2. OUTLINE
• The concept of ESRM
• Global ESRM programme
• Challenges faced by the bankers
• Why ESRM is important for clients
• Why ESRM is important for Banks
• Way forward
2
4. QUICK STATS
“Annual cost of environmental degradation in Pakistan is about 4.3 % of GDP (US
$ 4.3 billion)”. ---SUPARCO
“Pakistan had needed to spend Rs82.5 billion on industrial environment management
between 1997 and 2010, but actually spent only around Rs7.5 billion, leaving a deficit
of Rs75 billion. If we continue polluting our ecosystem at the current rates, this deficit
could climb to Rs140 billion by 2025.”--- Express Tribune, 2012
“741 cases registered against factory owners for not complying with the
National Environmental Quality Standards (NEQS), 339 have been settled
while remaining 402 cases are still under consideration of the
Environmental Tribunals”.---The Nation, 2010
4
5. WHAT IS ENVIRONMENTAL & SOCIAL RISK
MANAGEMENT (ESRM) FOR FINANCIAL
INSTITUTIONS?
Sustainable finance (ESRM for FIs) can be defined as
the provision of financial capital and risk
management products and services in ways that
promote or do not harm economic prosperity, the
ecology and community well-being.
Sustainable Finance does not mean saving the
environment just for the sake of saving it.
Sustainable Finance means good business for FIs.
Scope of ESRM
Project Finance Corporate Finance SME
6. WHY IS SUSTAINABILITY IMPORTANT
FOR CLIENTS?
6
Reputational Risk
Compliance
Access to New Markets
Cost saving
Loss reduction
Clients don’t care for the Environment because of the goodness of their
heart. Caring for the environment is a pure business decision.
Banks should also care about sustainability for pure business reasons
7. Why Banks should worry about Sustainability?
Campaigners gave out the mock newspaper, “The Daily Whale” to
employees outside each of the 3 banks, Standard Chartered, BNP
Paribas and Credit Suisse in London.
7
8. This is an example what the banks should avoid--- a reactive approach once
reputational harm has been done.
8
10. WHY IS SUSTAINABLE FINANCE
IMPORTANT FOR BANKS?
Litigation, shut down leading to increase in NPL
Decrease in the value of collateral and additional cost
of cleaning up.
Disruption of operation
Reputational risk
Pressure from investors, government
International Commitments: Equator Principle,
Climate Principles
10
The question is not “WHY” Banks should
consider ESRM. The Question is “HOW”
11. E&S RISK ASSESSMENT (ESRA) FRAMEWORK
11
POLICY
ESRM Guideline
E&S Capacity
Development
•Roles and
responsibilities
•Training: E learning,
Webinar
PROCEDURE
E&S risk Assessment
Exclusion List
E&S Risk Assessment Tool
Risk rating
Escalation
Conditions/ Action Plan
REPORTING
• Annual
Sustainability
Review
Monitoring E&S risk
Annual review: monitor
performance
Managing non compliance
12. CHALLENGES FACED BY RMS AND CREDIT IN E&S DUE DILIGENCE
Perceptual Barrier
Not important
Climate Change is a myth
Institutional Barrier
Lack of valid data
Misalignment between RMs
target and E&S requirements
Policy and regulatory Barrier
Country laws not conducive
Skill, knowledge, information
barriers
Lack of proper understanding of
E&S issues
Lack of training
Lack of tools and processes
12
13. SUSTAINABILITY IS A SHARED
RESPONSIBILITY
13
Regulator/Government
- Policy
- Enforcement
- Tax/incentive
-Institutional strengthening
Business
-obtain social license to operate
-Ensure safety, efficiency
-Compliance
Banks
-Mission, vision
-Policies procedures
-skilled workforce
-Moving from only compliance to value
addition to clients
Media
-Understand and sensitize the public
- Publish case studies
-Demystify technical issues
Sustainability
14. ENVIRONMENTAL & SOCIAL RISK
MANAGEMENT (ESRM) FOR FIS ADVISORY
SERVICES PROGRAM
Objectives:
Creating regulatory drivers through support for banking
regulators and associations with E&S risk management
guideline development
Market capacity development for trainer and consultant
networks to provide technical support for FIs
ESMS diagnostic and implementation support to FIs
Raising awareness through the Sustainable Banking
Network, developing business case studies and best practices
14
17. 17
E&S Risk Management /
EP Implementation
• Built system, procedure
and tools
• Created dedicated team
and built capacity
• Actively communicated
with client and multi-
stakeholders
• Developed reporting
system
Sustainability Products
• First FI Green Bond (approved
by authority, to be launched in
2015 )
• Carbon finance
• Low carbon credit card
• First carbon assets backed
lending
• First emission rights backed
lending
• First IFC partner bank in China
for energy-efficiency lending to
support SMEs
Strong contributor to overall business:
• Strong business results: assets grow 15 times (2003 to 2014), ROE over 20% since 2006, NPL ratio <1%,
• Reputation and brand value: brand value of US$1.09 billion (by Interbrand, 2012), 50% increase over 2011;
won many top national and international awards
• Increased value to shareholders – 2013 Asia Best Shareholder Return Bank
• Better access to international capital and cooperation (IFC, ING, Citibank, etc.)
