One year ago, IFC adopted new Performance Standards, a significant upgrade of our long-standing environmental and social guidelines. It took about two years of consultations with our stakeholders, including clients, governments, and civil society, to create the strongest, most comprehensive of environmental and social standards among all financial institutions.
A year later, the IFC Performance Standards are already the global benchmark in project finance. They have reached far beyond IFC, forming the basis of an enhanced set of Equator Principles for many of the world's leading financial institutions. To date, 51 financial institutions have signed on to the Equator Principles, aligning themselves with IFC in their emphasis on environmental and social performance. Collectively they represent about 90 percent of project finance in emerging markets, a total of $28 billion.
The reach of the Performance Standards continues to grow. The World Bank Group's Multilateral Investment Guarantee Agency will soon adopt them. Leading banks from industrialized and developing countries continue to adopt the Equator Principles, and many export credit agencies benchmark their projects against the IFC standards. A discussion among insurance companies has just started.
The Equator Principles |
- A voluntary set of principles for environmental and social risk management in project finance, based on IFC's standards.
- Applicable to projects in all industry sectors, with a total capital cost of $10 million or more, and to project finance advisory activities.
- Each bank implements its own policies and procedures to reflect the principles.
- Participating institutions agree not to "provide loans directly to projects where the borrower will not or is unable to comply with our environmental and social policies and procedures."
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"We are creating a level playing field, in which financial institutions abide by the same environmental and social standards. Where once they competed solely on price, now they are starting to compete through innovative financing for environmentally sustainable projects. This is one of the most important initiatives in the financial sector," said Lars Thunell, IFC Executive Vice President.
Implementing the Standards
The standards introduced a number of new requirements for our client companies. They must strengthen their environment and social management system and ensure the free, prior, and informed consultation of communities affected by their projects. IFC-sponsored projects must also include an action plan to mitigate all impacts on biodiversity, as well as address labor standards—from child labor to conditions in the supply chain.
The Performance Standards have also helped IFC and its clients do a better job of identifying environmental and social opportunities. For example, while implementing the pollution standard, a pork and poultry processor in Ecuador found out that organic wastewater and solids could be used for generating compost and biogas. During a supervision of hotels in Kenya and Tanzania, IFC environmental experts found that the companies could significantly reduce their energy consumption.
The past year's experience has validated IFC's approach, which has also become a model for a number of UN agencies and corporate social responsibility initiatives. Clients, too, appreciate the clarity of the new structure, which allows them to understand their responsibilities better. While some projects attracted less attention in the past because they did not fall into IFC's most sensitive environmental and social category, all proposed projects are now examined thoroughly and systematically.
Creating Good Practice
To support the performance standards, IFC has just published a set of
environmental, health, and safety guidelines, which offer technical guidance on pollution prevention and abatement. They are expected to be widely used by all companies that implement environmental and social standards.
Adopting the standards also means developing good practice. This week, IFC is launching a
manual on stakeholder relations, which should help clients engage with the people and organizations they affect, helping increase their interest in the projects.
Fostering a Learning Community
Because of the increased interest in the standards from financial institutions, IFC has created a Community of Learning forum where these institutions can meet and share experiences. The first meeting is taking place May 14-16, 2007, in Washington, D.C. Equator banks, multilateral and bilateral financial institutions, and export credit agencies will participate. Attendees will discuss IFC's lessons learned from the first year of implementation and review case studies from both IFC and the Equator banks. The Equator banks and public financial institutions will be trained in how to implement the labor performance standard, and they will have the opportunity to discuss the way forward for sustainable financing.
Our Unique Expertise
Even as IFC's leadership on sustainability is reshaping the landscape for project finance, it continues to set us apart, because no other financial institution possesses our range of environmental and social expertise. Companies that are facing difficult environmental and social questions—mining companies, for example, and firms operating in the Amazon region—come to IFC for financing because of our added value on sustainability.
Our sustainability tools allow us to tailor our offerings to our clients. And in addition to providing risk mitigation through the Performance Standards, we are offering climate change products, supply-chain financing, and tools on labor practices, among other innovative products and services.
For additional information contact:
Lucie Giraud
Communications Officer
Phone: 202-458-4662
E-mail:
Lgiraud@ifc.org
Published May 14, 2007
