approximately 10 percent of our con-
struction subcontractors represent small or minority-owned businesses. IFC’s contractors use only paints that contain no volatile organic com-
ponents and are environmentally safe. In working with suppliers, IFC includes environmental requirements in its Requests for Information, Requests for Proposals, and con-
tracts, similar to those in use at the World Bank.
As for any company or institution, a key stakeholder for IFC is its staff. We are fortunate to have a diverse work-
force with employees from 126 differ-
ent countries; each member brings his or her own unique perspective and skills to the Corporation. IFC is com-
mitted to creating a respectful and supportive work environment, nurtur-
ing strong leaders, mobilizing diversity and inclusion, and developing a global IFC workforce. IFC currently has a total of 2,231 staff, with 1,287 (58 percent) at headquarters in Washington and 944 (42 percent) in 86 country ofﬁces around the world. Since FY99, IFC’s staff body has increased by 20 percent, reﬂecting the growth of our SME and technical assistance work in the ﬁeld. IFC’s human resources management is directly linked to our business strategy and based on fostering a culture of high performance, accountability, and learning to deliver on IFC’s goals. Our 2003 Staff Survey shows that morale is high, with staff acknowledging IFC’s improved managerial capacity in foster-
ing open discussions, and improved teamwork across groups. And IFC staff indicated an overall 92 percent satis-
faction rate in working for the World Bank Group.
Diversity and gender issues remain a focus of IFC’s recruitment and profes-
sional development efforts—particularly for the higher ranks of the Corporation. Women account for 50.3 percent of the workforce at IFC. At the ofﬁcer level and above, 31.4 percent of positions are held by women, and we intend to increase this percentage through promotions and new recruitment. Developing country nationals are 57.3 percent of our overall workforce, and account for 47.4 percent of positions at the ofﬁcer level and above. We are proud of our record to date, but acknowl-
edge that improvements are possible.
In FY05, IFC will increase staff recruit-
ment from leading universities in devel-
oping countries, and target high-caliber professionals from Africa and Asia, partic-
ularly women. We are expanding our par-
ticipation in job fairs worldwide, as well as undertaking recruitment missions to the Middle East, Japan, and Europe. We are mainstreaming diversity and inclusion across IFC’s staff training, performance management, and career development programs, including diversity and cultural competency training in our Leadership Program for new managers. Promoting diversity will remain a continuing priority for IFC, with appropriate milestones and monitoring of progress.
IFC Total Staff: 2,231 IFC Workforce: Gender
49.7º
50.3º
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■"U)2
■.FO
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48 IFC Sustainability Report 2004
The World Bank Group has an Ofﬁce of Ethics and Business Conduct (EBC), which is responsible for ensuring staff awareness of the institution’s core values and ethical standards. The EBC advises staff on actions that might constitute misconduct or clarify gray issues and provides training on ethics awareness and integrity. IFC is committed to fostering a workplace free of harassment and intimi-
dation, where all staff can work together in an atmosphere of trust and openness where differences are respected. Harass-
ment on any basis—including but not limited to race, gender, religion, national-
ity, color, sexual orientation, disability or age—is unacceptable. Staff are expected to conduct themselves in accordance with the high ethical standards of honesty and integrity articulated in the institution’s Code of Professional Ethics. IFC managers receive training on ethics and forms of harassment, including sexual harassment.
IFC actively seeks to maintain equity in terms of diversity in its salary distri-
butions; the key groups we examine are women and staff from develop-
ing countries. A comparison index is offered for average salaries at the managerial level and entry-level ofﬁcer level in IFC across gender and national-
ity lines (see right). For each category, the chart demonstrates deviation from the corporate average represented by a value of 100.
IFC’s Staff Performance Awards program recognizes and awards outstanding staff contributions that lead to improved results for our clients and greater work effectiveness for IFC as a whole.
The program includes: individual awards for intense efforts over a short period, or outstanding individual performance; departmental awards for achieving best results and targets; and team awards for achievements that have a corporate-
wide impact on clients. In FY05, we are launching the Long-Term Performance Awards Program to recognize individuals and teams for signiﬁcant contributions to strengthening IFC’s business, work with clients, and project quality for positive development and ﬁnancial impacts.
