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Clive Mason, Program Manager - IFC - United States
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THE WORLD BANK
Uptake of Sustainable Banking Uptake of Sustainable Banking in Emerging Marketsin Emerging Markets
Clive MasonClive MasonSenior Advisor, IFC, andSenior Advisor, IFC, andWorld Bank Asia Alternative Energy Program (ASTAE)World Bank Asia Alternative Energy Program (ASTAE)Bangkok, ThailandBangkok, Thailand
THE WORLD BANK
Is sustainable banking confined to the Is sustainable banking confined to the Equator Principle banks (EPFIs)? Equator Principle banks (EPFIs)?
How have emerging market banks How have emerging market banks responded ?responded ?
THE WORLD BANK
EPFIs EPFIs EP – June 2003 – 10 BanksEP – June 2003 – 10 Banks
EP2 Agreed July 2006 – based on the new IFC EP2 Agreed July 2006 – based on the new IFC E&S Performance Standards (ten)E&S Performance Standards (ten)
Now, more than 40 EPFIsNow, more than 40 EPFIs
In 2006, 88% of underwritten project finance debt In 2006, 88% of underwritten project finance debt approved in accordance with EP2*approved in accordance with EP2*
In Asia, 99% of deals (by volume) reported to be In Asia, 99% of deals (by volume) reported to be include at least 1 EPFI*include at least 1 EPFI*
*Analysis of Infrastructure Journal, February 2007*Analysis of Infrastructure Journal, February 2007
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What is Sustainable Finance?What is Sustainable Finance?
The idea that financial institutions manage their The idea that financial institutions manage their business in such a way that transactions are:business in such a way that transactions are:
• Financially soundFinancially sound
• Environmentally sustainable Environmentally sustainable
• Socially sustainableSocially sustainable
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IFCIFC
Private sector arm of World BankPrivate sector arm of World Bank
Largest IFI investor in emerging marketsLargest IFI investor in emerging markets
40% of portfolio invested in Financial 40% of portfolio invested in Financial IntermediariesIntermediaries
Support and TASupport and TA
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IFC Support to Emerging Market FIsIFC Support to Emerging Market FIs
Fully and partially implemented
Under development
GLOBAL“CBA” Training ProgramNetwork of Regional Sustainable Finance Service Providers Environmental and Social Assessment Reference Tool for FIs (ESAT)On-line training program developmentWomens Banking AllianceYoung Banker Internship Program
61 Projects Funded - 48 Projects Completed61 Projects Funded - 48 Projects Completed– US$6.5 million in total project cost – US$5.1 million in net funding
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Review of FI ClientsReview of FI Clients
“ “Beyond Risk” (2003)Beyond Risk” (2003)
“ “Banking on Sustainability” (2007) Banking on Sustainability” (2007)
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Sustainability Market Survey of FIsSustainability Market Survey of FIs Workshop participants from Workshop participants from
October 2002October 2002 Over 120 FIs surveyed in 43 Over 120 FIs surveyed in 43
Emerging Market countriesEmerging Market countries– 40 % commercial banks,– 20% private equity institutions, – under 10 % development banks, leasing,
microfinance
Main questions asked: Main questions asked: – what they consider the key sources of
environmental and social risks and opportunities;
– motivation and constraints to consider E&S issues;
– business impact of integrating sustainability in their business
Regional distribution of institutions surveyed
Africa17%
Western Europe and
North America
7%
CEE and Russia35%
Asia (Including
Central Asia)3%
Middle East7%
Latin America and
Caribbean31%
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E&S Risks and OpportunitiesE&S Risks and Opportunities Main sources of E&S risks identified by FIs are reputational risk, credit Main sources of E&S risks identified by FIs are reputational risk, credit
risk and non-performing loansrisk and non-performing loans Key sustainability opportunities are developing business in new areas, Key sustainability opportunities are developing business in new areas,
access to new markets, and providing loans for environmental access to new markets, and providing loans for environmental projectsprojects
45.2%
76.0%
58.7%
38.5%
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0%
Non-performingloans/ investments/ leases
Reputational risk /Negative publicity with
customers, shareholdersand the general public
Credit risk (defaults, payments rescheduling)
Security (devaluedcollateral)
65.6%
59.4%
54.7%
54.7%
48.0% 50.0% 52.0% 54.0% 56.0% 58.0% 60.0% 62.0% 64.0% 66.0% 68.0%
Developing business in newareas (energy efficiency, eco-tourism, organic agriculture, carbon finance, biodiversity
Getting access to new markets
Improving access toInternational Financial
Institutions (IFI) financing
Providing loans forenvironmental projects
E&S Risks Sustainability Opportunities
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Demonstrated ImpactDemonstrated Impact
Do you consider E&S issues in Do you consider E&S issues in your business? your business? – 97% of FIs answered “yes”
