InternationInternational Finance al Finance CorporationCorporation

InternationInternational Finance al Finance CorporationCorporation

IFC’s mission is to promote sustainable private sector investment

in developing countries, helping to reduce poverty and improve people’s

lives

International Finance Corporation

About IFCAbout IFC

IFC in ChinaIFC in China

IFC Financingfor Environmental

Projects

IFC Financingfor Environmental

Projects

International Finance Corporation

Member of World Bank Group - owned by 175 governments Operates on a commercial basis

Profitable every year since founded in 1956 AAA rated international borrower

Net worth of $6.3 billion Committed loan and equity portfolio of $15.1 billion In FY02, IFC approved $4.0 billion of financing for 223 new

investments with a total project cost of $15.5 billion

IFC’s mission is to promote sustainable private sector investment in developing countries, helping

to reduce poverty and improve people’s lives

Mobilization of capitalMinority position, non-operating roleInvestment limit of 25%-35%Complements, not displaces, private sector

Same risks/returns as other investorsMarket pricingNo government guaranteesHonest broker/neutral partner

Benefits host country economyCommercially viableEnvironmentally soundSocially sound

IFC’s Guiding PrinciplesIFC’s Guiding Principles

Catalyst

Partner

Sustainable

The resources of a development bank and the flexibility of an investment bank

IFC’s Products

Global industry andlocal country knowledge

Global industry andlocal country knowledge

Commercial andtechnical skills inemerging markets

Commercial andtechnical skills inemerging markets

Understanding ofgovernment

policies

Understanding ofgovernment

policies

Capital Mobilization Syndication with commercial

banks (B loan program) Co-financing

Capital Mobilization Syndication with commercial

banks (B loan program) Co-financing

Long-Term Financing Debt – Project finance and

corporate finance Equity / Quasi-equity

Long-Term Financing Debt – Project finance and

corporate finance Equity / Quasi-equity

Advisory Services Financial structuring Industry and technical Government (capital markets,

foreign investment)

Advisory Services Financial structuring Industry and technical Government (capital markets,

foreign investment)

Plus special initiatives for high priority sectors:SMEs, Environment, Social Development

IFC’s Investment Portfolio by Region

Investment commitments of $15.1 billion in 1,402 companies in 117 countries as of 30 June 2002.

Asia & Pacific29%

Latin America & Caribbean

38%

Europe & Central Asia

18%

Sub-Saharan Africa10%

Middle East & North Africa

5%

Financial Services31%

Infrastructure21%

Manufacturing8%

Oil, Gas & Mining6%

Food & Beverages6%

Cement & Construction Materials

6%

Chemicals5%

Primary Metals5%

Agriculture, Forestry & Wood Products

4%

Hotels & Tourism3%

Other5%

IFC’s Investment Portfolio by SectorIFC’s Investment Portfolio by Sector

Investment commitments of $15.1 billion in 1,402 companies in 117 countries as of 30 June 2002.

IFC in China

Active investor in China for 15 years Cumulative commitments (IFC + participants)

over $1.2 billion in almost 50 projects Current investment for IFC’s account of $534

million in 42 projects FY02 committed $150 million in 8 new projects Offices in Beijing, Chengdu (SME Facility),

Hong Kong

Financial Services35%

Power & Infrastructure14%

Timber & Wood Products7%

Manufacturing17%

Cement & Construction Materials

15%

Chemicals & Petrochemicals8%

Other4%

IFC’s China Portfolio by SectorIFC’s China Portfolio by Sector

42 investments totaling $534 million outstanding at 30 June 2002

IFC’s China Strategy

Top Priority Country – Actively seeking new projects Objectives:

– Finance model transactions that catalyze private investment– Deepen and broaden financial sector– Set standards for corporate governance, accounting, environment

High priority sectors:– Domestic private companies and entrepreneurs– Emerging private financial institutions– Focus on interior provinces (CPDF in Sichuan Province)– Assist in restructuring companies– Social and physical infrastructure projects– Environmental technologies and improvements

IFC’s Approach to Environmental Projects

Mainstream IFC ProjectsEncourage improvements in all IFC projects by adding value through IFC’s new Sustainability Framework

Environmental ProjectsSupport projects with direct environmental benefits (e.g. clean water) and alternative technologies (e.g., renewable energy)

Environmental Initiatives Where appropriate, access limited concessional funding to

expand the range of sustainable private-sector activities

IFC’s Sustainability Framework

3 Key Areas of Impact

4 Performance Levels:

Management Commitment

& GovernanceEnvironment

Socio-Economic Development

Level 1: Compliance with Minimum Standards

Level 2: Value Added

Level 3: High Performance

Level 4: Market Leadership

IFC’s Sustainability FrameworkDevelopmental Benefits

The economic activity conducted by the project or company is in accordance with accepted national and international (IFC) standards for mitigating potential environmental or social harm stemming from the activity.