Community Outreach at Headquarters
IFC has always maintained a commit-
ment to supporting local communities where our staff live and work. In addition to encouraging staff to volunteer in outreach activities, IFC devotes cor-
porate energy and resources to sup-
porting a variety of World Bank Group community outreach programs. These efforts build a sense of com-
munity among our staff and increase recognition of the World Bank Group, the third largest employer in the Washington area, as a good corpo-
rate citizen.
For the second consecutive year, the World Bank Group was ranked by the Washington Business Journal as being one of the top 25 most generous corporate philanthropists in the Wash-
ington, D.C., metropolitan area, raising over $450,000 through charitable giv-
ing and events in FY04. Including the Bank Group’s corporate contribution, a total of $700,000 was awarded to 172 local nonproﬁt organizations in the Washington area, including selected international agencies.
Most of the Bank Group’s outreach activities focus on the education and rehabilitation of less fortunate people in the Washington area. Our Com-
munity Connections Fund distributes funds to the neediest organizations in the area based upon consultation with Managers Entry-Level Ofﬁcers
Gender–Nationality Salary Indexed to Average (100=average)
Salary Indexed to Average (100=average)
Male–Developed 99.8 99.5
Male–Developing 100.6 99.9
Female–Developed 100.4 100.9
Female–Developing 96.6 100.1
Diversity Salary Index for Managers and Entry-Level Ofﬁcers
As part of our commitment to develop careers and retain diverse staff, IFC’s Management Group introduced the Global Business Leadership Program in FY04. This intensive 18-month program identiﬁes high-performing staff and strengthens their leadership skills and technical expertise, deploying them in special assignments across all parts of IFC’s business. The ﬁrst diverse group of 21 staff have increased their responsibilities through this tailored program, which includes a mix of ﬁeld assignments, mentoring, and leadership training.
In a perfect example of meeting business needs through the local community, IFC’s “A Chance to Work” program provides formerly homeless people who have graduated from rehabilitation programs with an opportunity to rejoin the work-
force. Participants in the Washington program are screened by local community organizations and are then trained to ﬁll clerical jobs in IFC departments. The program has been such a success from a business perspective that many partici-
pants have been hired directly by the departments where they trained.
IFC Sustainability Report 2004 49
FOME ZERO HUNGER
Last year, IFC established a key role in the Brazilian government’s Fome Zero (Zero Hunger) program, providing a $300,000 grant to two nonproﬁt groups that developed a database, call center, and Web site to provide information on the needs of 1,000 of Brazil’s poorest municipalities to private companies willing to fund anti-
poverty projects. This year, on the initiative of administrative staff in our ofﬁces in Brazil, IFC became a program participant.
We granted $50,000 for a project in Brejao now piping potable water to more than 1,300 people in a rural area. In Setubinha, IFC granted $20,000 to fund a laboratory for pathological testing in a newly built clinic. Ganjeiro municipality will receive $10,000 for modern agricultural machinery to harvest sisal hemp, a proj-
ect that could beneﬁt 500 people. And in Aimores, IFC granted $10,000 to support agricultural assistance for small-scale farmers.
For the administrative staff who spearheaded IFC efforts, Fome Zero continues to be a rewarding and challenging experience and provides a better understanding of IFC’s operations and mission. See www.fomezero.org.br C
community leaders. In FY04, over $100,000 was designated to this fund by Bank Group staff. In association with D.C. Cares, IFC staff join staff from across the Bank Group to partici-
pate in the “Christmas in April” pro-
gram to help families in poorer parts of Washington renovate their homes.
Community Outreach in the Field
Building on the success of our “A Chance to Work” program in Wash-
ington, IFC’s Legal Department has extended the program to IFC’s ﬁeld ofﬁces. Programs underway in Egypt and Russia are enjoying much success.
In Cairo, IFC has partnered with one of its clients, the Mansour Group, and USAID to establish a community development and microﬁnance NGO called the LEAD Foundation. LEAD administers the Cairo “A Chance to Work” program, which trains disad-
vantaged Cairo residents to ﬁll needs identiﬁed in certain industries. Thus far, the program has placed 30 interns in the automotive repair and plumbing ﬁelds, and all participants have found permanent employment.