Following IFC training, has Following IFC training, has your business changed as a your business changed as a result of considering E&S result of considering E&S issues? issues? – 81% of FIs reported a positive
change– 68% of FIs developed a
Sustainability Management System
TYPES OF BUSINESS IMPACT
8.9%
7.1%
12.5%
58.9%
39.3%
3.6%
41.1%
50.0%
28.6%
1.8%
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0%
Other
Increased revenues
Cost savings
Reduced risk
Developed new business
Deveoped new products andservices
Improved access tointernational financing
Improved brand value andreputation
Improved community relations
Better quality of work
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Main motivating factors: increased credibility and Main motivating factors: increased credibility and reputation; increased value to stakeholders, perceived reputation; increased value to stakeholders, perceived lower risk and better returnslower risk and better returns
81 % of FIs reported that they saw a positive change 81 % of FIs reported that they saw a positive change when started to consider sustainability (e.g. positive when started to consider sustainability (e.g. positive business impact) business impact)
Main types of positive change they had: Main types of positive change they had: – reduced risk (59 %) – improved brand value and reputation (50 %) – developed new business (40 %)
12 % of surveyed FIs developed sustainability financial 12 % of surveyed FIs developed sustainability financial products products – Leading products: environmental loans for
SMEs; investments in cleaner production technology, green investment funds
Motivation and Business ImpactMotivation and Business Impact
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Key Sustainability Opportunities:Key Sustainability Opportunities: developing business in new areasdeveloping business in new areas, e.g. energy efficiency, renewable , e.g. energy efficiency, renewable
energy, eco-tourism, organic farming, biodiversity, carbon finance), energy, eco-tourism, organic farming, biodiversity, carbon finance), access to new markets, and providing loans for environmental access to new markets, and providing loans for environmental projectsprojects..
Sustainability Business Opportunities
59.4% 54.7% 54.7%43.8%
10.9%
65.6%
1.6%0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
Getting accessto newmarkets
Improvingaccess to
InternationalFinancial
Institutions (IFI)f inancing
Providing loansfor
environmentalprojects
Providingadvisory
services/loansfor eco-
eff iciency andcleaner
production
Attractingimproved terms
of insurance
Developingbusiness innew areas
(energyefficiency,
eco-tourism, organic
Other (pleasespecify)
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Sustainable Finance OpportunitiesSustainable Finance OpportunitiesEnvironmental Opportunities
Energy efficiency Renewable energy Carbon finance Biodiversity Sustainable building
construction and renovation (residential, private, and public)
Cogeneration or combined heat and power (CHP)
Efficient lighting (inc. municipal street lighting)
Fuel switching Heating and cooling
Wind power (wind turbines for generation and wind pumps)
Solar energy (solar photovoltaic cells, solar thermal)
Small hydropower Biomass (biogas, biofuels) Geothermal
Carbon sequestration (forestation/carbon sinks)
Energy efficiency on supply or demand side to reduce consumption
Renewable energy to displace fossil fuel use
Fuel switching from fuels with high to low GHG intensity
Ecotourism (ecolodges and reserves)
Certified forestry Non-timber forest products Sustainable agriculture Certified fishing
Cleaner Production Sustainable resource use,
or eco-efficiency Pollution management
(prevention and control)
Sustainable Supply Chain Financing
SME suppliers meeting sustainability standards of large companies (purchasers)
Social Opportunities Corporate Governance Finance
Insurance
Women and banking HIV/AIDS targeted microfinance Indigenous Peoples enterprise finance Historically disadvantaged groups (Black Empowerment
Enterprises, South Africa)
Good management practices; succession planning; transparency and disclosure
Risk management and solutions
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Case StudiesCase Studies – – some examplessome examples
BankBank OpportunityOpportunity
ACLEDA, CambodiaACLEDA, Cambodia Sustainable MicrofinanaceSustainable Microfinanace
BCR, RomaniaBCR, Romania Strong environmental Strong environmental managementmanagement
ACBA Leasing, ArmeniaACBA Leasing, Armenia Renewable energy financingRenewable energy financing
Center-Invest, RussiaCenter-Invest, Russia SME lending for energy SME lending for energy efficiencyefficiency
UralTransBank, RussiaUralTransBank, Russia Cleaner production and energy Cleaner production and energy efficiencyefficiency
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Case StudiesCase Studies – – some examplessome examples
BankBank OpportunityOpportunity
Nedbank, South AfricaNedbank, South Africa Community involvementCommunity involvement
Banco Cuscatlan, El SalvadorBanco Cuscatlan, El Salvador Innovative financial productsInnovative financial products
Ceska Sporitelna, Czech Ceska Sporitelna, Czech RepublicRepublic
Sustainable energy projectsSustainable energy projects
Afriland First Bank, CameroonAfriland First Bank, Cameroon Sustainable developmentSustainable development
