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Sustainable Business Assistance Program

CORPORATE CITIZENSHIP FACILITY SUSTAINABLE FINANCIAL MARKETS FACILITY ENVIRONMENTAL OPPORTUNITIES FACILITY

REPORT TO DONORS

November 2003

Prepared by: Bayo Oyewole Natalie Magradze Contributors: Merunisha Ahmid Imoni Akpofure Louis Boorstin Zenaida Chavez Tim Collins Mark Eckstein Maria Gallegos Isabel Garcia Brigid Holleran Alexandre Leite Jeffrey Liebert Vanessa Manuel Clive Mason Gavin Murray Sarah Ruck Dan Siddy Design: Maria P. Cabardo, Smolhaus Design & Assoc. Printing: CLB Printing Company Photography: Ulrich Helberg (Front cover) G. Maggio (Inside front cover) M. Hedinger (Table of contents page) J. Fiege (Page 2) D. Baird (Page 4) J. Zevallos (Page 5) S. Edelmann (Page 7) A. Leite (Page 9) Z. Chavez (Pages 10, 28, & 29) A. Leite (Pages 14, 16-18) R. Lord (Pages 20, 22) IFC Stock Photo (Page 21) R. English (Page 26) K. Merckens (Page 27) E. Briggs (Page 30)

The International Finance Corporation (IFC), an affiliate of the World Bank, promotes the economic development of its member countries through investment in the private sector. It is the world's largest multilateral organization providing financial assistance directly in the form of loans and equity to private enterprises in developing countries. The material in this publication is copyrighted. Please contact the Copyright Clearance Center, Inc., Suite 910. 222 Rosewood Drive, Danvers, Massachusetts 01923, U.S.A., for permission to reprint or reproduce portions of this work.

Copyright © 2003 International Finance Corporation 2121 Pennsylvania Avenue, NW Washington, DC 20433, U.S.A. Telephone: 202-473-3800 Facsimile: 202-974-4384 www.ifc.org www.ifc.org/enviro All rights reserved Manufactured in the United States of America First printing November 2003 For further details and information, contact: Bayo Oyewole Tel. 1.202.458.2116 Email. [email protected]

Sustainable Business Assistance Program

IFC ENVIRONMENT AND SOCIAL DEVELOPMENT DEPARTMENT promoting sustainable private investment in emerging economies

CORPORATE CITIZENSHIP FACILITY SUSTAINABLE FINANCIAL MARKETS FACILITY ENVIRONMENTAL OPPORTUNITIES FACILITY

REPORT TO DONORS

November 2003

FOREWORD

The International Finance Corporation (IFC) is committed to sustainable economic development and this is incorporated in all of our investment and capacity-building work. In keeping with this commitment, and with the key support of you, our donors, IFC recently established the Sustainable Business Assistance Program (SBAP) to provide a platform for making highly selective, strategic interventions in key sectors of the market ­ the real sector, capital markets and environmental sustainability ­ where the demonstration of sustainable business practices offers potential significant benefits. The SBAP consists of three social and environmental facilities: the Corporate Citizenship Facility (CCF), the Sustainable Financial Markets Facility (SFMF), and the Environmental Opportunities Facility (EOF). The activities of these are all driven by demand and are designed to promote sustainable private sector investment in developing countries through technical assistance, capacity building, and direct investment. During their first year of operation, the facilities not only reacted innovatively to the evolving needs of the private sector in developing countries, but also explored new ways of doing business. In India, for example, the CCF worked with local nongovernmental organizations (NGOs) to support enterprise development among the rural poor, paying special attention to women's employment and natural resources management. In Kenya, the EOF provided support for the production and distribution of inexpensive and environmentally friendly foot-operated water irrigation pumps. The SFMF has delivered sustainability training courses and workshops to hundreds in emerging market financial institutions in Africa, Asia, Europe, and Latin America while making the business case for sustainable finance and socially responsible investment. Although these examples represent only a portion of the many activities funded through the facilities, they demonstrate IFC's commitment to ensuring long-term business success while contributing to economic and social development, a healthy global environment, and a stable society. Again, you, our donor partners, share our vision of the private sector as a driver of sustainable development in emerging markets and have been generous in supporting the establishment and operation of these facilities. We are grateful to you all. This report highlights the activities of the SBAP facilities after their first year of operation and confirms that their efforts are working toward helping developing countries meet the growing demand for more environmentally and socially responsible ­ yet profitable ­ investment in the private sector. However, we do not have all of the answers and much more work needs to be done.We thank you, our donors, for joining us in effective partnership in trying to accomplish this ambitious objective.We hope and trust that we can continue to count on your support in this endeavor.

Farida Khambata Vice President, IFC

TABLE OF CONTENTS

FOREWORD

1. INTRODUCTION 2 2. CORPORATE CITIZENSHIP FACILITY 5 3. SUSTAINABLE FINANCIAL MARKETS FACILITY 10 4. ENVIRONMENTAL OPPORTUNITIES FACILITY 14 5. OVERSIGHT, MONITORING, AND EVALUATION 20 6. FINANCIAL INFORMATION 22 7. STRATEGIC DIRECTIONS 26 ANNEX: PROJECT PORTFOLIO AS OF OCTOBER 2003 31

1. INTRODUCTION

In July 2002, IFC created three new donor-funded facilities around the theme of environmentally and socially sustainable business. This is the first report to current and prospective donors concerning these facilities. It covers activities carried out since the establishment of the facilities, as well as planned activities for FY04 and beyond. The three facilities are the Corporate Citizenship Facility, the Sustainable Financial Markets Facility, and the Environmental Opportunities Facility. All three are multiyear, donor-funded operations located in, and managed by, IFC's Environment and Social Development Department. Together, they represent a key instrument used by IFC to ensure that the commercial, environmental, and social benefits of sustainable corporate behavior and innovation reach deep into the private sector of emerging market economies. IFC's mission is to promote sustainable private sector investment in developing countries and economies in transition. For IFC, "sustainable investment" means financing or advising on projects that are financially and commercially viable, economically beneficial, and environmentally sound and socially responsible.

SUSTAINABLE BUSINESS ASSISTANCE PROGRAM Objective: to reduce poverty and improve governance through environmentally and socially sustainable private sector development

CORPORATE CITIZENSHIP FACILITY (CCF) Objective: to promote corporate social responsibility in IFC client companies Target Audience: industry, SMEs Products: Diagnostic tools, business development tools, capacity building

SUSTAINABLE FINANCIAL MARKETS FACILITY (SFMF) Objective: to enhance the environmental and social impact of financial intermediaries Target Audience: banking and investment community Products: training, market research, feasibility studies, networking, advisory services

ENVIRONMENTAL OPPORTUNITIES FACILITY (EOF) Objective: to finance innovative projects that promote local environmental benefits Target Audience: environmental entrepreneurs, industry Products: investment capital, TA for business plans/feasibility studies

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This "triple bottom line" is consistent with the generally accepted definition of sustainability ­ namely,"meeting the needs of the present without compromising the ability of future generations to meet their needs" ­ while recognizing IFC's role in working with the profit-oriented private sector. We also recognize that the private sector itself can be a leading force for change in developing countries. IFC's guidance and leadership in shaping sustainable outcomes from private sector activities is a major part of this role. Sustainability can be increased in large measure by building on IFC's "do no harm" environmental and social requirements in order to identify and implement "do more good" components of projects. IFC has already provided significant environmental and social value added to its clients, in forms ranging from improvements in the efficiency of energy and material use to the establishment of community outreach programs. Many IFC clients now face considerable opportunities or risks in the environmental and social performance of their products or operations, and the demand for assistance in these areas has risen steadily over the past five years. In 2002, it was acknowledged that this demand merited the development of dedicated services to IFC clients. CCF,SFMF,and EOF were established to address this demand. Each facility has a distinct focus that is related to three core areas of IFC's work: Industry: CCF works with "real sector" IFC clients who see business opportunities in enhanced environmental and social performance (such as value added markets for sustainably harvested products and improved access to international supply chains). In essence, CCF is a source of technical assistance designed to clarify and demonstrate the role the private sector can play in supporting sustainable development and reducing poverty. CCF support helps pay some of the costs of testing markets, defining approaches, and sharing information about good practices across the environmental, social, and labor spectrum of private sector operations. Capital markets: SFMF works with IFC's financial intermediaries and the broader financial sector in developing countries and transitional countries: to maximize the impact of IFC's financial market investments on sustainable development; to help create sound, efficient, and responsive financial institutions and services; and to promote increased private sector investment in the emerging countries.

The International Finance Corporation (IFC), a member of the World Bank Group, promotes sustainable private sector investment in developing countries in order to reduce poverty and improve people's lives. Since its founding in 1956, IFC has committed more than $37 billion of its own funds and has arranged $22 billion in syndications and underwriting for 2,990 companies in 140 developing countries. IFC coordinates its activities with other institutions in the World Bank Group ­ the International Bank for Reconstruction and Development, the International Development Association, the Multilateral Investment Guarantee Agency, and the International Centre for Settlement of Investment Disputes ­ but is legally and financially independent. Its 175 member countries provide its share capital and collectively determine its policies. All projects in which IFC invests must comply with IFC's environmental and social safeguard policies and applicable EHS guidelines. IFC has made sustainability a corporate priority and we are helping our clients go beyond compliance with minimum environmental and social standards and seek to deliver more beneficial governance, economic, environmental and social impact without compromising their financial objectives.

