INTERNATIONAL FINANCIAL CORPORATION (IFC) IS THE LARGEST GLOBAL DEVELOPMENT INSTITUTION FOCUSED ON THE PRIVATE SECTOR IN DEVELOPING COUNTRIES. IFC, A MEMBER OF THE WORLD BANK GROUP, ADVANCES ECONOMIC DEVELOPMENT AND IMPROVES THE LIVES OF PEOPLE BY ENCOURAGING THE GROWTH OF THE PRIVATE SECTOR IN DEVELOPING COUNTRIES. IFC PRIMARILY WORKS WITH THE PRIVATE SECTOR TO EMPOWER ENTREPRENEURS AND HELP BUILD SUSTAINABLE BUSINESSES. ITS ACTIVITIES INCLUDE MANY AREAS, INCLUDING FINANCIAL, ENVIRONMENTAL, PUBLIC AND GOVERNMENTAL STANDARDS, FINANCIAL SUPPORT FOR WOMEN ENTREPRENEURS, AND STRENGTHENING THE VALUE CHAIN IN VARIOUS SECTORS.
Georgia has been a member of the organization since 1995. During this period, IFC promotes private sector development through investments and consulting services. What are the current priorities of IFC? How has it responded to the challenges of the global pandemic, what is its attitude towards the Sustainable Development Goals and what does it think about the need and opportunities for partnership. Caroline Bright, IFC Regional Environmental, Social and Governance (ESG) Advisory Lead, Europe, Central Asia, and Latin America talks to us about these issues.
Since early 2020, the pandemic has negatively affected global economic growth. What is IFC’s response to the COVID-19 crisis?
In response to the global pandemic, the International Finance Corporation (IFC), a member of the World Bank Group, launched an $8 billion fast-track COVID-19 facility in March 2020 to provide liquidity to existing clients, thus helping companies sustain and preserve jobs. Much of the funding is going to micro, small, and medium enterprises (SMEs)-a major source of employment in developing countries-as well as women entrepreneurs, who have suffered disproportionately during the pandemic.
In July 2020, IFC launched the $4 billion Global Health Platform, which is investing in companies to increase the supply of critical medical equipment and services in developing countries, including face masks, ventilators, testing kits, and vaccines.
In February 2021, IFC added an expansion to the fast-track COVID-19 facility—the Base of the Pyramid Program—to help small businesses, informal enterprises, and low-income households that have been the hardest hit by the pandemic. The program will provide $400 million in own account investment for financial services providers.
Sustainability will be key to a resilient recovery, which is why it is essential to help prepare people, communities, companies, and economies for unexpected events and risks in the future. Examples include:
Addressing issues that pose immediate risks to the environment and communities (higher pollution, illegal poaching), social protection (health and safety of workers, lay-offs) and gender equality (higher incidence of gender- based violence, greater impact on female workforce operating in services industry).
Improving crisis management and decision making to ensure resiliency to shocks as well as response at all levels of corporate structures.
Rebuilding better by ensuring that investments address the impact of the pandemic and mitigate environment, social, and governance (ESG) risks.
IFC brings together a variety of players to address the ESG matters collectively. How important are partnerships and how does IFC promote them? Please provide specific examples.
Partnerships and networks are one of the most effective tools that can prompt a substantial market push for ESG. A key tenet of IFC’s work with other institutions and organizations is focused on sharing lessons learned while adopting and implementing ESG standards.
For example, IFC’s annual event— Performance Standards Community of Learning—brings together a range of institutions that have adopted IFC’s performance standards and corporate governance methodology, to share knowledge and experience in terms of applying the standards.
Another example of a network that leverages knowledge sharing to help drive ESG efforts is the IFC-facilitated Sustainable Banking Network. SBN is a community of financial sector regulatory agencies and banking associations from emerging markets who are committed to advancing sustainable finance in line with international good practice. The National Bank of Georgia was one of the first members in this region, demonstrating leadership in promoting the integration of ESG into the financial sector.
We partner with a variety of different international organizations on ESG, ranging from the World Wildlife Fund, through to UN agencies. For example, we are partnering with the UN’s Sustainable Stock Exchange initiative to strengthen ESG disclosure in emerging markets.
We also work closely with local organizations to reach out to companies directly. We run both global and regional networks of ESG service providers, who promote, train, advise, and advance ESG in their local markets. IFC’s ESG Standards Program is implemented in partnership with the Swiss State Secretariat for Economic Affairs SECO. The aim is to promote better uptake of good sustainability standards in several markets in this region including Georgia. Our partnership with SECO enables us to support local partners – for example, Global Compact Georgia – by sharing our experience in using as well as delivering trainings on IFC ESG standards framework and methodologies.
How important is ESG for international financial institutions and investors worldwide?
ESG is vitally important for international financial institutions and investors. It is also essential for Georgian financial institutions. There is a huge opportunity to be tapped as ESG becomes mainstream for all investors, but equally important is that ESG is simply good business practice.
First, ESG is all about good risk management. ESG risks are ultimately financial risks – asset impairment, liability risks, legacy risk, client repayment ability – which directly impact credit risk. Secondly, good ESG practices enhance reputation, brand value, and access to international financing. Thirdly, ESG risk management is essential for underwriting sustainable finance—green, blue, sustainability bonds, climate, energy efficiency, and others. Fourthly, regulation on ESG is soon going to be the norm not just in Europe or developed markets, but in emerging markets too. It is just a matter of time.
An example can help illustrate how ESG is embedded in lending decisions across the world. The Equator Principles comprise a sustainability framework adopted by 118 financial institutions in 37 countries, which covers more than 70 percent of international project finance debt in emerging markets. IFC’s ESG standards were central in establishing these principles, and we regularly share our implementation experiences with members of the Equator Principles.
What would you recommend to businesses – why should they think more about ESG and multi-sectoral partnerships?
Companies can no longer afford to ignore ESG issues. The cost of inaction is too high. Sound ESG practices create value for companies and investors as explained below: 90 percent of studies looking at the cost of capital indicate that sound sustainability standards reduce companies’ cost of capital. 88 percent of studies show that robust ESG practices boost firms’ operational performance. 80 percent of the studies indicate that “good” sustainability practices have a positive impact on the performance of companies’ stock prices. Companies with good ESG performance weathered the COVID-19 crisis better.
IFC provides support to our clients and prospective clients—both firms and financial institutions—on ESG.
While offering services to conduct ESG diagnostics, we and our local partners provide practical support to help firms improve their practices. This can range from advising them on sustainable governance, managing ESG risks, and proper disclosure. We have methodologies, tools, and support materials to help companies on this journey. For example, our Disclosure and Transparency toolkit is now being turned into a platform that clients can use to improve their disclosures. We will be launching the platform in the region later this year, while providing training to our local partners as to how they can use it.
Sustainability is the future. It is imperative that both the financial sector and client companies fully manage ESG risks and opportunities for sustainability, resilience, and long-term survival.