In Moscow, the program targets young adults who have come of age from Russia’s orphanages. IFC works together with the Russian Union of Industrialists and Entrepreneurs to C
Since 1997, IFC’s Cultural Outreach Program has been committed to bringing the world’s many cultures to IFC headquarters, presenting renowned and emerging international artists in various ﬁelds of the performing arts including music, dance, theater, and ﬁlm. The program has grown steadily since its inception and currently presents an average of 20 performances a year. We also partner with various initia-
tives where the performing arts can contribute to raising awareness on social issues. In this past year we have worked alongside the diversity and disability pro-
grams to present the “Children of War” play and the “Blind Dancers of India“ to name a few. Events are always free.
identify companies that can host interns in clerical ﬁelds. Moving for-
ward, we are actively pursuing the creation of similar programs through our ofﬁces in Manila, Philippines and in Kiev, Ukraine.
50 IFC Sustainability Report 2004
Tables: Sustainability Facts and Figures
Financial/E&S Data from the 2004 Annual Report
* Includes off-balance-sheet products, such as structural ﬁnance and risk management products; for IFC’s own account as of June 30, 2004.
COMMITMENTS BY REGION, FY04 INVESTMENT PORTFOLIO BY REGION, FY04
Includes IFC’s account and syndications (millions of U.S. dollars) For IFC’s account (millions of U.S. dollars)
TOTAL $5,633 TOTAL $17,938
Includes BTC pipeline, which is ofﬁcially classiﬁed as a global project
Includes regional share of LNM Holdings Investment, which is ofﬁcially classiﬁed as a global project
Note: All numbers reﬂect rounding.
New projects committed 217
Total ﬁnancing committed $5.63 billion
Financing committed for IFC’s own account $4.75 billion
Total committed portfolio* $17.9 billion
Loans as a % of committed portfolio 74%
Equity as a % of committed portfolio 20%
Structured ﬁnance products (includes guarantees) as a % of committed portfolio 5%
Risk management products as a % of committed portfolio 1%
OPERATIONAL RESULTS SUMMARY, FY 04
Operating income $982 million
Net income $993 million
Paid-in capital $2.4 billion
Retained earnings $5.4 billion
Borrowings for the ﬁscal year $3.0 billion
RESOURCES AND INCOME, FY04
IFC Sustainability Report 2004 51
COMMITMENTS BY PRODUCT, FY04
Includes IFC’s account and syndications (millions of U.S. dollars) TOTAL $5,633
COMMITMENTS BY STRATEGY, FY04
Includes IFC’s account and syndications (millions of U.S. dollars)
* Includes guarantees
* Not including information and communications
** SME investments derived from all industry sectors
Financial consists of ﬁnance and insurance, and funds. Infrastructure consists of utilities and transportation.
52 IFC Sustainability Report 2004
STAFF TIME DEVOTED TO ENVIRONMENTAL AND SOCIAL REVIEW, FY2004
Activity Staff Hours
Appraisal of new projects 28,705
Supervision of portfolio projects 16,729
COMMITMENTS BY SECTOR, FY04
Finance and insurance $1,675 29.7%
Utilities $739 13.1%
Oil, gas, and mining $630 11.2%
Information $312 5.5%
Industrial and consumer products $295 5.2%
Transportation and warehousing $249 4.4%
Nonmetallic mineral product manufacturing $238 4.2%
Collective investment vehicles $207 3.7%
Pulp and paper $206 3.7%
Chemicals $200 3.5%
Primary metals $173 3.1%
Agriculture and forestry $166 2.9%
Wholesale and retail trade $125 2.2%
Food and beverages $123 2.2%
Textiles, apparel, and leather $75 1.3%
Health care $63 1.1%
Accommodation and tourism services $50 0.9%
Plastics and rubber $37 0.6%
Professional, scientiﬁc, and technical services $36 0.6%
Construction and real estate $25 0.4%
Education services $10 0.2%
Total Commitments $5,633 100%
IFC Sustainability Report 2004 53
SNAPSHOT OF DEVELOPMENT IMPACT
Commitment of IFC’s account and syndications (percentages)
Priority sector commitments 77 76 64
Financial sector 34 50 33
Frontier country commitments
Commitments with projected high impact
57 58 1 Excludes ﬁrms in regional and global projects. IFC considers countries “frontier” if they are low income, as deﬁned by the World Bank, or high risk, with a rating of 30 or below or unrated by Institutional Investor.