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Innovations for the future: EOF supports private sector ventures with a strong potential to increase environmental sustainability but must overcome the uncertainty associated with new markets, new technologies, and new ways of doing business.This facility focuses on innovative solutions to environmental issues such as clean water supply or air pollution, which are considered local problems and therefore do not obtain funding from the Global Environment Facility (GEF). Together, the three facilities provide a comprehensive platform for making highly selective, strategic interventions in key parts of the market, where sustainable business practices offer potentially significant benefits. Section 2 of this report examines the facilities' objectives and modus operandi and presents some highlights of FY03 activities and the FY04 pipeline. A comprehensive list of FY03 projects (organized by region) appears in the annex. All three facilities are outcome-focused rather than activity-led.As explained in section 3, the facilities rely on IFC's monitoring and evaluation approach, which has had considerable impact to date. Section 3 also summarizes IFC's arrangements for overseeing the facilities. IFC has committed $10 million to operating the facilities for the first five years.To date, it has received funding from the governments of the Netherlands, Switzerland, and Norway and continues to seek support from other donors. Further financial details appear in Section 4. Although the facilities were launched in July 2002, they did not become operational until September 2002, when the first allocation of funding from the Netherlands was released. Following a strategic review of the facilities at the end of FY03, IFC is now refining its management approach to ensure their continued success.The lessons learned during the facilities' first year of operation have prompted three main changes designed in particular, to enhance the efficiency and impact of the overall initiative. First, although the facilities will continue to exist as three separate donor-funded operations, each with its own distinct focus, consideration is now being given to unifying them under IFC's Sustainable Business Assistance Program. Second, regional delivery will receive special attention. Consistent with the IFC's frontier strategy, Sub-Saharan Africa will become a regional priority for the facilities. Third, the SBAP will seek greater synergies among all facilities and will put more emphasis on mainstreaming its activities within IFC's regular investment operations. Future strategy is discussed in section 5. For further details and information on the Sustainable Business Assistance Program contact:

Bayo Oyewole Sr. Program Officer Tel: 202.458.2116 Email: [email protected]

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2. CORPORATE CITIZENSHIP FACILITY

Objectives and Services

This facility focuses on the environmental and social impacts of business, particularly in the real sector. Expectations about environmental and social performance (variously defined as corporate citizenship or corporate social responsibility) now affect most sectors and scales of business activity, particularly those in emerging markets. Some primary concerns are the impacts of globalization, the scope and impact of supply chains, and the availability and use of information about company activities. These issues are shaping core business concepts such as competitiveness, markets, and brand equity. The CCF's main objectives are to: · identify and define the business case for better environmental and social practices in individual businesses and across sectors · disseminate and replicate successful findings more widely through the private sector · help clients and the wider private sector recognize opportunities and reduce risks

BOX 1. BALKANS HERBAL DEVELOPMENT INITIATIVE (CCF Funding: $25,000) Building a socially equitable and environmentally sustainable herbal sector in the Balkans

CCF has collaborated with IFC's Southern European Enterprise Development (SEED) SME project development facility to explore how environmentally and socially sustainable herbal products might be promoted and marketed in the Balkan herbal industry. The Balkans are among the most important sources of culinary and medicinal plants in Europe, and the collection of plants has the potential to become a valuable source of income for rural communities (including returning refugees). At least 200,000 people are involved in the harvesting and trade of herbal products in the region, and results of this work demonstrate that even though Serbia and Bosnia are at very different stages in the development of their respective herbal industries, both could build a strong sector that would provide a major boost to rural incomes and significantly reduce rural poverty. Conclusions of the work were presented to the private sector, donors, government agencies, and NGOs at seminars in Sarajevo and Belgrade in May 2003. Seminar participants formulated draft action plans that would support the development of a sustainable industry, and CCF/SEED is considering several possible steps to support the implementation of the action plans, including assistance in the development of herbal associations, support for marketbased measures for environmental protection, and more equitable distribution of profit, especially to herb collectors. Further details are available at www.balkanherbs.org.

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BOX 2. LABOR PRACTICES IN THE ECUADORIAN BANANA INDUSTRY (CCF Funding: $113,000) Reducing rural poverty and ensuring supply chains to increasingly discriminating markets

Favorita Fruit, an IFC client in Ecuador, is a pioneer in addressing environmental and social issues. In1999, its banana-exporting subsidiary, Agricola Bananera Reybancorp, had all the banana farms it owns certified by Rainforest Alliance for environmental and labor practices. Through Fundacion Wong, named after the company's founder, Favorita supports over 300 schools for children in the rural areas from which it obtains bananas. Supporting schools complements Favorita's leadership in efforts to eradicate child labor in the banana fields through the exporters' trade association, CORPEI. In 2003, Favorita and IFC's Corporate Citizenship Facility began to develop and implement a program of outreach and training for 400 independent banana suppliers, which account for over half the company's exports. The program will enhance environmental and labor practices that are becoming essential for Ecuadorian farmers to maintain access to markets in the European Union and United States. Training programs consist of sessions in each of four banana-growing regions and field visits to certified Favorita facilities. Farmers may attend these training sessions for free. The project has the potential to affect environmental and labor practices on 18,000 hectares of banana plantations and to influence the lives of thousands of workers.

The CCF uses donor funding because its work has a significant public good component and in many situations the costs of promoting and implementing better practices cannot be charged to individual projects or sponsors. CCF will help pay some of the costs of testing markets, defining approaches, and accelerating innovation, dissemination, and replication of successful initiatives that promote better environmental and social performance and more competitive and efficient businesses. However, every project is required to meet certain conditions for cost sharing/recovery, which are discussed and agreed on a case-by-case basis.

FY03 Activities

IFC's strategy for CCF in FY03 has been to · focus on key sectors in which demand was assumed to be high, such as the oil, gas, mining, and agribusiness sectors · develop close working links to programs in the Small and Medium Enterprise (SME) Department (particularly linkages work and the project development facilities) to enable CCF to deliver services to the SME sector efficiently · focus regional efforts on Africa and East Asia · develop a robust and efficient delivery system

BOX 3. BIODIVERSITY GOOD-PRACTICE GUIDE (CCF Funding: $286,000) Helping businesses understand and manage biodiversity in their business activities

Many private sector activities have a significant impact on biodiversity. These impacts can be mitigated through a better understanding of the relevant issues, capacity building, siting, and operations. IFC will follow other successful "good-practice guides" on resettlement and community development with a biodiversity manual to be developed jointly with the World Conservation Union (IUCN), Flora & Fauna International, and others. It will be available as a pdf file via the CCF website and in book form.

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BOX 4. SUPPORTING THE DEVELOPMENT OF WOMEN'S INFORMAL SECTOR ENTERPRISE (CCF Funding: $43,000) Supporting women's informal sector enterprise among the rural poor in India

IFC has initiated a 15-month project in which CCF is working with Usha Martin (an IFC steel sector client) and Indian NGOs to support the spread of women's informal sector enterprises among the rural poor in Jharkhand (a state in which an estimated 60 percent of the population lives below the poverty line). Two NGOs (SEWA and KGVK) are providing training and technical support to promote enterprise development opportunities for rural women (in key areas such as natural resources management) and will support the implementation of a number of pilot projects that, if successful, will be integrated into KGVK's core developmental activities in the coming years. B. K. Jhawar, chairman of Usha Martin, states that with this "long-term partnership with IFC, we look forward to maintaining the best international standards of environmental and social responsibility." Peter Woicke, Executive Vice President of IFC adds, "We commend Usha Martin's commitment to increasing employment and the diversification of local economic opportunities for rural women. This agreement, and its anticipated outcome, will point the way for Indian companies which, like UML, seek to move beyond philanthropy and to provide sustainable economic opportunities for it neighbors and constituents."

IFC approved 12 CCF projects in FY03 with a total net value of $929,000.Total spending on the projects through the end of FY03 was $151,000. Cost recovery and `contribution in kind' on these projects amount to a further $93,000. CCF projects approved during FY03 are described in the annex. Following are some highlights: · Support for the development of a socially equitable and environmentally sustainable herbal sector in the Balkans (box 1), in conjunction with IFC's local SME project development facility · An effort to improve labor practices in the Ecuadorian banana industry (box 2) · Development of a Biodiversity Good-Practice Guide to help businesses understand and manage biodiversity issues relevant to their operations (box 3) · Work with an Indian steel hawser company and NGOs to support enterprise development among the rural poor, with an emphasis on women's employment (box 4) · A project to promote the adoption of sustainability criteria in international agricultural commodities (box 5) · Biodiversity and land-use planning around a cement plant in Southern Vietnam · A "business-to-business" (B2B) workshop on sustainable business for Latin American companies (box 6)

FY04 Work in Progress and Future Pipeline

To maximize their impact, CCF efforts will be directed at two key IFC investment departments, Global Manufacturing Services (GMS), and Oil, Gas, and Mining (OGM) and will align program objectives with the explicit needs and expectations of IFC's clients in these sectors. CCF projects will aim for high levels of scalability and replicability for subsequent IFC investments. Experience during FY03, emerging demands for CCF services, and IFC mainstreaming priorities have led CCF to focus its FY04 activities on the following areas: · Supply chains (management and assurance, enhancing productivity, competitiveness and sustainability) · Community and local economic development opportunities associated with IFC investments · Biodiversity management (particularly for the extractive sector) · HIV/AIDS These four areas align with emerging business drivers and interests in GMS and OGM. CCF will provide tailored services and support in these areas, will aggregate findings, and aim to work in particular with sponsors wherever scale/uptake can be achieved.The goal is to increase impact through wider adoption of "good" practices with clients and across sectors.Work on HIV prevention efforts will be closely aligned to the IFC against AIDS program.The work on local economic development will be coordinated closely with IFC's activities in the area of SMEs and linkages. As awareness of the CCF spreads, IFC and its clients are calling for more access to CCF's technical assistance program. Hence the facility is developing useful information on how companies can derive value from enhanced

BOX 5. BETTER MANAGEMENT PRACTICES AND AGRIBUSINESS COMMODITIES, PART 1 (CCF Funding: $12,000) Supporting more sustainable agribusiness commodity production

CCF and the U.S. World Wildlife Foundation (WWF-US) joined forces to work on a major initiative promoting the use of "better management practices" (BMPs) in selected agribusiness commodities. The aim is to use multistakeholder partnerships to collect and review information that demonstrates how BMPs that improve environmental management, social development, and labor practices can optimize efficiency in the use of resources, reduce conflict with other stakeholders, and increase net profits for producers. For investors, companies that use BMPs represent fewer risks and potentially higher returns on investment. For many buyers, such companies tend to be good longer-term partners because they are more likely to have addressed environmental and social issues successfully and to turn out higher-quality and consistent products. There has been a high level of interest in this proposal and CCF/WWF-US is currently working with banks, producer groups, and buyers to select two to three commodities that will form the focus of subsequent BMP work. Participants are expected to provide financial or other forms of support to this initiative and CCF/WWF will coordinate research and promote uptake more widely (via IFC investments, focused dissemination, and the like). The project is designed to run for several years.