Green Finance Expansion:
• Green finance about 12% of total lending, highest among the Chinese banks (national average is 8%)
• Climate benefits: reduced 68 mn tons of CO2, saved 255 mn tons of water. The energy conserved and
emission reduced is equivalent to shutting off 157 thermal power plants of 100 MW.
China Industrial Bank’s Green Banking Journey:
“From Green to Gold”
18. 18
2006
First Chinese
bank to sign
Energy
Efficiency
Finance
(CHUEEE) with
IFC, Beijing
2007
Runner-up of
FT Sustainable
Deal of the
Year;
Joining UNEP
Finance
Initiative
.
Stage I: Piloting Green
Lending Product
2008
Adopting Equator
Principles, Beijing,
becoming the first
EP bank in Asia
emerging market；
Launched CHUEE
Ⅱ
.
2009
Establishment of
Sustainable
Finance Center；
FT Emerging
Markets
Sustainable Bank
of the Year (Asia)
First Sustainability
Report in China
Banking sector;
“The Best Green
Bank”
&“Environmental
Information
Disclosure Award”
by 9 Chinese
NGOs.
Stage II: Adopting &
Implementing Equator
Principles
Stage III: Fully Integrated
Sustainable Finance Model
2012
Establishment
of Sustainable
Finance
Department,
sets up regional
green finance
business units
across China
2010
Launched the first
Low-carbon Credit
Card；
Included in the
“Hang Seng (China
A) Corporate
Sustainability
Index ”&“Hang
Seng (Mainland
and HK) Corporate
Sustainability Index”
2011
Promoting 8+1
green financial
products；
Annual Most
Social
Responsible
Institutions
Award and Best
Green Finance
Award by the
China Banking
Association;
.
2013
Green
finance
clients hit
2,472,
about 12
times vs.
2009; and
green
finance
based
financing
balance
reached
US$30
billion, 13
times
vs. 2009
IB’s 3-Stage Journey to be the Leading Green Bank in China and Asia
19. Bank of Philippine Island (BPI):
A Pioneer in Green Banking In the Philippines
• 1st phase largely focused on energy efficiency loans ($ 26.9 Million)
• 2nd phase included renewable energy loans ($110.1 Million)
• 3rd phase expanded to green mortgage, carbon finance and energy performance contracting ($216.1
Million)
• 4th phase included green buildings and continuous capacity building (ongoing, $130.1 Million)
• As of December 2014, $483 Million total loan volume IFC helped generate with SEF since 2008
• Over 1 Million metric tons of GHG emissions reduced
• RSF 1 signed in 2009 ($46 Million), expanded to ($114 Million) in 2012
• BPI has utilized 78% of the guarantee facility as of end 2014.
• BPI’s entry focused on sustainable energy finance for SMEs
• Recognized among 345 innovations submitted from 75 countries.