Handling of environmental/social issues materially exceeds minimum standards.

In so doing, the project or company creates local or global benefits in terms of reduced waste, emissions, or use of natural resources of its economic activity or helps spread the benefits accruing from its economic activity to the local community or to groups which often fail to benefit from such activity.

Corporate governance practices are good enough to affect positively views of investors about investing in the country.

Handling of environmental and social issues materially exceeds WBG minimum standards.

Formalization of practices or other steps enable good practices on environmental, social and corporate governance issues to leverage change broadly within a region, a sector, or a supply chain.

Economic activity beyond the firm is influenced in the direction of improved resource intensity and inclusion of new beneficiaries.

Corporate governance attributes of the project are sufficiently advanced so that a demonstration effect is possible.

Company is actively engaged on many fronts in the dissemination of best practice.

Economic activity well beyond the firm is influenced in the direction of improved resource intensity and inclusion of new beneficiaries

Firm is seen as a global corporate governance leader, with wide influence.

Performance Level

Level 1: Complies with IFC and national minimum standards

Level 2: Added environmental, social, or corporate governance value

Level 3: High performance

Level 4: Leadership

Making the Business Case for SustainabilityHow good economic, environmental, social and corporate governance

performance creates financial value for companies in emerging markets

Earn price premiums Strengthen customer loyalty Develop new product lines Lower costs Decrease operating risks Reduce supply chain disruptions Better access/lower cost financing Increase employee satisfaction Reap reputational benefits

Developing ValueBusiness Case Matrix

Developing Value – Key Findings

• Solid evidence on the ‘business case’ for pursuing sustainability in emerging markets

• Business case is company-specific– Not “one-size-fits-all”– Varies by region, company-size

• Potential for all firms to integrate into business strategy – even small improvements count

• Sustainability risks and opportunities are evolving rapidly

Example from China #1: Bank of Shanghai

• Sustainability Factor: New corporate governance structure including audit, compensation and risk management committees

• Business Case Benefits: Investment from HSBC and likely faster listing on stock exchange

Community – Based Operation Model

Ecological Knowledge BaseStudy,Design & Plan

Land

Sino-Forest Corporation

Sustainable Intensive Plantation Management SystemTechnology Eco-Econ PracticesFunding

Plantation Service Contracts(Planting & Harvesting)Agroforestry Co-Operation

Local Community

Better Land-UseHigher YieldMulti-Products / CyclesBetter Cash-Flow

Loca

l Pro

fessio

nals

Sino-Forest CorporationExample from China #2

Environmental Sectors

Water/WasteWater and WastewaterSolid Waste Management

EnergyRenewable Energy (Biomass, wind, geothermal, solar …)

Energy Efficiency (Industrial, T&D, ESCOs, FIs …)

Advanced Power & Transport Technologies

Pollution AbatementIndustrialHousehold

Sustainable UseSustainable AgricultureSustainable ForestrySustainable Tourism

Examples of EnvironmentalProjects Financed by IFC

Aguas Argentinas– $4,000 M water/wastewater concession

Manila Water Privatization – Advisor on pathbreaking project

Energia Global in Central America – $40 M renewable energy fund

Bananas in Ecuador – Certified ‘Ecofriendly’ by Rainforest Alliance

Cement in Estonia – 98% reduction in particulate emissions

Ecotourism in Tanzania – Conservation through community ownership

Ecomex in Mexico – Low-emission vehicles using compressed natural gas

Sino-Forest in China – Pursuing FSC Certification

Longer lead times and more complex structuring requirements

Higher development costs

Smaller project sizes Lower return-to-costratio compared to larger projects

Technologies that are neweror have limited applicationsin developed markets

Higher operating risks

Less experienced sponsors Higher completion and operating risks

Less established markets (e.g., rural and off-grid) Higher operating risks (product

acceptance, distributions costs …)

Higher ratio of capital costs to operating costs Need for competitive longer term

financing

Potential Challenges:Transactional Barriers

Potential Challenges:Market Distortion Barriers

Inadequate regulatory Uncertainty too high forframework private sector investorsExample: Government calls for private sector to build wastewater treatment plants without adequate regulations and/or pricing