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BOX 6. LATIN AMERICA B2B SUSTAINABILITY WORKSHOP (CCF Funding: $26,000) Enhancing sustainable business through enterprise networks

There is considerable interest in the business case for sustainability in Latin America, and many firms have already begun to adopt practices that give them competitive advantages because of their environmental or social performance. To capitalize on the growing interest that project sponsors are showing in this aspect of their operations, IFC organized a three-day workshop in Brazil for its general manufacturing clients throughout Central and South America. A key element of the forum was the mentoring provided by IFC sponsors who are already implementing advanced environmental and social practices with those who are enthusiastic but uncertain about how to proceed. At the end of the meeting, all participants made a commitment to further developing and implementing enhanced practices with business benefits. A number of case studies will be featured in a final report to be distributed to participants and made available on IFC websites and in other media. IFC used CCF to cover the costs of training materials and some venue costs, as well as to develop case studies. Participants paid to attend the workshop and handled their own travel costs plus the remaining costs of the venue.

environmental and social performance and can deliver significant and lasting development impacts. The following are among the projects under consideration for FY04: · Haiti: Promoting superior labor practices and environmental performance in the textile sector and helping to ensure that the effects of expansion in the sector can be managed so as to maximize social and economic benefits · Madagascar:Working with a shrimp aquaculture client to establish community development and rural livelihood programs around a new shrimp farm · Botswana: Coordinating efforts with a mining sector client and indigenous communities to identify ways in which local people can maximize benefits from mining operations · Indonesia and India:Working with oil palm and sugar sector clients to promote environmentally and socially sustainable outgrower programs For further details and information on the Corporate Citizenship Facility contact:

Mark Eckstein Program Leader Tel: 44.131.313.6162 Email: [email protected]

Sarah Ruck Tel: 1.202.473.0841 Email: [email protected]

3. SUSTAINABLE FINANCIAL MARKETS FACILITY

Objectives and Services

Investments in the financial sector now represent about 35 percent of IFC's portfolio and about 40 percent of annual approvals by volume. Such financial intermediary (FI) projects present a unique opportunity to promote development. Ensuring the sustainability of financial markets is, therefore, an integral part of IFC's development goals. Using the Sustainable Financial Markets Facility, IFC works with financial intermediaries and the broader financial sector in developing countries and transitional economies to · enhance the environmental and social development impact of IFC's investments in and via financial intermediaries · help the financial sector use sustainability as a tool to build better businesses and increase long-term competitiveness · increase the quality and amount of environmentally and socially responsible investment in developing countries Technical assistance provided by SFMF is organized in three distinct programs: · The Responsible Institutions Program focuses on banking, leasing, insurance, and microfinance companies. Under this program, IFC promotes sustainable and responsible lending practices and encourages financial intermediaries to develop products and services that respond to their customers' environmental and social business drivers · Through the Sustainable Inward Investment Program, IFC helps private equity fund managers use sustainability as a tool for creating shareholder value and promotes venture capital investment in commercia businesses with strong environmental or sustainability benefits. IFC also uses this SFMF program to enhance framework conditions for socially responsible investment (SRI) in listed companies in the emerging markets

BOX 7. SUSTAINABLE BANKING IN AFRICA (SFMF Funding: $39,000) Promoting socially and environmentally responsible lending in the African banking sector

IFC has used SFMF to provide sponsorship for research by the African Institute of Corporate Citizenship (AICC) in conjunction with United Nations Environment Programme (UNEP) Finance Initiative's Africa Task Force. The research assesses current practice in the African banking sector with respect to environmental and social issues and will identify drivers for change and future needs/opportunities. Case study research has been undertaken in South Africa, Nigeria, Kenya, Tanzania, and Senegal. The final report will be publicly available and disseminated via follow-up regional events/initiatives and at UNEP's FI Annual Roundtable in Tokyo, in October 2003. This project will help guide the design of future SFMF interventions in Africa.

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BOX 8. STRATEGIC REVIEW OF SOCIALLY RESPONSIBLE INVESTMENT IN THE EMERGING MARKETS (SFMF Funding: $70,000) Analyzing the market for listed equity investment in environmentally and socially responsible companies in developing countries

The socially responsible investment industry represents approximately $2.3 trillion of assets under management, but to date this industry has gained very little traction in emerging markets. IFC has used SFMF to commission independent research into the current market and future potential for SRI in developing country listed equities. The study assesses investor appetite and existing SRI research infrastructure in the emerging markets and analyzes future market potential and key barriers/necessary incentives. Recommendations include guidance on how the SFMF can best work in partnership with others to play a catalytic role in building up this industry and maximizing developmental benefits. The final report is currently undergoing peer review and will be published in October 2003 and launched at the UNEP FI Annual Roundtable in Tokyo.

· SFMF's Strategic Market Development Program provides IFC with a window to create incentives and know-how within the broader operating framework of the financial sector. Potential interventions include work with rating agencies, central banks, stock exchanges, industry initiatives, and voluntary codes of practice SFMF's products and services under these programs include · training courses and workshops · business advisory and support services · technical assistance for project development and implementation · market intelligence and information resources · strategic partnerships and business networks · support for, and input to, voluntary industry initiatives and codes of practice

FY03 Activities

IFC's strategy for SFMF in FY03 has focused on the following priorities: · Identify nonprofit and other local organizations in each IFC region with the potential to become strategic partners in the development and implementation of training programs and other SFMF-funded projects · Review IFC's FI portfolio to assess current levels of sustainability performance and future capacity building needs, together with discussions with IFC's Global Financial Markets and Funds Departments to identify future core business priorities · Conduct preliminary research into the potential for SRI in emerging markets and identify opportunities, obstacles, and priorities for high-impact interventions · Generate a strong and diversified pipeline of potential SFMF projects for implementation in FY04

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BOX 9. ASSOCIATION FOR SUSTAINABLE AND RESPONSIBLE INVESTMENT IN ASIA (SFMF Funding: $81,000) Developing the SRI market in Asia

IFC sponsorsed the 2002 annual conference in Tokyo of the Association for Sustainable and Responsible Investment in Asia (ASrIA), a not-for-profit membership organization dedicated to promoting SRI in Asian emerging markets. Conference sponsorship will be repeated and increased for ASrIA's 2004 conference in Singapore, and the event will be used to disseminate IFC's work and best-practice guidance in the field of sustainable financial markets. Through SFMF, IFC has also provided grant funding for ASrlA research into current and potential future markets for SRI in China, India, Indonesia, Malaysia, the Philippines, South Korea, and Thailand. This report will be publicly available from IFC's and ASrIA's websites after being launched at an IFC/FT conference in Hong Kong in September 2003, with further dissemination via national seminars, the UNEP FI Annual Roundtable in Tokyo in October 2003, and other conferences.

IFC approved 18 SFMF projects in FY03 with a total net value of $477,000. Total spending on the projects through the end of FY03 was $156,000. Cost recovery and `contribution in kind' on these projects amounted to a further $69,000. Full information on SFMF projects during FY03 is provided in the annex. Highlights include the following: · Identification of the African Institute of Corporate Citizenship (AICC), the Association of Sustainable and Responsible Investment (ASrIA), and the INCAE Business School, Costa Rica, as "cornerstone" strategic partners in Africa, Asia, and Latin America, respectively · Participation in a research project by AICC to review current sustainability practices in the African banking sector, together with FI training courses in Lagos and Johannesburg · Additional FI training courses in Miami, Istanbul, and Moscow for Latin American, Central European, and Russian FIs, respectively · Development of a strong project pipeline around emerging market SRI Descriptions of selected key projects are provided in boxes 7 to 11, and all SFMF-funded projects in FY03 are summarized in the annex

FY04 Work in Progress and Future Pipeline

SFMF's work in FY04 will be based on the following strategy, building on the momentum created during the facility's first year: · Consolidate strategic regional partnerships established with INCAE,AICC,AsrIA, and others during FY03, including customized capacity building where required · Develop institution-specific and country-specific technical assistance (TA) projects in addition to continuing the "global," strategic projects initiated during FY03 BOX 10. SUSTAINABILITY TRAINING IN THE FINANCIAL SECTOR (SFMF Funding: $40,000) Building local capacity for sustainable lending and investment in the emerging markets

During FY03, IFC delivered sustainability training workshops in Johannesburg, Lagos, Istanbul, Moscow, London, and Miami for emerging market FIs from Africa, Central and Eastern Europe, and Latin America. Some 100 institutions participated in this training course, which typically takes the form of a three-day interactive workshop based on case studies and site visits to industrial facilities. The program is usually oversubscribed and receives excellent client satisfaction feedback. Each regional course is held in partnership with local organizations. In FY03 this has included AICC, the Inter-American Investment Corporation, African Development Bank, Development Bank of South Africa, CDC Capital Partners, Aureos, the Lagos Business School, and IFC's Private Enterprise Partnership (PEP). Fees make it possible to recover costs for most workshops other than those in less developed regions.

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BOX 11. MARKET INTELLIGENCE ON SUSTAINABLE FINANCE (SFMF Funding: $155,000) Explaining the business case for sustainable finance in emerging markets

IFC has launched an SFMF-funded project to provide a series of monthly newsletters targeted at senior decisionmakers in emerging market financial institutions. Each newsletter will analyze a different sustainability topic relevant to emerging market lending and investment, explaining the commercial risks and opportunities and the business case for proactive engagement. Topics may include supply chain and human rights issues in China, opportunities in carbon emissions trading, and the importance of HIV/AIDS management strategies to financial services companies. Newsletters will be e-mailed free of charge to subscribers and placed on the IFC website during FY04. Subject to demand, cost recovery and restricted publication may be introduced if and when the project is replenished for FY05.

· Seek closer involvement with IFC's Global Financial Markets and Private Equity and Investment Funds Departments, as well as IFC's local field offices, in SFMF project identification, development, and implementation Key regional priorities are Africa, China, India, and Russia.Thematic priorities include the following: · Strengthening and expanding the existing sustainability training program for FIs, delivering the courses more frequently and on a more local level in association with key partners, and developing "advanced" courses on key topics. · Developing best-practice guidelines, user-friendly tools, and business case evidence for sustainability management in the banking, leasing, microfinance, and private equity investment sectors · Further market development in the field of emerging market SRI, including linkages to the potential establishment of an IFC-backed global emerging market SRI fund · Greater emphasis on demonstration projects with individual IFC clients, for example, in the field of environmental financing and sustainability reporting IFC has already approved a number of significant SFMF projects in the first quarter of FY04 and has a strong pipeline of potential new projects for further development. Recent or imminent approvals include the following support: · Two-year grant funding to AICC to establish a Centre for Sustainability Investing in Africa (SFMF contribution: $200,000) · A comprehensive case study report on examples of value-creating sustainable investment practices in IFC's private equity funds portfolio (SFMF contribution: $200,000) · Actuarial research into the correlation between superior sustainability performance and reduced insurance risk in emerging market corporates (SFMF contribution: $45,250) · Research into the sustainability business drivers affecting industry and the financial sector in 10 EU accession countries.The project will probably be replicated in China, India, Russia, and Turkey (SFMF contribution: $72,317) · Collaboration with AICC to assist Africa Bank on its next two annual sustainability reports in order to use the reporting process to achieve measurable business benefits and provide a case study for dissemination and replication by other emerging market banks (SFMF contribution: $105,000) For further details and information on the Sustainable Financial Markets Facility contact:

Dan Siddy, Program Leader Tel: 1.202.458.9899 Email: [email protected]

