1. Financing a Sustainable Low Carbon Indian Economy
Sustainable Lending Guidelines for FIs: IFC’s E&S Performance Standards
Financing a Sustainable Low Carbon Indian Economy
Mumbai, May 13, 2010
Richard English
Principal Specialist, Environmental & Social Development
IFC South Asia Region, New Delhi, India

2. Main Topics IFC Sustainability Framework & Performance Standards
Rationale for managing E&S risks
What is E&S Risk Management System?
Case examples

3. IFC & Sustainability – Managing Environment & Social Risks
Integrate E&S risk management into business processes
For IFC:
Sustainability Policy
E&S Risk Review and Monitoring Procedures
Organization, Responsibilities, Resources, and Training
Reporting
For Clients:
8 Performance Standards and 63 Environment, Health and Safety Guidelines
Applies its Standards and Guidelines to all its investments
Training, technical assistance, advisory services
Equator Principles
By Jan 2010, adopted by 70 Equator Principles financial institutions (EPFIs)
17 EPFIs in emerging markets
Over 70% of project financing in emerging markets and over 85% of global project financing in accordance with Equator Principles
(Source: Infrastructure Journal, July 2008)

4. Umbrella: PS1: Social and Environmental Assessment & Management Systems
Labour and Working Conditions
Pollution Prevention and Abatement
Community, Health, Safety and Security
Land Acquisition and Involuntary Resettlement
Biodiversity Conservation and Sustainable Resource Management
Indigenous Peoples
Cultural Heritage
PS3
PS4
PS 1
PS5
PS6
PS7
PS8

5. PS1: Social & Environmental Assessment and Management Systems
Objectives & Outcomes:
Identify and assess social and environmental impacts and risks in the project’s area of influence
Avoid if possible, and minimize adverse impacts on affected communities and the environment
Promote improved social and environmental performance through the use of management systems
Ensure affected communities are appropriately engaged
This slide sums up IFC’s approach to sustainable private sector development

6. PS 2-4: Frequently Used Standards
Applicable in almost all projects
PS 2: Core labor standards; working conditions; occupational health and safety; supply chain issues
PS 3: Pollution prevention, resource conservation and energy efficiency; wastes and hazardous materials; green house gases
PS 4: Safety of communities from project activities that can cause accidents, diseases, emergencies

7. PS 5-8: Technical Standards
Less frequently applied
Avoidance or mitigation of:
PS 5: Land acquisition and involuntary resettlement- whether physical displacement or economic
PS 6: Habitat destruction; management and certification of renewable natural resources (e.g., forests)
PS 7: Impacts on Indigenous Peoples when they are adversely affected by the project
PS 8: Destruction or damage to cultural heritage

8. E&S Management System and Financial Sector
A systematic framework to integrate E&S risk considerations into a bank’s business processes
Bank develops its own system reflecting:
Business environment
Investment scope and sizes
Staff capabilities
Risk exposure/Risk appetite
Institutional culture  8

9. 9 Agribusiness 265m 4% Manufacturing 1,915m 28%
Health and Education 197m 3%
Financial Markets 1,212m 18%
Private Equity and Investment Funds 405m 6%
Infrastructure 1,558m 23%
Information and Comm. Technologies 304m 4%
Oil, Gas and Chemicals 900m 13%
Subnational Finance 50m 1%
Department 6, % 9

10. Risks in Banking
Environmental and social risks present themselves to companies and financial institutions as business risks
Main types of risk for banks:
Credit risk (default probability; loss given default)
Liability risk
Reputational risk
Risks present themselves
At the level of single transactions
At the portfolio level

11. Key Social & Environmental Risks Identified by Commercial Banks
Banking on Sustainability Report that IFC published in 2007

12. E&S Management System
There is no one commonly accepted blue print for E&S Management System
Core elements :
Environmental and Social Policy
E&S Risk Review and Monitoring Procedures
Organization, Responsibilities, Resources, and Training
Reporting
The E&S Policy is a DECLARATION of a Bank's commitment to Sustainability Management
It articulates the FI’s E&S commitment based on the mission and mandate of the organization
It Indicates how this commitment is integrated into your institution’s priorities
It clearly states the requirements (i.e. national law, best practices) that apply in implementing the policy
It defines the scope and objectives of the SEMS
It should be communicated to the entire internal workforce, as well to all External stakeholders
It must have management support
Procedures
Procedures are a series of defined steps following in a definite order that enable Bank to meet requirements of its policy.
Initial screening
Categorization
Due diligence
E&S Covenants (including Action Plan)
Monitoring
Reporting
Organization, Responsibilities, Resources and Training
Internal screening capacity/supervision of due diligence process – various options:
Environmental Coordinator
Sustainability Departments
Multidisciplinary committees
Business as usual (Head of Project/Structured Finance)
Resources for:
E&S staff
Out-sourcing due diligence process – external consultants
Out-sourcing monitoring and reporting – external consultants
Internal training
Annual Report 12

13. IFC Requirements for Financial Sector Clients
Exclusion List
Local laws and regulations
Industry EHS Guidelines
E&S Management System
Initial screening
Categorization
Due diligence
E&S Covenants (including Action Plan)
Monitoring
Reporting 13

14. Case Examples CGPL – 4000 MW Thermal Power
Vicat Sagar Cement – 5 mtpa + 60 MW Thermal CPP
Cairn Energy – Oil field development and pipeline
Pulp & Paper Producers – Supply chain of 200,000+ farmers
CGPL
Traditional communities in a rapidly developing coastal area – consultation and local development benefits
Large migrant construction workforce – labor conditions and community safety
Int’l lender reputational risk & BAT
Vicat Sagar
Cumulative impacts/carbon hot spot (Gulbarga District)
Extensive landtake for plant and quarries
Ground water supply
Int’l lender reputation (CO2)
Cairn Energy
Tangible benefits to a widely dispersed, impoverished population
Enterprise Development Center – vocational training for 2500; HSE training for 55,000+ oilfield & pipeline workers
Pulp & Paper Producers
ECF
Farm Forestry
Technical Assistance