IFI governance

Background

Informal discussion between Rachel Kyte, IFC’s Vice President for Business Advisory Services, and NG

3 March 2010 | Minutes

Crisis response
Crisis response has been a large focus of the IFC this past year- how to maintain access to credit and markets for SMEs at a time when credit has dried up and government had its hands full with other things. IFC has focused on how to respond to short-term crisis, but maintain long-term perspective.

  • $500 million micro-finance facility to give to micro-finance institutions around the world.
  • Capitalization fund for countries that couldn’t rely on a stimulus package.
  • Infrastructure crisis fund- an equity and debt fund.
  • Asset management- get capital from pension funds and help them take risk by investing in emerging markets, but in a managed way by investing alongside IFC.

Climate change:
IFC is increasingly entering into the field. Their role is to help those providing public finance, understand how to best use their finance to leverage private finance. They are concerned with issues of how to get electricity to the poor and ensure it is done in a cleaner way than it would have been done 30 years ago.

  1. Innovation– IFC has a history of building risk sharing structures and building to scale. They are already working with a bank in China to look at their investments and see how they can cut back on carbon emissions in their portfolio. They are currently using carbon emission calculating by a widely used industry standard and have not been told by the UNFCCC that it isn’t in compliant with their methods.
  1. Water– IFC is looking at how to close the huge gap between H2O supply and demand by 2030. Working with Nestle and others on this. Looking at how to advise countries on better water management and what the least expensive ways of addressing water issues are. For example in India they are comparing irrigation issues and the related costs with those of water desalinization.
  1. Adaptation– helping banks understand the carbon intensity of assets in their portfolio. IFC is starting to measure carbon footprints of its investments. Will start with a water index/ measurement as well. Acclimatize in the UK is helping IFC develop these tools. First study in Ghana with a pulp factory to see how they can cut back on water use. Then giving the factory loans to finance the necessary changes.
  1. Forestry– Issue of adaptation is starting to lead IFC into forestry issues and all of the complexities of dealing with land rights and land titling. They are trying to look at privately owned land under sustainable management.

UNFCCC relationship– IFC isn’t suggesting money should be put with the IFC/ World Bank. They are however explaining how we are equipped to handle finance when asked by others. IFC/ WB role would be to administer funds.

Performance standards and climate/ justice issues– Mary Robinson wrote about climate justice for BWP. The article raised important issues, but Rachel’s question is how you apply a climate justice framework to businesses and how you explain that to CEOs of companies. It is true that talk about housing climate finance at the Bank/ IFC does place more pressure on us to have good standards and ones that are internationally recognized as pointed out by M Robinson with respect to the lack of internationally agreed upon human rights standards.

After Copenhagen—IFC will be ramping up the World Bank’s climate strategy and if carbon footprint will effect IFC investment decisions. IFC is starting to incorporate climate issues into country plans as well. For example in Indonesia, they have a whole strategy on adaptation and forests.

Bank reviews– the IFC performance standards review is the largest thing that will take place in 2010. At the same time, the WB has its energy strategy review and its environment strategy review. It is clear that these reviews should overlap. But, it isn’t yet clear how the energy strategy review and environment review will relate to one another and how they will be applied to the IFC.  The IFC and World Bank need to sit down with one another and work out these issues.

Performance Standard review

Time frame

  • First consultation window just closed. IFC team is currently looking at submission and identifying issues that should then guide community consultations and further dialogue.
  • Jan, Feb and March have on-site consultations on issues raised in first consultation period
  • IFC is waiting for IEG and CAO to share their reviews. Once they have been shared then the IFC can draft their revised standards to take to the Board
  • IFC really wants to take draft of standards to Board in spring, but may be held up by IEG and CAO reports. Expect to go to the Board in late March or April.

Unverified info from companies relied upon by IFC– As a lender IFC looks at companies’ impact assessments and decide if they are decent. Companies have to take measures to comply with national laws. A company has to do its own assessment, but IFC often asks them to do their assessments again. It is not a benefit to IFC to not have a company comply. Better standards are better for IFC financially and it protects IFC’s reputation. Sometimes IFC might miss things and we won’t know until they go visit and supervise.

Supply chains-  Wilmar case is an aberration. If IFC were ever to fund another single entity trade facility again, we’d treat it as a direct investment of IFC. Normally IFC finances a local bank to finance a project like this. IFC made a mistake.

There is a pending strategy on palm oil to come out in spring. Investment is on hold until then. IFC won’t pull out of palm oil as they have spent years working on the sector, providing advisory services on how to make palm oil production more sustainable.

A full line of sight is needed up and down a supply chain to fully understand what is taking place and be able to mitigate the parts you can control. An investor has to decide how much they need to be able to see of the chain and how much risk they are willing to take.

Financial intermediaries- 35-40% of IFC portfolio is through financial intermediaries. This has become especially important during the financial crisis. IFC has to look at practices to make sure they help local banks operate within good social and environmental frameworks. IFC does due diligence on the banks but then needs to support them in figuring out has to implement good practices. For example, they are not yet applying carbon footprint measurements to financial intermediaries.

8 December 2009