Zenaida Chavez Tel: 1.202.473.8202 Email: [email protected] 13

4. ENVIRONMENTAL OPPORTUNITIES FACILITY

Objectives and Services

IFC regularly receives proposals for private-sector projects with substantial environmental benefits. Some of these projects are ready for consideration as mainstream IFC investments or can be funded from other sources such as the Global Environmental Facility (GEF) or the IFC-Netherlands Carbon Facility (INCaF). Many other environmental projects, however, need further preparation to be considered for IFC financing; or cannot meet IFC's investment criteria because they involve higher-than-acceptable costs and/or risks; or they do not meet the GEF/ INCaF criteria, which focus on global environmental issues such as climate change mitigation and conservation of biodiversity. The Environmental Opportunities Facility was established to support these types of projects, that is, to provide catalytic funding for innovative ventures that have a strong potential to increase environmental sustainability but must overcome the uncertainty associated with new markets, new technologies, and new ways of doing business. IFC uses EOF to provide two types of support: project preparation grants (averaging $120,000 per project) and flexible investment funding (averaging $600,000 per project). Projects must offer innovative private sector solutions to local environmental issues such as clean water supply or air pollution. Eligible projects can either produce goods or services with significant environmental benefits or increase the sustainability of resource use through eco-efficiency improvements. EOF's technical assistance and investment funding are directed at two main themes:

BOX 13. CONOX CLEANER PRODUCTION PROJECTS, CHINA (EOF Proposed Investment: $500,000) Eliminating pollution from straw pulp mills

Conox Ltd. (Conox), a Finland-based company dedicated to the development of cleaner technologies in the paper and pulp industry, has created a new and innovative proprietary technology that is expected to eliminate the largest source of water pollution in mills that produce pulp from straw, called "black liquor." Conox will initially test its technology in two straw pulp mills in China, the world's largest producer of straw pulp for papermaking. Straw pulp mills discharging black liquor into rivers are the largest source of water pollution in China. The EOF will provide risk capital to Conox for the development of the two pilot plants. The successful installation and operation of Conox's technology will confirm its technical and commercial viability and make it available to numerous other straw pulp mills in China as well as in other developing countries.

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BOX 14. WATERHEALTH INTERNATIONAL (EOF Funding: TA, $90,000; Proposed Investment, up to $1.2 million) Supporting community-based technology for safe water supply

WaterHealth International (WHI) was founded to develop and market distributed (noncentralized) water purification/ disinfection systems based on an innovative ultraviolet disinfector (proprietary/patented technology) to provide potable water to small communities, institutions, and households, as well as for personal use in the developing world. As a result of its market development initiatives, WHI has already sold and placed more than 300 systems in pilot locations, with a market value of $1.2 million, through its affiliate partners in several countries, including Mexico and the Philippines.

IFC provided $90,000 of EOF TA funding to co-finance a $180,000 feasibility study on WHI's market prospects in the Philippines and Mexico. As a result of the EOF grant funding and additional market insight, WHI has changed its focus from that of a technology supplier to a service provider, and has decided to aggressively enter the decentralized distributed water purification business through the purchase of a majority share of a water store business in the Philippines (Aquasure) from its largest water filter technology customer. IFC is currently in the final stages of negotiations to make an early-stage equity investment in WHI using EOF to play the catalytic and technology validating role to attract further capital investment and credits from private sector capital markets.

· Projects that produce goods and services with environmental benefits. Priority sectors include environmental services (for example, clean drinking water, wastewater treatment, and solid waste recycling/disposal) and pollutio reduction/abatement (for example, industrial air or water emissions and indoor air pollution). Funding may also be considered for sustainable resource use (for organic farming, certified sustainable forestry, aquaculture with indigenous species, and other activities) and sustainable energy, if such projects cannot be supported by INCaF, GEF, or other instruments · Projects that lead to "eco-efficiency" improvements that reduce material and energy inputs, thereby generating savings in production and waste management costs. IFC can look both to new and existing projects for eco-efficiency opportunities IFC works closely with selected partners to identify and implement EOF projects. Examples of potential partners include · · · · financial intermediaries and project development facilities serving small and medium enterprises environmental facilities established by other multilateral and bilateral organizations technical assistance programs that focus on environmental improvements indigenous technical development institutes

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BOX 15. APPROTEC, TANZANIA (EOF Funding: TA, $15,000; Loan, $20,000) Strengthening the supply chain for low-cost irrigation pumps in Tanzania

ApproTEC is an international nonprofit organization whose mission is to create new livelihoods and kick-start sustainable economic growth in developing countries. ApproTEC designs and promotes simple inexpensive technologies tha are bought by poor local entrepreneurs and used to establish highly profitable new small-scale businesses, primarily in eastern Africa. ApproTEC approached IFC for EOF funding to address a sustainability gap in the supply chain for its SME-scale, foot-powered irrigation pumps in Tanzania. The product that ApproTEC has focused on for the past seven years is a derivation of International Development Enterprise's (IDE) treadle pump, a low-tech and low-cost, irrigation pump called the "Money Maker." ApproTEC has successfully developed a supply chain for the Money Maker irrigation pumps from manufacturer to end consumer on a near sustainable basis, a market that has to date sold over 32,000 pumps. The critical challenge for ApproTEC in Tanzania is to develop a supply chain for its pumps that is robust enough for each participant (manufacturer, wholesaler, retailer) to provide sufficient credit to its downstream customer (at a minimum of 30 to 60 days, and in some instances a whole growing cycle) to effectively sell into a cash-and-credit constrained market. To help the supply chain become completely sustainable, independent of subsidies, EOF has given ApproTEC a $20,000 loan to provide working capital credits to the manufacturer and short-term credits to the wholesaler. In addition, a $15,000 grant has been awarded to fund a 12-month technical assistance program to aid the manufacturer in that transition.

FY03 Activities

IFC's strategy for the EOF in FY 03 was to · Focus on priority sectors such as environmental services (clean drinking water, wastewater treatment, solid waste management), eco-efficiency improvements in IFC's existing and new clients' operations, and pollution reduction/abatement · Identify new environmental technologies and business models that demonstrate a strong potential to become commercially viable and replicable in the long term · Develop strategic partnerships to help develop a strong project pipeline · Increase awareness of EOF's financing activities within IFC and among external stakeholders such as entrepreneurs, development agencies, and the financial community in general. EOF has screened scores of early stage projects, most of which were rejected as being ineligible (or referred to other funding sources) and some of which are still under development for potential EOF support. Through the end of FY03, seven EOF projects had been funded or were at an advanced state of preparation. Four projects were approved for TA funding totaling $255,000 (one of these also received a small loan of $20,000), of which about $58,000 was actually disbursed in FY03. Five projects (including one that has received TA) are under active consideration for up to $3.15 million in total investment funding.

BOX 16. CALIDRA ECO-EFFICIENCY PROJECT, MEXICO (EOF Funding: TA $120,000) Preserving scarce water resources in mineral lime production

IFC has identified an opportunity to assess the technical and commercial viability of a system designed to recover water vapor at Grupo Calidra's (GC's) industrial facilities. Grupo Calidra is an existing IFC client. This pilot initiative will be carried out in one of GC's 14 plants in Mexico and is being co-financed by GC and the EOF. The project is expected to recover approximately 12 million liters of water a year by utilizing an innovative process developed by a Belgian company. GC is Mexico's largest producer of lime, a material used in the construction, steel-processing, and chemical industries. Some of GC's industrial facilities are located in areas with desertlike conditions, where all water needs are met with groundwater, an extremely scarce resource in the region. If GC's pilot initiative is successful, the company will replicate this sustainable approach in its other facilities, which will help reduce the pressure on the limited water resources in the affected areas.

Descriptions of these seven active projects are provided in boxes 13 to 19 and can be summarized as follows (project titles appear in parentheses): · Appraisal of start-up that has developed a new cleaner production technology expected to eliminate the largest source of pollution derived from the straw pulping production process; this is expected to have wide application in China, where small pulp and paper plants using straw and other nonwood inputs are the largest source of water pollution in the country (Conox) · Technical assistance for the preparation of a feasibility study and pote tial equity investment in a water purification/ disinfection system to provide potable water to small communities, institutions, and households initial target countries include the Philippines and Ghana (WHI) · Technical assistance and soft loan to a manufacturer of environmentally friendly, lowcost, foot-operated water irrigation pumps in Kenya (ApproTEC)

BOX 17. REVA ELECTRIC CAR PROJECT, INDIA (EOF Proposed Investment: $600,000) Innovative electric vehicles for domestic and export markets

REVA Electric Car Company (RECC) is a joint venture of the Bangalore-based Maini Group and AEV LLC in the United States. RECC is fully dedicated to the design, development, manufacturing, and marketing of battery-operated electric vehicles for city use. The project was conceived and conceptualized in July 1994 and is a unique combination of engineering and technology expertise, leveraging on the use of innovative materials as well as manufacturing systems. RECC produced its first prototype in 1996 and since 2002 has been producing and marketing electric vehicles on a commercial basis. IFC is considering investment funding from EOF to RECC to help the company expand its domestic as well as international distribution network. RECC's electric vehicles will provide important environmental benefits by using a clean technology and therefore avoiding the release of pollutants that are typically produced by conventional vehicles, thus helping reduce air pollution primarily in metropolitan areas.

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BOX 18. SHAPLA ARSENIC FILTER, BANGLADESH (EOF proposed investment: up to $350,000) Low-cost arsenic filters for safe water supply

Shapla has developed a low-cost household water filter to address the arsenic water contamination problem in Bangladesh. The product retails at less than $7 and can process up to 45 liters of water a day. The filter is designed to provide a household-level solution to the arsenic-contaminated ground water, which endangers the health of up to 40 million people in Bangladesh. Its technology, invented by a Bangladeshi chemistry professor at Rajshahi University, is currently in its final stages of patent registration and certification by local government agencies. EOF has leveraged its relationship with IFC's project development facility in Bangladesh, the Southeast Asia Development Facility (SEDF), to assist Shapla in developing a business plan, gaining technology approval, and designing a production site. Meanwhile, EOF is poised to make an initial equity investment in Shapla together with a local partner, International Development Enterprises, the incubator for this start-up company. A SEDF contribution of $30,000 could lead to a $350,000 EOF equity stake in the firm in 2004, which in turn could help attract additional equity investments from strategic investors and credits from local banks to enable the company to rapidly scale up its business.