• International recognition for its SEF program
• USD 1.4 Million grant for market development and capacity building
Management system
Capacity building for bank loan officers
• Demonstration impact for other Philippine banks
• Consider to join the EPs
19
1st Philippine bank to partner with IFC on Sustainable Energy Finance in 2008
Risk Sharing Facility
Winner, G20 SME Finance Challenge in 2012
E&S risk management
20. EE INVESTMENT MATRIX FOR INDUSTRY IN PAKISTAN
(SECTOR VS. TECHNOLOGY)
20
Technology
Estimated Investment (Million PKR)
Textile
Spinning
Textile
Process
Sugar Leather Paper Cement Fertilizer Other Sectors Total
Payback
Period (Yrs)
Co-generation 100,800 22,500 30,850 154,150 4-5
Compressor 6,000 5,300 165 880 3,100 15,445 1-3
Heat recovery 43,300 35,000 84 272 22 540 19,750 98,968 -
Heat transfer 4,000 15,600 25 58 4,950 24,633 2-3
Lights 2,800 400 800 4,000 1-2
Meters 4,600 4,300 60 2,200 11,160 -
Motors 16,000 9,200 840 110 440 6,700 33,290 1-2
Power Factor 350 100 110 140 700 1-4
Process 1,350 1,200 6,250 7,900 5,220 5,500 27,420 2-4
Process Control 14,350 420 275 22 100 3,800 18,967 1-2
Steam system 550 4,500 600 165 1,450 7,265 1-4
VFD 4,100 1,750 840 53 63 1,700 8,506 1-2
Total 82,700 90,750 104,809 1,145 7,777 30,623 5,760 80,940 404,504
• The overall investment potential for the Energy Efficiency (“EE”) measures
identified in the industrial sectors in Pakistan is in the order of PKR 400 billion…
Payback times for the investments identified are generally below 5 years…
The opportunities are there for FIs to develop an entirely new business
21. Benefits for Pakistani Banks and their Clients
21
For Clients:
• Cost savings – Improved Productivity/Quality of Output –
Competitiveness
• Reasonable pay-back period – Investments recovered from energy cost
savings
• Reduced footprint – Sustainable access to global supply chains
For FIs:
• Expanded market through a new business line:
Innovative product- First mover advantage/differentiation
Sell on value to customer, not pricing
Monetize existing client base- Attract quality new clients
New marketing channels through vendor partnerships
• Improved risk profile of portfolio:
Cost efficient clients = Better performing clients
Energy cost savings as a part of cash-flow
• Positive social and environmental impacts:
Enhanced brand reputation, PR opportunities
22. IFC’S SUPPORT TO CLIMATE CHANGE MITIGATION
THROUGH SEF
Under Sustainable Energy Finance (SEF) product line, IFC
provides financial products and/or advisory services to FIs in
following areas:
• Energy Efficiency (EE): Investing into fixed asset to reduce energy
bill of end-users through increased efficiency of energy use
• Renewable Energy (RE): Investing into technologies generating
power or heat from renewable resources
• Resource Efficiency (Ref): Investing into technologies minimizing
water, raw material, waste and emissions from industrial
processes and maximizing product output
22
23. IFC’S COMPREHENSIVE APPROACH TO
OPTIMIZING SEF IMPACT
Financial products tailored to the needs of diverse
markets
Credit lines and senior loans (medium- to long- term)
Risk sharing products and partial guarantees
Trade guarantees
Mezzanine financing and subordinated debt
Risk capital
Mobilizing donor funding for concessional finance
Advisory to build a profitable SEF business
Market analysis and product development
Enabling the FI to build a pipeline of EE/RE sub-projects
Training for loan officers, credit risk managers, marketing personnel
Tools and resources to add value with low transaction cost
Work with contractors/energy service companies /vendors
23
24. About the Sustainable Banking Network (SBN)
SBN
• Launched in 2012
• A unique, knowledge-sharing
network of banking regulators
and banking associations
• Supports a level playing field
for E&S risk management by
financial institutions
• Promotes green and inclusive
lending
IFC
• Supporting development and
implementation of national
policies/guidelines
• Facilitating South-South learning and
cooperation
• Co-hosting SBN annual meetings
• Developing and disseminating tools and
knowledge resources
24
Facilitator and Technical Advisor
25. 25 25
Sustainable Banking Network
The Network currently consists of banking regulators and banking associations
from16 countries
26. 26
Heads of the
interested
institutions
confirm their
decision to join
SBN.