For criteria, see p. 16 of the 2004 IFC Annual Report.
Adjusted number
For discussion, see p. 65 of 2004 IFC Annual Report.
GROWTH OF ENVIRONMENTAL AND SOCIAL STAFF, FY2004
Spending ($millions)
1994 8 2.0
1996 21 3.5
1998 42 5.1
2000 70 9.3
2002 84 11.7
2004 99 12.5
ENVIRONMENTAL AND SOCIAL STAFF AND TRAINING, FY2004
Total IFC staff 2,231*
Staff in specialized environmental and social business unit 99*
Staff receiving training in environmental and social issues during ﬁscal 2004 226*
* The FY 04 number is lower than the previous year as the Sustainability Learning Program has been expanded to a more comprehensive training thus requiring staff to be trained in smaller groups.
A B C FI
Number of committed projects 10 95 59 62
Amount committed ($ millions) 375,830,000.00 2,334,923,959.75 704,853,549.78 1,277,371,810.84
BREAKDOWN BY ENVIRONMENTAL AND SOCIAL CATEGORY OF FY 2004 COMMITMENTS
Note: Category A projects have signiﬁcant potential for adverse environmental or social impacts; Category B projects have less signiﬁcant or more manageable impacts; Category C projects have minimal or no environmental or social impacts; and ﬁnancial intermediaries are treated separately.
54 IFC Sustainability Report 2004
IFC’s Strategy Aligned to Contribute to MDGs
Sustainable development is explicit in IFC’s mission—we promote private sector investment in emerging markets to catalyze economic growth necessary for poverty reduction. A central theme of IFC’s development strategy is to invest in frontier markets—low-income and high-risk countries—where there are little or no foreign capital ﬂows. This strategy is increasing IFC operations in countries where progress toward meet-
ing the MDGs has been limited to date. IFC’s pioneering demonstration effect in these markets is likely to catalyze FDI from other investors. Recent IFC evalu-
ation studies show a strong correlation between improving a country’s invest-
ment climate and its progress toward meeting the MDGs: in the 1990s, 77 percent of IFC approvals and 84 per-
cent of net FDI were concentrated in countries that are now expected to have a likelihood of achieving the goals. The success of IFC’s frontier interven-
tions, together with coordinated World IFC and the Millennium Development Goals
The increased commitment of the international community to poverty reduction and sustainable development was evidenced by the adoption of the Millennium Development Goals (MDGs) in 2000 by the 189 UN member states. The World Bank Group is playing a lead role in efforts to meet the eight goals, which aim to achieve measurable improvements in people’s lives by 2015.
Bank Group efforts to improve invest-
ment climates, are likely to be key ele-
ments in helping these countries meet their MDG targets (see chart below).
In addition, IFC’s strategic focus on “high-
impact” sectors—domestic ﬁnancial markets; infrastructure; health and edu-
cation; information and communication technology; and SME development—
complements our frontier strategy by promoting strong local business growth, generating employment, and furthering human development goals.
COUNTRIES WITH BETTER INVESTMENT CLIMATES ARE MORE LIKELY TO ACHIEVE THE MDGs
IFC Sustainability Report 2004 55
Private sector development is now recognized as one of the most important engines for improving the lives of the poor. IFC’s investment activities are strategically priori-
tized to deliver the greatest poverty reduction impact—for example, by supporting small businesses that generate most new jobs in an economy, and by supporting infra-
structure projects that improve people’s mobility and access to basic services, such as potable water. Rec-
ognizing that investments in companies are not always sufﬁcient to effect change, IFC has greatly enhanced its ability to provide technical assistance and advisory ser-
vices, mostly through grant funding, that are speciﬁcally targeted at the neediest.