· Assistance for an existing IFC client to assess the technical and commercial viability of an innovative water recovery system that is expected to reduce the depletion of underground water reserves in Mexico (Calidra) · Appraisal of an Indian company that has developed, and is currently manufacturing and marketing, the first electric motor vehicle in the country (Reva) · Working with one of IFC's SME development facilities to develop an arsenic water treatment technology for households in Bangladesh (Shapla) · Technical assistance for the development of conch mariculture technology with implications for enhancing biodiversity in the Latin American and Caribbean region (TWI Conch)

FY04 Work in Progress and Future Pipeline

EOF's work in FY04 will be based on the following strategy: · Support projects with innovative technologies that have a strong replication potential and can expect commercial sustainability · Build a well-diversified project pipeline by region and sector, following the strategic focus adopted in FY03 · Pursue project-by-project "syndications" of investment funding in order to recycle core funding into new projects · Establish partnerships that will help reach a larger number of markets and raise additional funding for EOF projects · Establish linkages with other IFC industry departments, such as SME and GMS, to leverage IFC's overall sustainability impact

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BOX 19. TRADE WIND INDUSTRIES CONCH, BAHAMAS (EOF Funding: TA, $30,000; Proposed Investment, $500,000) Enhancing biodiversity in the Caribbean by developing mariculture technology

Trade Wind Industries (TWI) Conch is a Turks and Caicos ­ based mariculture company that is raising conch and selling its meat into U.S., Asian, and select Caribbean markets. Conch is a large marine mollusk found in the wild in the tropical waters of the Caribbean. TWI Conch is now considering a rapid expansion and grow-out farm model, to ramp-up to sufficient scale to become a valued supplier to a distributor in one of the key Asian markets: Japan, Taiwan, or China. The EOF believes TWI's conch mariculture technology has the potential to evolve into a commercially viable business, while playing an important sustainable development role in the Latin America and Caribbean region (LAC). Conch is an endangered species, with important commercial value and a critical link in the tropical marine food web. The intent of the project is to reduce pressure on wild stocks by developing a commercially viable aquaculture alternative, while affording renewable sources of income, protein, and employment to people living in the Caribbean. strategic investors and credits from local banks to enable the company to rapidly scale up its business.

A key step for FY04 is to approve and begin funding EOF's first investment projects, including three of the five investments under preparation in FY03 (see previous section). New projects being brought into the near-term pipeline in FY04 include a potential cleaner production technical assistance engagement to help the Pakistani textile industry reduce water and energy consumption and a wastewater optimization project for sugar mills in Colombia.

For further details and information on the Environmental Opportunities Facility contact:

Alexandre Leite, Program Leader Tel: 1.202.473.2559 Email: [email protected]

Jeff Liebert Tel: 1.202.458.7885 Email: [email protected]

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5. OVERSIGHT, MONITORING, AND EVALUATION

Management Structure and Steering Committee

The three SBAP facilities are managed by IFC's Environment and Social Development Department (CES). The facilities are based in Washington, D.C., and utilize IFC's field offices and SME project development facilities as needed to help implement their activities. Several IFC staff members have been seconded to the facilities on a full-time basis. The facilities are overseen by a Steering Committee made up of senior IFC managers. The Steering Committee meets quarterly to review activities and provide guidance on future operations and strategy. The committee also approves the annual budgets of the facilities and commissions independent evaluations. Its current members are Gavin Murray (director, Environmental and Social Development Department),Allen Shapiro (director, Controller's and Budgeting Department), and Uday Wagle (director,Trust Funds Department). Core staff of the CCF includes a program leader, an environmental/social specialist, and administrative support (information systems specialist and part-time budget controller to be shared with SFMF and EOF). Individual projects are promoted by IFC project teams, and management of engagements is vested in an IFC staff member who is accountable to the program leader for the development and management of the CCF engagement. IFC staff costs for developing and managing CCF engagements are not covered by the CCF. On occasion, however, CES staff may be used as resource experts, providing skills on a part-time or short-term basis for specific project deliverables. Core SFMF staff consists of a program leader, a training and professional development specialist, and a program assistant (all full-time), plus an information systems specialist (shared with CCF) and part-time accounting/contracts and administrative support.These staff are seconded IFC personnel paid for by SFMF. IFC capitalizes on the expertise available from in-house resources and maximizes synergy with other "best-practice" activities in IFC. Accordingly, SFMF also relies on consultant support and other IFC staff resources acquired on a part-time or short-term basis. Resource experts who provide skills on a part-time or short-term basis for specific project deliverables include specialists working in IFC's Environment and Social Development Department, World Bank Group financial markets experts, consultants, and selected personnel from partner international financial institutions and NGOs. EOF staffing includes (a) a core team in the Environmental Finance Group that identifies new projects, conducts initial project reviews, prepares funding requests, supervises existing projects, and administers the EOF; and (b) specialized IFC staff or consultants as needed for project reviews. Consultants to conduct sector and/or country studies to identify new project opportunities may also be used. IFC's investment departments are encouraged to identify projects for EOF support, but EOF assistance is provided only to those projects that cannot be developed using regular IFC resources.

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Monitoring and Evaluation Framework

All three facilities are subject to a rigorous monitoring and evaluation (M&E) process.At inception, each facility was required to develop a framework which sets out clear objectives, performance indicators, and specifics on how outcomes will be monitored and evaluated. Project selection criteria are built into each facility's project cycle, and each TA project is evaluated on completion against inputs/outputs/outcomes identified at inception. The facilities provide donors with regular activity reports, subject to donor requirements, and annual reports on the facilities' project development and investment activities, as well as budgetary and other operating information.This is the first such report. An independent reviewer will conduct an interim evaluation of the facilities during their third year of operation, and a final independent evaluation will be conducted in the fifth year. Both evaluations will be commissioned by the Steering Committee. Although it is too early to measure the aggregate impact of the facilities' activities in any meaningful way, a great deal of thought is already being given to effective means of assessing their impact on development. IFC is currently recruiting a full-time M&E officer to coordinate M&E for the facilities.

6. FINANCIAL INFORMATION

The SBAP facilities rely on donor funding for their technical assistance and investment (in the case of EOF)1 activities as well as for their operating budgets, including staffing. Many donors have expressed an interest in partnering with IFC in this endeavor to complement their own efforts at addressing environmental and social concerns in developing countries through the private sector. The facilities' combined estimated funding requirements for the five-year pilot period is $55 million (see table 1). IFC has provided an initial commitment of $10 million, leaving a total funding target of $45 million. As of Nov. 30, 2003, commitments totaling more than $11 million have already been received by the facilities from the Netherlands, Switzerland, and Norway (see table 2). Other donors are expected to provide funding commitments in the coming months, and SBAP anticipates ultimately meeting its current resource gap of approximately $35 million.

Table 1. Funding Targets at Board Approval

FIVE-YEAR FUNDING REQUIREMENTS (millions of U.S. dollars)

FACILITY

Corporate Citizenship Facility Sustainable Financial Markets Facility Environmental Opportunities Facility Total

IFC FUNDING

2.5 2.5 5.0 10.0

DONOR FUNDING

12.5 12.5 20.0 45.0

TOTAL

15.0 15.0 25.0 55.0

1. EOF investments are made on terms as commercial as possible, depending on the nature of the venture. However, due to the high risk involved in these investments, IFC felt it was not appropriate to raise commercial funding and/or promise any type of return. For that reason, EOF's investment activities are funded by donors. Notwithstanding the high risks, EOF expects to receive returns from some of its investments, and these returns will be recycled by EOF to fund operations and/or further investments.

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Table 2. Donor Fund-Raising Status as of Nov. 30, 2003: Consolidated

TARGET COMMITTED/RECEIVED GAP

Other donors IFC Total

45,000,000 10,000,000 55,000,000

11,002,577 10,000,000 21,002,577

33,997,423 ­ 33,997,423

DONOR RECEIPTS Netherlands Norway Switzerland IFC Total

FY03 2,656,411 400,000 750,000 1,786,291 5,592,702

FY04 1,527,504 ­ ­ ­ 1,527,504

FY05 ­ ­ ­ ­ ­

FY06 ­ ­ ­ ­ ­

FY07 ­ ­ ­ ­ ­

CYCLE 4,183,915 400,000 750,000 1,786,291 7,120,206

DONOR COMMITMENTS Netherlands Norway Switzerland IFC Total

FY03 2,656,411 400,000 750,000 2,000,000 5,806,411

FY04 2,948,083 550,000 ­ 2,000,000 5,498,083

FY05 2,948,083 ­ 750,000 2,000,000 5,698,083

FY06 ­ ­ ­ 2,000,000 2,000,000

FY07 ­ ­ ­ 2,000,000 2,000,000

CYCLE 8,552,577 950,000 1,500,000 10,000,000 21,002,577

In recognition of the diversity of thematic and regional priorities among donors, and the different budget and funding modalities through which they operate, SBAP accepts funding in various ways. Donors may provide funding to all three facilities (as in the case of the Netherlands and Norway) or to one or more facility (as in the case of Switzerland).To offer more opportunities for donors to contribute to the program, the facilities also accept donor funding earmarked for specific regions in accordance with donor priorities.We are currently looking into other ways of accommodating donor funding preferences, such as limited "syndication" of a selective number of large projects, without unduly complicating the administration of the facilities. For a detailed breakdown of SBAP present fund-raising status, see tables 3, 4 and 5. Much of the program's attention in FY03, the first year of operation, focused on building a healthy pipeline of activities, approving and funding initial activities, and establishing the management and budgetary systems needed to meet IFC's and the other donors' requirements.Total expenditure in FY03 was approximately $1.6 million (see table

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Table 3. Donor Fund-Raising Status as of Nov. 30,2003: C C F

EXPECTED Other donors IFC Total DONOR RECEIPTS Netherlands Norway IFC matching Total DONOR COMMITMENTS Netherlands Norway IFC matching Total FY03 774,875 100,000 286,291 1,161,166 FY03 774,875 100,000 500,000 1,374,875 FY04 442,976 ­ ­ 442,976 FY04 854,944 150,000 500,000 1,504,944 12,500,000 2,500,000 15,000,000 FY05 ­ ­ ­ ­ FY05 854,944 ­ 500,000 1,354,944 COMMITTED/RECEIVED 2,734,763 2,500,000 5,234,763 FY06 ­ ­ ­ ­ FY06 ­ 500,000 500,000 FY07 ­ ­ ­ ­ FY07 ­ 500,000 500,000 GAP 9,765,237 ­ 9,765,237 CYCLE 1,217,851 100,000 286,291 1,604,142 CYCLE 2,484,763 250,000 2,500,000 5,234,763

Table 4. Donor Fund-Raising Status as of Nov. 30, 2003: S F M F

EXPECTED Other donors IFC Total DONOR RECEIPTS Netherlands Norway Switzerland IFC Total FY03 774,875 200,000 750,000 500,000 2,224,875 FY04 442,976 ­ ­ ­ 442,976 12,500,000 2,500,000 15,000,000 FY05 ­ ­ ­ ­ ­ COMMITTED/RECEIVED 4,384,763 2,500,000 6,884,763 FY06 ­ ­ ­ ­ ­ FY07 ­ ­ ­ ­ ­ GAP 8,115,237 ­ 8,115,237 CYCLE 1,217,851 200,000 750,000 500,000 2,667,851

