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Sustainability is Opportunity: How IFC has Changed Finance


 

Only a few decades ago, environmentalism was less buzz word than bad word, particularly in the boardroom. When it came to financing projects, bankers had been trained to worry about profits. The impact on the local community and environment? That was for others to manage.

As emerging markets began to flourish in the 1990s, IFC and a handful of leading international banks—Credit Suisse, Citigroup, and Barclays among them—recognized that development cannot be sustained if it comes at the expense of social and environmental needs. IFC was among the first to forge a path towards responsible growth—using the power of finance to do so.

This year marks the 10th anniversary of IFC’s Performance Standards—which spell out how IFC and our clients can devise business solutions that are good for business, good for investors, and good for the environment and local communities. Over the past decade, an estimated $4.5 trillion in investments across emerging markets have adhered to IFC’s standards, or principles inspired by them.

“IFC’s Performance Standards have been one of the great successes of the past 10 years,” said Jane Nelson, Director of the Corporate Responsibility Initiative at Harvard’s Kennedy School. “They have changed financing practices across emerging markets and accelerated the spread of responsible business practices.”

Augusto Zubillaga, who directs Argentine operations for GeoPark, a leading independent oil-and-gas explorer and operator, said IFC and the World Bank helped change the way his company does business. “In the oil and gas industry we were not used to approaching the impacted communities,” he said. “They showed us that if you want to have business, you need to have your stakeholders share your vision. As a result we created SPEED: Security, Prosperity, Environment, Employees, and Development for Communities—principles that guide our operations. We want to grow, but we want to do things right.”

Today, IFC’s performance standards have become a global benchmark for sustainability practices. Eighty-four financial institutions in 35 countries have adopted the Equator Principles, which are based on these standards. Other leading development institutions—including the European Bank for Reconstruction and Development and the Asian Development Bank—have also adopted practices rooted in our standards. We also provide support to private equity funds and banks we invest in, strengthening their capacity to integrate IFC’s standards into their operations.

 

Raising the Standards

Stock exchanges across the world increasingly rely on these standards to construct their sustainability indexes—a trend that could influence how institutional investors allocate about $120 trillion in assets. We also advise policy makers on best practices in governance and environmental and social sustainability. We established—and led—the Sustainable Banking Network, which brings together banking associations and regulators in 28 developing countries to develop policies to boost green finance. Collectively, these countries account for about $42 trillion in bank assets.

“If you were an investment analyst 10 years ago and pulled up a Bloomberg or Reuters terminal looking for information on key environmental, social, and governance factors for major companies, you would get a blank screen,” said Graham Sinclair, a principal at Sustainable Investment Consulting in Boston.

“Today, you can find data points for environmental, social, and governance criteria for companies all around the world,” he said. “This is a real mark of how far we have come collectively—thanks in part to the work of IFC and its partners. “We can now invest using these data points and make decisions as if the future matters, considering all factors, including the people and the planet.”

Over the next 10 years, it will cost an additional $60 trillion to modernize infrastructure in emerging markets. By definition, these investments will be made in a more sustainable way than they would have been without IFC’s intervention—most of the money will come from banks and development institutions that have adopted practices based in some way on IFC’s Performance Standards.

Today, environmentalism and concern for communities are no longer irrelevant concepts in the boardroom. We have reached a turning point: banks and companies looking to the future recognize that investment decisions need to be driven as much by environmental, social and good governance criteria as by financial returns.

To learn more about IFC’s work in Environmental and Social Sustainability, please visit: www.ifc.org/sustainability.

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Published in November 2016