Since 2000, IFC has had a dedicated Health and Educa-
tion Department that invests primarily in private second-
ary and tertiary institutions. The schools in which IFC invests alleviate strain on the public sector to deliver in these areas. IFC’s policies prohibit use of child labor in any project in which we invest.
IFC contributes to this goal by supporting and promot-
ing the role of women in private sector development in emerging markets. We support the advancement of women entrepreneurs and women in education and training through IFC investments, advisory services, and technical assistance. We launched a gender mainstream-
ing program in 2004. We support gender equality in our policies and in our approach to projects.
IFC’s Health and Education Department makes ﬁnancing available to private sector hospitals and health clinics in our member countries. IFC’s many investments in water and wastewater service providers are instrumental in bringing international best practices to the ﬁght against waterborne diseases, a major contributor to child mortality globally.
IFC’s participation in ﬁnancing hospitals and health clinics con-
tributes to governments’ ability to improve maternal health. In certain cases, IFC will access grant funding to assist clients in making basic health care available to communities in the vicin-
ity of their operations. This contributes to both Goals 4 and 5.
The IFC Against AIDS program helps companies navigate risks to their business arising from the prevalence of HIV/
AIDS in many of IFC’s member countries. The program makes funding available to provide training and technical assistance to companies as they devise strategies to raise awareness, promote prevention, and, if necessary, pro-
vide treatment to employees and the wider community. In addition, IFC’s investments in water and wastewater service providers help bring international best practices to the ﬁght against waterborne diseases. Additionally, we support our clients in implementing antimalarial programs as part of community development activities.
IFC’s in-house expertise on private sector environmental and social sustainability is unrivaled among development institutions and international banks. We require our invest-
ments to undergo comprehensive environmental and social appraisal and report annually on a list of key indica-
tors, including local emissions to air and water. IFC makes grants available to companies pioneering, for instance, biodiversity conservation; actively stimulates the carbon ﬁnance market; and provides assistance to companies developing innovative environmental technologies for renewable energy and energy efﬁciency, pollution abate-
ment, sustainable natural resource management, and water and wastewater services, among others.
IFC works with companies, communities, governments, the ﬁnancial sector, and non-governmental organizations to raise awareness and build partnerships to promote sustainable development through the private sector in emerging markets.
For more information on the Millennium Development Goals, see www.developmentgoals.com
56 IFC Sustainability Report 2004
The UN Global Compact is a voluntary corporate citizenship network that unites the private sector with other stakehold-
ers in support of social and environmental principles to meet the challenges of globalization.
The Global Compact has become an important aspirational statement for over 2,000 companies and stakeholders world-
wide on their roles in society and their responsibilities as essential actors in the development process. These compa-
nies demonstrate how effective, proﬁtable business can be responsible, sustainable business by sharing the core values of development—respect for human rights, respect for work-
ers, protection of the environment, partnership with commu-
nities, and engagement with the companies’ neighbors.
In the past year, IFC and the Global Compact have held a series of conversations and have begun to collaborate more closely. Both the Global Compact and IFC are eager to see the Compact’s principles become more widely known in emerging markets, and see them as the starting point for industry-speciﬁc efforts toward good practice standards that are meaningful and stimulate the race to the top on corpo-
IFC participated in the production of “Who Cares Wins: Con-
necting Financial Markets to a Changing World” and took part in the UN Global Compact business leaders summit in June 2004. A strategic planning meeting in September 2004 laid the groundwork for greater collaboration between IFC and the Global Compact in 2005 to extend its reach to ﬁnancial markets and help the compact become truly global.
IFC Sustainability Report 2004 57
Is IFC part of the World Bank Group?
Yes, the International Finance Corporation is the private sec-
tor investment arm of the World Bank Group. In addition to IFC, the Bank Group consists of: the International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA), which together provide low-
interest loans, interest-free credit, and grants to developing countries; the Multilateral Investment Guarantee Agency (MIGA), which provides political risk insurance (guarantees) to investors in and lenders to developing countries; and the International Centre for Settlement of Investment Disputes (ICSID), which settles investment disputes between foreign investors and their host countries. IFC shares the primary objective of all World Bank Group institutions: to improve the quality of the lives of people in its developing member coun-
tries. For more details, see www.worldbank.org
What does IFC do?