DONOR COMMITMENTS Netherlands Norway Switzerland IFC Total

FY03 774,875 200,000 750,000 500,000 2,224,875

FY04 854,944 200,000 ­ 500,000 1,554,944

FY05 854,944 ­ 750,000 500,000 2,104,944

FY06 ­ ­ 500,000 500,000

FY07 ­ ­ 500,000 500,000

CYCLE 2,484,763 400,000 1,500,000 2,500,000 6,884,763

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Table 5. Donor Fund-Raising Status as of Nov. 30,2003 : E O F

EXPECTED Other donors IFC Total DONOR RECEIPTS Netherlands Norway IFC Total DONOR COMMITMENTS Netherlands Norway IFC Total FY03 1,106,661 100,000 1,000,000 2,206,661 FY03 1,106,661 100,000 1,000,000 2,206,661 FY04 1,238,195 200,000 1,000,000 2,438,195 FY04 641,552 ­ ­ ­ FY05 1,238,195 ­ 1,000,000 2,238,195 20,000,000 5,000,000 25,000,000 FY05 ­ ­ ­ ­ COMMITTED/RECEIVED 3,883,051 5,000,000 8,883,051 FY06 ­ ­ ­ ­ FY06 ­ ­ 1,000,000 1,000,000 FY07 ­ ­ ­ ­ FY07 ­ ­ 1,000,000 1,000,000 GAP 16,116,949 ­ 16,116,949 CYCLE 1,748,213 100,000 1,000,000 2,848,213 CYCLE 3,583,051 300,000 5,000,000 8,883,051

6), of which $476,000 was spent on implementation work for 38 projects, and another $400,000 on developing project pipelines for future support.The remaining expenditure during the fiscal year was largely made up of costs associated with start-up activities, including staff recruitment, establishing business processes, defining roles and responsibilities, developing policies and procedures, and implementing an effective budgeting and reporting system. Budgeted expenses for all the facilities in FY04 total $10.6 million owing to a strong pipeline of projects. Up to 90 percent of FY04 budgeted expenses are expected to relate to costs directly associated with project implementation, and administrative expenses to be about 10 percent. A large part of these expenses will probably be funded through commitments already received from existing donors. To meet FY04 budget targets, however, an additional $1.012 million will need to be raised in donor funding. SBAP recently launched a special fund-raising and promotional effort designed to ensure that the facilities meet their funding targets for FY04 and remain fully funded throughout the five-year pilot period.

Table 6. Actual Funding and Expenditure in FY03

FUNDING AND EXPENDITURE Donor receipts Donor commitments Trust fund investment income Fee income Total expenses Funding carried forward to FY04 CCF 1,161,166 1,374,875 19,190 7,437 (477,272) 710,521 SFMF 2,224,875 2,224,875 32,402 43,520 25 (673,134) 1,627,663 EOF 2,206,661 2,206,661 47,458 (472,445) 1,781,674 TOTAL 5,592,702 5,806,411 99,050 50,957 (1,622,851) 4,119,858

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7. STRATEGIC DIRECTIONS

Guiding Principles for FY04 and Beyond

IFC's strategy for the facilities for FY04 has been refined on the basis of lessons from the first year of operation, which have provided a better understanding of demand, priorities, and the best approaches for successful marketing and implementation of the facilities' services. Alignment with core business: The SBAP will place more emphasis on mainstreaming its activities within IFC's regular investment operations. Program activities will reflect IFC's core business and sustainability strategy, consistent with IFC's commitment to mainstream environmental and social services in investment operations. Regional focus: To ensure a broader geographical reach for the facilities, special attention will be given to regional delivery. Consistent with IFC's frontier strategy, Sub-Saharan Africa will be a regional priority for the facilities. Besides offering a broader reach, this focus on regional delivery provides greater flexibility to donors with specific regional interests. Therefore, donors are now able to earmark their funds for specific regions according to their priorities.

Regional Priorities

As project activity increases, a greater attempt will be made in FY04 to ensure that SBAP operations become more broadly diversified regionally. While recognizing the market-driven nature of some of the work carried out by the facilities, in particular by the EOF, all the facilities will make a more concerted effort to seek out project opportunities in all regions. In the future, reporting of SBAP's operations will be done on a regional basis to help keep track of progress in its implementation of the regionalization strategy, and to enable potential donors to provide funding earmarked to specific regions if preferred. Key regional priorities are summarized below. Sub-Saharan Africa: In keeping with the priority given to frontier markets in IFC's strategic directions, the SBAP plans to give special attention to the sustainable development needs of the Sub-Saharan Africa region, taking advantage of new initiatives that promise to bring improved governance and economic development to the region in the coming years. The IFC's Strategic Initiative for Sub-Saharan Africa calls for an increased focus on capacity building and SME development, and the SBAP will work with IFC's SME facilities to ensure sustainable outcomes from their interventions. IFC perceives a significant demand for the SBAP's services in Africa in connection with key issues such as HIV/AIDS, community development, and the informal economy.A cornerstone of IFC's work in Africa using the SBAP will be the continuing relationship with the African Institute of Corporate Citizenship

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(AICC) and the establishment of a Center for Sustainability Investment under its auspices.This will enable IFC to expand its grass-roots technical assistance on sustainability to the productive sector (via CCF) and the financial sector (via SFMF). Committed CCF projects for FY04 include working with a Kenyan honey cooperative to access fair trade markets in Europe; community and economic development work for a shrimp aquaculture project in Madagascar; and support to indigenous people who stand to benefit from diamond mining in Botswana. IFC is also examining how it can use CCF to facilitate the delivery of HIV support to IFC clients and the wider private sector in Kenya. Specific projects expected to receive SFMF support in FY04 include seed funding to establish a Center for Sustainable Investment in South Africa, which would act as a focal point for research, awareness-raising, and networking on sustainability and finance issues throughout Africa; help in establishing a regional SRI research business that would provide investors with information and ratings on the sustainability performance of African corporations (building on the Johannesburg Stock Exchange's planned sustainability index in conjunction with FTSE4Good); and an initiative to assist Nigerian financial institutions to establish a national association and work program to mainstream sustainable development priorities into domestic lending and investment. The potential for investment in the environmental technologies sector in Africa via EOF remains a medium-to-long-term proposition, although as described in section 2, IFC has a pipeline of projects with potentially replicable technologies relevant to Africa, one example being an innovative commercial venture for the supply of drinking water. Middle East and North Africa: The recent turmoil in the Middle East and North Africa has reduced economic prospects in much of the region, limiting SBAP opportunities in the countries closest to the conflicts. Even so, several countries in this diverse region still attract investment, and IFC has remained active in the region. Sustainability will be an overriding theme in the Middle East and North Africa as IFC seeks to broaden the development impact of its activities. To this end, IFC intends to use CCF to analyze how businesses in the region address environmental and social competitiveness and market access issues. Such issues are emerging as potential non-trade tariff barriers through supply chain pressures and expectations. IFC is also exploring ways in which the SBAP

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can support SME activities of the North Africa Enterprise Development Facility (NAED). It is likely that such SBAP/NAED activities would focus on community development and supply chain management, using CCF. In response to a growing need in the region for training in sustainable banking and environmental risk management, IFC plans to use SFMF to deliver a local program of training workshops to financial intermediaries. This will be undertaken with partner organizations active in the region (such as the Netherlands Development Finance Company (FMO) and the African Development Bank), and in collaboration with the NAED. The harsh climatic conditions in much of the region present strong potential opportunities for IFC to use EOF to develop or replicate technologies that promote clean water supply and maximize resource use, especially water. Technical assistance could be deployed to IFC's existing clients in the manufacturing sector to improve eco-efficiency in their production processes as a demonstration effect. IFC's eco-efficiency work via EOF in similar climatic conditions in Mexico could be replicated in manufacturing facilities in the Middle East and North Africa. Latin America and the Caribbean: In spite of its vulnerability to external shocks, the Latin America and Caribbean region offers a promising business environment for potential SBAP activity. The financial sector is well developed in key IFC client countries and Brazil, Mexico, Chile, and Argentina have a significant industrial base. IFC's sustainability "Business-to-Business" project, funded in FY03 via CCF, demonstrated client interest in the strong business benefits that can be delivered through improved labor standards, cleaner production, and community development adjacent to projects. IFC proposes to build on this interest in FY04 (for example, through mentoring programs for IFC client companies), as well as to initiate additional work in the area of rural livelihood and biodiversity, mainly with the extractive sector. IFC has already indicated support in principle to a community development program with a major textile company in Haiti and is likely to work with rural farmers in the Peruvian dairy sector to improve sustainability of production and build supply chain fidelity with an IFC sponsor. Through SFMF, IFC intends to strengthen its relationships with INCAE Business School's Latin American Center for Competitiveness and Sustainable Development (in Costa Rica) and the Fundação Getúlio Vargas Business School's Center for Sustainability Studies (in Brazil).These organizations would provide IFC's key strategic partners for financial sector sustainability training in the region, using SFMF. Such training would also continue to be offered in conjunction with other development banks such as CAF, Brazilian Development Bank, and the Inter-American Development Bank. With a sophisticated local investor base in the region, IFC's environmental financing activities via EOF will be more aggressive in partnering with development and commercial financing institutions to identify and support early-stage projects. In spite of relatively large flows of private capital to the region in recent years, there is little venture capital available for new environmental technologies. By partnering with local institutions, IFC will focus on sectors that have traditionally been neglected by the private sector, such as clean water supply, waste management, and wastewater treatment. The region's large industrial base may also lead to opportunities for EOF in the promotion of efficient resource use. Europe and Central Asia: In view of the diverse geographies and states of economic development in this region, the SBAP is likely to experience a range of demands. Fortunately, continued