Conventional competitors Reduced competitivenessusing underpriced resources of environmental projectExample: Government policy subsidizes use of fossil fuels

Example: Wind project competes with coal-fired plant that is not fully paying for mine reclamation or particulate & GHG emissions

Excess concessional funding Commercial financingcrowded outExample: Home country aid agency provides concessional funding forexport of wind turbine without considering whether it is necessary

On a highly selective basis, IFC accesses concessional funding to support increased

environmental and social sustainabilityObjectives• Expand the range of activities associated with IFC’s

market-rate investments• Accelerate market adoption of new technologies,

services and business modelsSources• Global Environment Facility• Donor Trust Funds• 3 New Environmental Facilities• IFC-Netherlands Carbon Facility

Environmental Initiatives

Prefer non-grant financing Minimize use of concessional resources

Maximize leverage of concessional resourcesWhere possible, co-finance with IFC

IFC’s Strategy for UsingConcessional Funding

Cautious with subsidies: Projects must have a clear path to financial sustainability

Market-based interventions: Stay as close to commercial viability as possible

Market-based instruments: Match the type of support to the obstacles or risks blocking the way

IFC/GEF Activities

GEF provides limited, concessional funding for projects that achieve global environmental goals Climate change, biodiversity and international waters

IFC/GEF portfolio –12 projects totalling $130 M Highly innovative projects that have pioneered the use of non-

grant financing (e.g., loans, guarantees, equity) Primarily clean energy but also biodiversity

IFC/GEF pipeline –$20 M p.a. (2-4 projects) Increasing share of biodiversity + more clean energy

Examples of IFC/GEF Projects

Hungary Energy Efficiency Cofinancing Program*$17 M partial guarantee facility

Solar Development Group*$40m global equity/TA fund for off-grid solar power

Terra Capital Fund*$15 M equity fund for biodiversity ventures in Latin America

Small and Medium Scale Enterprise Program$21 M for SMEs from Costa Rica to Viet Nam

Photovoltaic Market Transformation Initiative$30 M to accelerate solar power in India, Kenya, Morocco

* Includes both GEF and IFC financing.

New Environmental Facilities

Environmental OpportunitiesCatalytic project development funding and flexible investment financing for innovative projects that address local environmental problems

Corporate CitizenshipGuidance and support to the private sector in developing and implementing corporate citizenship initiatives and activities

Financial InstitutionsComprehensive and innovative sustainability program to strengthen the capacity of the financial sector through training courses and local consultant development

Facilities began operations July 2002 Combined program targeted at $55 M over 5 years IFC has approved funding but most will come from donors

IFC-Netherlands Carbon Facility

$40 M to purchase greenhouse gas emission reduction credits (‘carbon credits’) on behalf of the Dutch government Pursuant to ‘Clean Development Mechanism’ of the Kyoto Protocol

Supplemental funding for IFC and third-party projects that reduce GHG emissions compared to baseline Increased funding for sustainable projects Improve access to cleaner technologies in developing countries Reduce cost of compliance with Kyoto Protocol Develop a new market for environmental services

Target sectors: Renewable energy, energy efficiency, fuel switching

Challenges and StrategiesChallenges for IFC, New Ventures and other investors:

• Business case still to be proven for many sectors in many countries

• Projects face all the challenges of any business PLUS others – new business models, less established markets, longer lead times, etc.

Strategies to consider:• Level the playing field – Work with government to provide appropriate

regulatory climate and appropriate pricing of resources/products

• Support sustainable ventures – Projects must demonstrate economic, commercial, environmental and social viability

• Choose your partners wisely – Finding the right enterpreneurs and co-financiers is critical to success

• Stay close to the market – Use concessional funding with caution and make sure there’s a clear path to commercial viability

• Don’t push the market too hard – We’ve tried it … and it pushes back!

Contacts

IFC Beijing OfficeMs. Karin Finkelston (kfinkelston@ifc.org)Tel: 010-6554-4191Fax: 010-6554-4192

IFC Hong Kong OfficeMr. Azmat Taufique (ataufique@ifc.org)Tel: 00852-2509-8100Fax: 00852-2509-9363

IFC HeadquartersLouis Boorstin (lboorstin@ifc.org)Yuebin Zhang (yzhang@ifc.org)

Website: www.ifc.org