Established in 1956, IFC is a multilateral institution that complements the World Bank’s support for public sector projects by providing ﬁnancing and technical expertise to the private sector in developing countries in order to spur eco-
nomic growth. Today, IFC is the largest multilateral source of loan and equity ﬁnancing for private sector projects in the developing world: it assumes equal commercial risks along-
side other private investors, helps companies mobilize capital from international ﬁnancial markets, and provides advisory and technical assistance services to businesses and govern-
ments. IFC has over 2,200 staff, with close to 1,000 based in 86 ﬁeld ofﬁces around the globe. See www.ifc.org
Who are your shareholders, board, and management?
IFC’s shareholders are its 177 member countries that collec-
tively determine policies and approve investments. IFC’s ﬁve largest shareholders, with 45 percent share capital, are the United States, Japan, Germany, France, and the United King-
dom. The remaining 55 percent is held by the other member countries. Voting is in proportion to the number of shares held. IFC’s corporate powers are vested in its Board of Governors, to which member countries appoint representatives. The Governors delegate power to the Board of Directors, which is composed of the Executive Directors of the IBRD, and repre-
sents IFC’s member countries. All projects go to the Board for review and approval. The President of the World Bank Group is also IFC’s president. IFC’s Executive Vice President is respon-
sible for overall management of day-to-day operations. IFC is legally and ﬁnancially autonomous with its own Articles of Agreement, share capital, management, and staff.
If IFC is a development institution, why do you seek to proﬁt on your investments?
IFC operates on a fully commercial basis, sharing the same risks as other investors. We have to proﬁt from our invest-
ments to remain ﬁnancially sustainable as a development ﬁnance institution. Our equity and quasi-equity investments are funded from our total capital and retained earnings, while for lending operations, IFC carries out public borrowing or pri-
vate placements in international ﬁnancial markets. IFC works in frontier markets with inherent higher risks, but our conserva-
tive approach to ﬁnancial risk limits our exposure. IFC retains a triple-A credit rating, which allows us to borrow money from ﬁnancial markets and lend it at market rates to clients, in some cases as a “lender of last resort” where other ﬁnancing options are unavailable. IFC’s proﬁts increase our capital cush-
ion and our ability to channel funds into other development projects and initiatives that promote sustainability.
Are there projects IFC will not ﬁnance under any circumstances?
IFC’s “Exclusion List” prohibits the ﬁnancing of projects involving certain activities, production, or trade in certain goods. The list includes: forced labor/harmful child labor; weapons and munitions; alcoholic beverages (excluding beer and wine); tobacco; radioactive materials; unbonded asbes-
tos ﬁbers; PCBs; pharmaceuticals or pesticides/herbicides subject to international phaseouts or bans; ozone-depleting substances subject to international phaseout; gambling and casinos; wildlife or wildlife products regulated under the Convention on International Trade in Endangered Species (CITES); logging activities in primary tropical moist forest; drift net ﬁshing. For our full Exclusion List, see www.ifc.org/
ifcext/enviro.nsf/Content/IFCExclusionList
How much money can IFC provide in a single investment?
To ensure the participation of investors and lenders from the private sector, IFC limits the total amount of own-account debt and equity ﬁnancing it will provide for any single project. For new projects the maximum is 25 percent of the total estimated project costs, or, on an exceptional basis, up to 35 percent for small projects. For expansion projects, IFC may provide up to 50 percent of the project cost, provided its investments do not exceed 25 percent of a company’s share capital. IFC investments typically range from $1 million to $100 million and, on average, for every $1 of IFC ﬁnancing, other investors and lenders provide over $5.
58 IFC Sustainability Report 2004
Managing Director, WBG
Operations Evaluation Director-Operations Evaluation Group Compliance Advisor/
Ombudsman (IFC & MIGA) Vice President & Corporate Secretary
Private Sector Development & Chief Economist
Investment Climate & General Manager FIAS
Grassroots Business Org.