28

implementation of economic reform means that the SBAP can count on a business climate conducive to its activities in the region. IFC will be highly selective in applying SBAP resources in Central Europe's EU accession states. The primary focus will likely be on eco-efficiency and environmental financing (using EOF and SFMF) and competitiveness and market access issues for exporters (using CCF). Examples include SFMF funding for financial sector training related to IFC's energy efficiency financing projects in Central Europe. In Southern Europe, IFC will use SBAP to continue CCF-funded work with the Southeast Europe Enterprise Development facility in building sustainability and social equity into the value chain of the Balkans' herbal sector. SBAP will also collaborate with SEED to develop a certified professional training program for local environmental consultants and banks, using SFMF. SBAP is also likely to have a particular interest in Turkey, which is experiencing a growing demand for high-impact services in the field of eco-efficiency, corporate social responsibility and governance, and sustainable finance. In Central Asia, the main focus of SBAP's efforts is likely to be CCF-funded work in the mining sector to promote community development and address biodiversity issues. Because of its limited basic infrastructure and environmental services, Central Asia will require a flexible approach to EOF project development, with potential opportunities likely to be in the renewable energy sector. IFC will support Central Asian financial institutions through its regional sustainability training work under SFMF, although there may be opportunities to develop local environmental and social initiatives in the sector, for example, with the Bankers Training Institute of Azerbaijan. Russia and Eastern Europe will be a major focus of SBAP activity in FY04. In the financial sector, IFC will use SFMF to provide preliminary environmental financing training to Russian banks in conjunction with IFC's PEP and intends to commission a report on sustainability business drivers affecting industry and the financial sector in Russia. The study would evaluate legislative, policy, and market trends affecting corporate EHS performance and use this data to gain insights into investment risks and opportunities over the short to long term. IFC will also develop a long-term sustainability training program in Russia, which is also likely to be a key target for corporate citizenship projects with medium and large Russian companies. East and South Asia: Sustained strong economic performance in East and South Asia in FY03 has produced significant opportunities for IFC investment and advisory activity in the region. In recognition of the role SMEs can play in stimulating employment and growth, all three SBAP facilities are in discussion with IFC's five SME development facilities in the region. They have a strong line of business development /support activities focused on sustainable rural livelihoods, development of nontimber forest product markets, and access to capital through micro-credit and related work. CCF support is being sought for tourism projects in the Maldives for coastal management programs that bring public and private sectors together to protect coral reefs and in Bhutan for building supply chains that promote local economic activity and biodiversity work around ecotourism sites. IFC will continue CCF's work with women in the informal enterprise sector and will also undertake capacity building work with IFC clients and their outgrower programs in the sugar and oil palm sectors in India and Indonesia to encourage more sustainable production practices and improved occupational health and safety.

29

The FY04 pipeline for SFMF includes a sustainability training course for a China-based private equity fund; a high-level briefing on sustainability issues to senior executives of Chinese commercial banks, in association with the Canadian Export Credit Agency and ASrIA; Competitive Business Advantage training workshops for East Asian and South Asian banks; and a study on the sustainability business drivers affecting industry and the financial sector in India. IFC is working closely with partners such as ASrIA and India's Centre for Social Markets in the region. High population growth in some countries in the region puts pressure on basic infrastructure services, which results in a growing demand for cleaner technologies. EOF can play an important role in supporting cleaner water supply and waste treatment services to meet this demand, and to help countries such as China implement new technologies to address existing pollution problems while meeting newly established environmental requirements.To this end, and to help expand its reach, EOF plans to work in partnership with local financial intermediaries.

FY04 Management Priorities

Effective management of the facilities will be key to the successful implementation of SBAP's FY04 strategy. In recognition of this, the strategy gives particular prominence to enhancing ownership of SBAP's activities by key IFC investment departments and greater integration of the facilities into the regular operations of IFC's Environment and Social Development Department. In line with the ongoing efforts of CES to mainstream its operations into IFC's regular activities, the SBAP facilities will be a core activity of CES and then IFC as a whole, within the context of IFC's overall sustainability objectives. This should raise awareness and build capacity in the area of sustainability within IFC. In many cases, the process will bring environmental and social specialists and investment officers to the same location, with a closer operational link to IFC's SME project development facilities in the field. Mainstreaming is expected to result in joint sector strategies and joint action plans as synergies emerge from the integration exercise. The FY04 strategy also calls for easing of the administrative burden borne by program leaders of the three facilities, particularly by relieving them of much of the work involved in fund-raising and donor relations. In view of the importance of donor funding for the successful implementation of SBAP's objectives, a dedicated team has been assigned to lead an intensive fund-raising and promotional effort designed to help SBAP achieve its fund-raising targets. SBAP's success in raising donor funding will ultimately depend on how well IFC can convince potential contributors of the value it adds in stimulating environmentally and socially sustainable private sector activity in emerging economies. SBAP's management will also implement efficiency measures such as the harmonization of paperwork and procedures, joint production of regional strategies and project pipelines, and, where practicable, joint business development missions to potential clients in the field. Finally, consideration is being given to assigning dedicated SBAP staff to one or more IFC field offices in Sub-Saharan Africa to help ensure that appropriate attention is paid to developing business in the region, as envisioned in the strategy.

30

ANNEX: PROJECT PORTFOLIO AS OF OCTOBER 2003

Sustainable Business Assistance Program

PROJECT NAME

COUNTRY

BENEFICIARY

NET FUNDING (USD)

FACILITY

STATUS

SUMMARY DESCRIPTION

"SRI in the Rockies" Conference 2002, Colorado Springs AUREOS training, London SFMF website development CD-ROM resource (phase I)

Global

General

15,600

SFMF

Completed

Sponsorship of panel discussion on emerging market opportunities at leading conference of North American "socially responsible investment" investors and fund managers. Fee-based sustainable investment training course for AUREOS and its subsidiary private equity fund managers. Development of web-based information portal on sustainability issues and resources for emerging market FIs. Pilot phase for development of CD-ROMbased reference resource for emerging market FIs, centered around nontechnical EHS profiles for up to 100 SME sector business activities plus glossary of environmental terms and country-specific summaries of key EHS legislation and links to local and international sources of expertise and further information. Research into current market and future potential for SRI in developing-country listed equities, assessing investor appetite, key barriers/incentives, existing research infrastructure. Recommendations include guidance on how IFC and the SFMF can best work in partnership with others to play a catalytic role in building this industry and maximizing developmental benefits. The final report is currently undergoing peer review and will be published in October 2003. A series of monthly newsletters targeted at senior decisionmakers in emerging market financial institutions. Each newsletter will analyze a different sustainability topic relevant to emerging market lending and investment, explaining the commercial risks and opportunities and the business case for proactive engagement. Topics may include supply chain and human rights issues in China, opportunities in carbon emissions trading, and the importance of HIV/AIDS management strategies to financial services companies. Newsletters will be e-mailed free of charge to subscribers and placed on IFC's website during FY04. Subject to demand, cost recovery and restricted publication may be introduced if and when the project is replenished for FY05. Grant to International Institute for Sustainable Development to research the feasibility of new internship program (for potential funding by SFMF) to provide young professionals from developing-country financial institutions with work experience in the corporate environmental management units of major private sector banks in Western Europe and North America.

Global

AUREOS

n.a. (7,900 net profit) 25,700

SFMF

Completed

Global

General

SFMF

Ongoing

Global

General

7,700

SFMF

Completed

SRI strategic review (phase I)

Global

General

41,800

SFMF

Completed

Market intelligence briefs

Global

General

155,000

SFMF

Ongoing

Internship feasibility study

Global

IISD

55,300

SFMF

Ongoing

31

GLOBAL

PROJECT NAME

COUNTRY

BENEFICIARY

NET FUNDING (USD) 12,400

FACILITY

STATUS

SUMMARY DESCRIPTION

Better management practices (phase I)

Global

Agribusiness buyers/ retailers & investors

CCF

Completed

Working with agribusiness commodity buyer/producers and banks that invest in commodities to develop better management practices that can be used as investment screens. Stage 1 involves identification of key banks and producer buyers and meeting to discuss the proposal. Phase II includes a scoping assessment of 10 commodities, selection of up to 5 commodities with high potential for BMP impact, and a workshop with interested parties to agree structure/governance and way forward. It also involves implementation of BMP work on selected commodities. The testing of commodity-specific BMPbased screens will allow investors to reduce risk/exposure from their investment and working capital loans and institutional purchasers to use the same type of screens (in the absence of formal certification) to encourage environmental and social sustainability through their supply chains. The CCF is working with IFC clients and an NGO consortium (IUCN and FFI) to develop a practical guide for businesses in emerging markets that wish to understand and incorporate biodiversity management in their operations. This guide will be the fourth publication in the IFC "goodpractice" series. CCF sponsored the participation of a mining junior at the ICMM/IUCN meeting on biodiversity-related best practices. The IFC client prepared and delivered a presentation on its approach to biodiversity management and its report will be available for dissemination and use in the upcoming biodiversity good-practice guide. EOF financed WHI's market feasibility study, which effectively segmented the market and provides an optimistic market outlook for the Philippines. Owing to these results, WHI has decided to aggressively enter the decentralized distributed water purification business through the purchase of a majority share of a water store business (Aquasure) from its largest water-filter technology customer in the Philippines. The EOF is currently in the final stages of negotiations to make an early-stage equity investment in WHI (US$1.2 million), to play the catalytic and technology-validating role to attract further capital investment and credits from private sector capital markets. The investment is targeted to disburse in the fourth quarter of 2003.

Better management practices (phase II)

Global

Agribusiness buyers/ retailers & investors

80,000 for CCF design; implementation costs to be developed

Ongoing

Biodiversity good-practice guide

Global

IFC sponsors and wider private sector

285,500

CCF

Ongoing

ICMM/IUCN forum

Global

Bolivian 8,600 mining junior

CCF

Ongoing

WaterHealth International distributed community water systems

Philippines, Peri-urban Ghana and village Multicountry communities

90,000 TA 1,200,000

EOF

TA completed investment in pipeline

32

EAST ASIA

PROJECT NAME

AND

PACIFIC

BENEFICIARY NET FUNDING (USD) 14,600 FACILITY STATUS SUMMARY DESCRIPTION

COUNTRY

ASrIA annual conference 2002, Tokyo ASrIA annual conference 2004 SRI country market research

Asia

ASrIA

SFMF

Completed

Sponsorship of annual conference of Association for Sustainable and Responsible Investment in Asia, a not-for-profit membership organization dedicated to promoting SRI in Asian emerging markets. "Cornerstone" sponsorship of ASrIA's spring 2004 conference. Event will be used to disseminate SFMF's work and best-practice guidance. Sponsorship of research by ASrIA into current and potential future market for SRI in China, India, Indonesia, Malaysia, Philippines, South Korea, and Thailand. Report will be publicly available from IFC and ASrIA websites and launched at IFC/FT conference in Hong Kong in September 2003 with further dissemination via national seminars, the UNEP FI Annual Roundtable in Tokyo (Octpber 2003), and other conferences. Working with an IFC sponsor and other stakeholders to assess conservation priorities, land-use planning and economic development opportunities adjacent to the sponsor's operations in South Vietnam The EOF will provide risk capital to Conox for the development of two pilot plants in China to confirm its technical commercial viability. Conox has created an innovative technology that will eliminate the largest source of pollution in mills that produce pulp from straw, which is a major cause of water pollution in China.