IFC VP sends a
formal invitation
letter
Interested
institutions
contact SBN
coordinator*
*contacts at the last slide
26
Sustainable Banking Network
How to become a member
27. 27
Click the picture or here to watch the video of the
First International Green Credit Forum
Sustainable Banking Network Events
1st International Green Credit Forum in China
2nd Sustainable Banking Network Meeting In Nigeria
Click the picture or here to watch the video of SBN
Annual Forum in Lagos, Nigeria, Mar. 2014
27
28. 28
Asia
Bangladesh
Bangladesh
Bank-
Environmental
Risk
Management
(ERM) Policy
China
China Banking
Regulatory
Commission
(CBRC) -
Green Credit
Guidelines
China
CBRC-M&E
mechanism
launched
Indonesia
OJK (financial regulator) --
Roadmap for Sustainable
Finance in Indonesia 2015-
2019
Mongolia
Mongolia Banking Association-
Mongolia Sustainable Finance
Principles and 4 Sector
Guidelines
China
CBRC-Green Credit Guidelines
KPIs Checklist launched
Bangladesh
Bangladesh Bank-ESRM
Guidelines of
8 Sector Guidelines (planning)
Vietnam
The State Bank of Vietnam-the
Directive on Promoting Green
Credit and Managing
Environmental and Social Risks
and 10-sector checklists
Nepal
The Central
bank-
Sustainable
Banking Policy
(planning)
Philippines
The Central
bank-Roadmap
to Banking
Policy
(planning)
Latin
America
Colombia
Banking
Association
(Asobancaria) -
Green Protocol
Brazil
Central Bank’s Guidelines of
Social Responsibility Policy for
FIs
Peru
Peru Superintendency of Banking
and Insurance (SBS) -Resolution
No. 1928-2015.
Mexico
Mexico Banking Association (ABM)
- Voluntary Green Protocol
(planning)
Africa
Nigeria
Central Bank of
Nigeria
-Nigerian
Sustainable
Banking Principles
& 3 Sector
Guidelines
Kenya
The Kenya Bankers Association
(KBA)-Sustainable Finance
Initiative (SFI)
SBN Members – Timeline of Initiatives
2011 2012 2013 2014 2015 2016
28
29. 29 29
Common Success Factors
on industry-
wide
guidelines
guidance
based on
Multi-stakeholder consultation and
collaboration on industry-wide guidelines
Combining local E&S requirements and
international good practice (e.g. IFC Performance
Standards, Equator Principles, WBG EHS Guidelines)
Market-based policy mechanisms; economic
incentives and new business models
Mandatory or voluntary guidance tailored
to country context and culture
Capacity Building for key stakeholders
Monitoring and supervision mechanisms
30. 30
Supports creation of a level playing field in line with international good practice
Removes impediments and strengthens the business case for sustainable
banking
Supports country-level frameworks
For Financial Institutions
SBN – Key Benefits
Access to global trends, knowledge, practical experiences and lessons learned
Support from IFC and other members when developing and implementing
effective E&S risk management standards and sustainable banking guidance
Platform for collaboration on a shared vision for sustainable banking
For Banking Regulators / Banking Associations
Supports capacity building of local service providers, such as training and
technical institutions, to assist FIs on E&S risk management
Encourages consideration of E&S regulations in financial sector due diligence
Supports national climate change and green growth agendas
For Local Markets
31. 31
IFC Advisory Services ESRM for FIs Program
Policy/regulatory support to
develop E&S risk
management guidance
Awareness raising and
promotion
Direct technical support for
FIs through training and
consultancy services
Regulatory & market
environment
Training Partners
Consultants
Banking Associations
ESMS diagnostic reports
ESMS development
Individual FIs
IFC ESRM
Advisory
Service
Program
Regulatory and
Market Drivers
Market
Capacity
FIs Capacity
32. WAY FORWARD
• The ESRM Survey for the Financial sector
• Partnering with Key Stakeholders (SBP, PBA)
• ESRM Guideline
• Training and Capacity Building on ESRM
• Development of relevant tools and processes
• Pilot with FIs
• Develop M&E tool for Central Bank
32
33. More resources
SBN Website: http://firstforsustainability.org/sustainable-banking-network/
IFC Sustainability Framework and Advisory Services www.ifc.org/sustainability
CONTACTS
Name Title E-mail
Rong Zhang SBN Global Coordinator rzhang@ifc.org
Atiyah Curmally ESRM AS Program Global Product Specialist acurmally@ifc.org
Quyen Nguyen ESRM AS Program Manager nquyen@ifc.org
Afifa Raihana Regional Specialist araihana@ifc.org
33