Global Information & Communication Technologies
Southern Europe & Central Asia
Corporate Business Informatics
Risk Management & Financial Policy
Controller’s & Budgeting
IFC Sustainability Report 2004 59
STAGES OF THE IFC PROJECT CYCLE
■ IFC investment strategy ■ Dialogue with the prospective client
■ Project eligibility with IFC investment criteria
2 Early Review
■ Review of basic project information ■ Project categorization
■ Pre-appraisal visits by IFC investment staff
■ Identification of risks and opportunities ■ Internal management decision regarding IFC’s interest in financing the project
■ Agreement with client to proceed to appraisal (mandate)
■ Detailed evaluation of the project, including social, environmental, social and governance aspects ■ Initial discussion of financing terms, including conditionalities
■ Consultation and disclosure
4 Investment Review Meeting
■ IFC management review of project terms and considerations ■ Continuing negotiations with the client regarding terms and conditions of financing
5 Board Approval
■ Consideration of the project by the IFC Board of Directors 6 Commitment
■ The signing of the legal docu-
ments specifies the terms and conditions under which IFC will finance the project
7 Disbursement
■ Disbursement occurs according to the terms and conditions contained in the legal documentation
■ IFC monitors the performance of all active projects in its portfolio to ensure compliance with environmental, social and other conditions
60 IFC Sustainability Report 2004
Commentary for IFC Sustainability Report 2004
The Corporate Citizenship Company is a specialist consul-
tancy working with major international corporations. IFC commissioned us to provide external commentary on this, its third sustainability report. IFC management prepared the report and is responsible for its contents. We have sole responsibility for this statement.
Our role was to review whether the report provides a com-
plete view of the institution and its activities, whether the material issues are included and whether it demonstrates IFC being responsive to the demands of its stakeholders. Our work has not extended to checking data or indepen-
dent verification of otherwise unaudited information.
A sustainability report should show how an organisation impacts on society at large, looking at the social, eco-
nomic and environmental concerns of people with a stake in its operations. It should explain how crucial decisions are made and conflicting interests of different stakehold-
ers balanced. It needs to be honest about shortcomings, and show that the organisation is learning and improving.
In our view, this report presents IFC’s principles and its five strategic priorities in relation to sustainability clearly and up front. It includes important policy commitments and makes good use of case studies that help readers to understand IFC activities.
This said, we believe that future reporting should be strengthened by providing greater context to the organisa-
tion’s activities and its relationships with national govern-
ments, which are its shareholders. Such reports should provide insights into how IFC deals with challenging management issues and responds to pressing concerns of stakeholders. Strategic priorities and case studies should be supported by better information about the overall impacts of the institution and its investments. In addition, targets for future performance should be laid out clearly.
We commend the thinking behind the development of this third sustainability report. The foundations of an excellent approach are in place. Moving ahead, we look forward to IFC providing more information about its management and governance and about its overall impacts, target setting and performance against key indicators.
www.corporate-citizenship.co.uk
IFC Sustainability Report 2004 61
AICC African Institute of Corporate Citizenship
APDF Africa Project Development Facility
AsrlA Association for Sustainable and Responsible Investment in Asia
BTC Baku-Tbilisi-Ceyhan
CAO Compliance Advisor/Ombudsman
CBA Competitive Business Advantage
CEPALCO Cagayan Electric Power and Light Company
CES IFC’s Environment and Social Development Department
CFLs compact ﬂuorescent lamps
CIP Community Investment Programme
CODE Committee on Development Effectiveness
CSI Cement Sustainability Initiative
EBC Office of Ethics and Business Conduct
ELI IFC/GEF Efﬁcient Lighting Initiative
EOF Environmental Opportunities Facility
FI ﬁnancial intermediary
GBO grassroots business organization
GEM Gender Entrepreneurship Markets
GLAC Guide to Land Acquisition and Compensation
GMS Global Manufacturing and Services Department
GSD General Services Department
HGA Host Government Agreement
INCaF IFC-Netherlands Carbon Facility
MAMTI Marine Aquarium Market Transformation Initiative
MDG Millenium Development Goal
MIGA Multilateral Investment Guarantee Association
MWC Manila Water Company
NECaF Netherlands European Carbon Facility
OEG Operations Evaluation Group
PDF Project Development Facilities
PSA Production Sharing Agreements
PVMTI Photovoltaic Market Transformation Initiative
SBAP Sustainable Business Assistance Program
SFMF Sustainable Financial Markets Facility
SGBI Strengthening Grassroots Business Initiative
SLP Sustainability Learning Program
SPI Summary of Proposed Investment
SRI sustainable and responsible investment
UNEP-FI United Nations Environment Programme-
WHI WaterHealth International
62 IFC Sustainability Report 2004
Sustainability Report Team
Editor: Emily Horgan Project Manager: Richard Caines
Contributing Editors: Debra Sequeira, Harry Pastuszek
Project Coordinator: Vanessa Manuel Design
FSC Trademark (c)1996 Forest Stewardship Council A.C.