Asia

AsrIA

30,000

SFMF

Ongoing

China, AsrIA India, Indonesia, Malaysia, Philippines, South Korea, Thailand

36,500

SFMF

Ongoing

Ha Tien wetlands and land use

Vietnam

Cement 32,800 sector client

CCF

Completed

Conox

China

Conox

500,000

EOF

Pipeline

SOUTH ASIA

PROJECT NAME COUNTRY BENEFICIARY NET FUNDING (USD) FACILITY STATUS SUMMARY DESCRIPTION

Women's enterprise development

India

Women's 42,900 enterprise groups and rural communities

CCF

Ongoing

CCF is supporting community development and capacity building among the rural poor through Usha Martin's private foundation near the cities of Ranchi and Jamshedpur. Emphasis will be on the development of economic activities with a natural resources management focus and efforts will concentrate on female employment and economic opportunities. Training services will be provided to foundation staff by the Indian NGO Self-Employed Women Association. The EOF will provide funding to REVA for expansion of its domestic and international distribution network. REVA's electric vehicles will provide important environmental benefits by using a clean technology and by not releasing pollutants that are typically produced by conventional vehicles, thus helping reduce air pollution primarily in metropolitan areas. (South Asia continues)

REVA electric car project

India

REVA

600,000

EOF

Pipeline

33

SOUTH ASIA, cont'd

PROJECT NAME COUNTRY BENEFICIARY NET FUNDING (USD) 350,000 FACILITY STATUS SUMMARY DESCRIPTION

Shapla arsenic filter

Bangladesh

Shapla

EOF

Pipeline

EOF has leveraged its relationship with IFC's Southeast Asia Development Facility to assist Shapla in developing a low-cost household water filter to address the arsenic water-contamination problem in Bangladesh. A SEDF contribution of US$30,000 could lead to a US$350,000 EOF equity stake in the firm in 2004.

LATIN AMERICA

PROJECT NAME

AND

CARIBBEAN

BENEFICIARY NET FUNDING (USD) 650 FACILITY STATUS SUMMARY DESCRIPTION

COUNTRY

Competitive environmenal advantage workshop, Miami LAC business-to-business sustainability workshop

LAC

LAC FIs

SFMF

Completed

Fee-based environmental risk management/sustainable investment training course for 25 LAC FIs in partnership with InterAmerican Investment Corporation. The CCF financed a workshop for IFC's general manufacturing clients in Latin and Central America. The partnering of "enthusiastic" sponsors with those who have already adopted some sustainable practices in their operations has proved a significant and powerful agent for change in IFC's client base. IFC and the INCAE business school provided a two-day strategic workshop for the senior management team of Grupe Empresasrial Antioqueno (GEA). The workshop covered sustainable business drivers and opportunities in the field of carbon emissions trading, eco-finance, and SRI, among others, and was designed to help GEA develop a successful strategy for sustainability-related products, services, and competitive positioning. CCF is working with an IFC client in Ecuador to improve labor practices and environmental sustainability throughout the company's supply chains. It is helping to reduce poverty and ensure continued access to international markets for many rural communities. CCF funds are being used to strengthen the environmental and social development components of a wastewater management program for a Mexican municipality. Particular attention will be paid to the development of a sustainable wastewater management plan for the region. The EOF has provided funding to Grupo Calidra, to assess the technical and commercial viability of an innovative system designed to recover water vapor, which amounts to 12 million liters of water a year. The pilot will be carried out in a lime- producing facility, where water is very scarce, and will help reduce the pressure on the limited water resources in the affected areas. This technology is replicable in other parts of the world.

LAC

LAC General 26,000 Manufacturing clients

CCF

Completed

Sustainable strategy workshop

Colombia

A Colombian 9,700 financial and industrial group

SFMF

Completed

Environmental and labor aspects of supply chains in the banana industry Enhancing environmental performance in the Mexican waste sector Grupo Calidra

Ecuador

Favorita and 112,600 farmers in supply chain

CCF

Ongoing

Mexico

Tlalnepantla 66,000 municipal water conservation

CCF

Ongoing

Mexico

Grupo Calidra 120,000

EOF

Ongoing

34

LATIN AMERICA

PROJECT NAME

AND

CARIBBEAN

BENEFICIARY NET FUNDING (USD) 30,000 TA 500,000 Investment FACILITY STATUS SUMMARY DESCRIPTION

COUNTRY

Trade Wind Industries Conch

Bahamas

TWI Conch

EOF

Ongoing

TWI Conch, a Turks and Caicos--based mariculture company is considering a rapid expansion and grow-out farm model, to ramp-up to sufficient scale to become a valued supplier to a distributor in key Asian markets. The EOF will help TWI's conch mariculture technology evolve into a commercially viable business, while playing an important sustainable development role in the Latin America and Caribbean region.

CENTRAL

PROJECT NAME

AND

EASTERN EUROPE

COUNTRY BENEFICIARY NET FUNDING (USD) 12,700 FACILITY STATUS SUMMARY DESCRIPTION

Environmental training for leasing companies, Moscow BTC multistakeholder forum (MSF)

Russia

Russian leasing companies

SFMF

Completed

Subsidized environmental risk management training course (in Russian) for five Russian leasing companies, plus train-the-trainer component for IFC's Private Enterprise Partnership. CCF (and others) are supporting a series of meetings that will address macro development issues (revenue management economic development, regional protected areas, among others) for the BTC pipeline. These meetings will discuss issues that fall outside the remit of project specific environmental/social due diligence and play to IFC's wider developmental agenda.

Caucasus

BTC 77,000 stakeholders

CCF

Ongoing

SOUTHERN

PROJECT NAME

AND

CENTRAL ASIA

BENEFICIARY NET FUNDING (USD) FACILITY STATUS SUMMARY DESCRIPTION

COUNTRY

Competitive environmental advantage workshop, Istanbul Herbal Development Initiative

SECA

Regional FIs n.a. (3,000 net profit) Herbal sector 25,400

SFMF

Completed

Fee-based environmental risk management/sustainable investment training course for 30 European and Central Asian FIs. CCF worked with IFC's Southeast Europe Enterprise Development office to explore opportunities for the development of an environmentally and socially sustainable herbal sector in the Balkans. The SEED office is now considering how best to implement the recommendations of this work ­ which has important potential benefits to many thousands of the region's rural poor (including internally displaced people)

Balkans

CCF

Completed

35

SUB-SAHARAN AFRICA

PROJECT NAME COUNTRY BENEFICIARY NET FUNDING (USD) 38,500 FACILITY STATUS SUMMARY DESCRIPTION

`Sustainable Banking in Africa' research

Africa

AICC

SFMF

Ongoing

Partial sponsorship of case study-based research study managed by African Institute of Corporate Citizenship in conjunction with UNEP Finance Initiative's Africa Task Force, to assess current practice of African banking sector with respect to environmental and social issues, identifydrivers for change and future needs/opportunities. Final report will be publicly available and disseminated via follow-up regional events/initiatives and at UNEP FI Annual Roundtable in Tokyo, Oct 03 Fee-based environmental risk management/sustainable investment training course for up to 25 Southern African FIs, jointly organized and delivered by IFC and AIIC and in partnership with African Development Bank, Development Bank of South Africa, and others. CCF will partner with a large telecom operation that works in 13 countries to develop an HIV/AIDS workplace program with extension into surrounding communities. It will finance an assessment of cost benefits of ARV treatment options for employees. Fee-based environmental risk management/sustainable investment training course for up to 20 Nigerian FIs plus parallel training for Nigerian environmental consultants, in partnership with FSB International Bank and the Lagos Business School. CCF will work with a Kenyan honey cooperative to access fair trade markets for honey. The cooperative has already been recognized for its efforts to enhance biodiversity in its operations. Access to price premium fair trade markets in Europe will help to reinforce the business benefits of sustainable production and will bring assured price premia to hundreds of Kenyan farmers. CCF funds have been used to develop an HIV policy and action plan for the Kenya Tea Development Agency. EOF's funding in ApproTEC is addressing a sustainability gap in the supply chain for its SME-scale, foot-operated irrigation pumps in Tanzania. The loan will assist ApproTEC Tanzania (an affiliate) in providing working capital credits to the manufacturer to enable it to provide short-term credits to the wholesaler. The TA grant funding is designed to aid the manufacturer in that transition.

Competitive environmental advantage workshop, Johannesburg HIV/AIDS workplace and outreach program

Southern Africa

Sub-Saharan 8,800 African FIs

SFMF

Completed

Africa

African telecom client

80,000

CCF

Ongoing

Competitive environmental advantage workshop, Lagos Fair trade certification for honey production

Nigeria

Nigerian FIs and consultants

24,200

SFMF

Completed

Kenya

Honeycare 59,600 and suppliers

CCF

Ongoing

Labor and HIV issues in the Kenyan tea sector ApproTEC

Kenya

KTDA

19,900

CCF

Completed

Tanzania

Karam 15,000 TA Engineering, 20,000 small investment machine tool manufacturer

EOF

Ongoing

36

SBAP PORTFOLIO BY REGION

18% Sub-Saharan Africa 33% Global

5% Southern Europe & Central Asia 5% East Asia & Pacific

18% Latin America & Caribbean 8% South Asia

13% East Asia & Pacific

CCF PORTFOLIO BY REGION

21% Latin American & Caribbean

7% Central & Eastern Europe

7% Southern Europe & Central Asia

7% South Asia 21% Sub-Saharan Africa 7% East Asia & Pacific

30% Global

37

SFMF PORTFOLIO BY REGION

18% Sub-Saharan Africa 40% Global

6% Southern Europe & Central Asia 6% Central & Eastern Europe

12% Latin America & Caribbean

18% East Asia & Pacific

EOF PORTFOLIO BY REGION

14% East Asia & Pacific

14% Global

14% East Asia & Pacific 29% Latin America & Caribbean

29% South Asia

38

ACRONYMS AfDB AICC ASrIA BMPs CCF CES EOF EU FI GC GEF GMS IFC IISD INCaF IUCN LAC M&E NAED NGO OGM PEP RECC SBAP SEDF SEED SFMF SME SRI TA UNEP WHI WWF African Development Bank African Institute of Corporate Citizenship Association of Sustainable and Responsible Investment better management practices Corporate Citizenship Facility IFC's Environment and Social Development Department Environmental Opportunities Facility European Union financial intermediary Grupo Calidra Global Environment Facility General Manufacturing Services International Finance Corporation International Institute for Sustainable Development IFC-Netherlands Carbon Facility The World Conservation Union Latin America and Caribbean region Monitoring & Evaluation North Africa Enterprise Development Facility nongovernmental organization Oil, Gas, and Mining Private Enterprise Partnership REVA Electric Car Company Sustainable Business Assistance Program Southeast Asia Development Facility Southeast Europe Enterprise Development Sustainable Financial Markets Facility small and medium enterprise socially responsible investment technical assistance United Nations Environment Programme Water Health International World Wildlife Fund

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