This publication was printed using FSC Certified paper and vegetable-based inks.
IFC Staff Contributors Motoko Aizawa
Merunisha Ahmid
Steven Baczko
John Chitsa
Gillette Connor
Sabine Durier
Sidney Edelmann
Deborah Feigenbaum
Corinne Figuerdo
Joseph Fucello
Marisol Giacomelli
Julia Grutzner
Rashanikka Hayley
Jacquelene Hunte
Toshiya Masuoka
John Middleton Alan Miller
Margaret Nowakowski
Guy Pfefferman
Russell Sturm Karin Strydom
Christine Trevillian
Daniel Jorge Tytiun
Richard Wyness
BretonLittleHales
C. Carnemark
Z. Chavez
K. Damkjaer
A. Giacomelli
J. Grifﬁn
IFC Facilities Mgt
A. Maest
A. Najam
S. Noorani
M.D. Ramesh
Roundabout Outdoor Ltd.
S. Ruck
V. Tigkarakis
N. Vestergaard
To help us pursue IFC’s mission in day-to-day business, we are guided by our environmental and social development principles. The principles describe our vision of environmen-
tal and social sustainability, consistent with IFC’s Mission and the World Bank Group’s pursuit of the Millennium Devel-
opment Goals. We rely on these principles to ensure fair-
ness and consistency in the application of our policies and guidelines when confronted with variables such as country context, sponsor capacity, and project factors. By adhering to these principles, we demonstrate international good practice and leadership, and inﬂuence industry sectors and markets. We believe that implementing these principles will support IFC’s effort to continuously improve its business practices, institutional activities, and development outcomes of indi-
vidual investments.
We value working with responsible investment partners whose approach and initiatives provide opportunities to jointly apply and promote our sustainability vision. We acknowledge that our performance success is dependent on our partners’ ability to achieve their business objectives.
We systematically identify environmental and social risks as well as opportunities arising from our investments. We aim to minimize risks of adverse impacts and maximize opportu-
nities for positive development outcomes, ideally through our early and ongoing engagement.
Area of Inﬂuence
We recognize that our investments may result in signiﬁcant environmental and social impacts beyond their physi-
cal boundaries. We consider such impacts in the area of inﬂuence of our investment in a pragmatic manner and from a cumulative and strategic impact perspective.
We focus on capacity building and knowledge transfer when we invest through corporations and ﬁnancial institutions, with a view to enabling these institutions to ascertain and manage the environmental and social risks and opportunities associated with their operations.
We promote opportunities to improve living standards and working conditions for local populations, particularly those directly affected by our investment. We also strive to protect and conserve the natural environment. Thus, we recognize the need for a sustainable balance between environmental and human needs, and actively support integrated conserva-
tion and development initiatives.
We support, and actively seek to identify, opportunities to promote the responsible and efﬁcient use of energy and natural resources.
We promote transparency to improve efﬁciency of process and accountability for decisions, and to achieve better devel-
opment outcomes.
We promote consultation and dialogue to help understand the diversity of opinions and aspirations of stakeholders, and to achieve a fair and equitable resolution of conﬂicting needs to maximize the development outcomes.
Implementation and Learning
We strive to learn from our implementation of our prin-
ciples and proactively engage our colleagues and clients to enhance their awareness of, and commitment to, these busi-
ness principles and our institutional environmental and social sustainability objectives.
Telephone 202-473-3800
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