The financial press has focused these last days on the raising of the US debt ceiling to avoid a potential default on US government borrowings. With close to 50% of the publically-held US debt now in the hands foreign investors, including the central banks of Brazil, China, Japan and the UK, the deliberations in the US Congress were indeed material to the sustainability of international finance.
However, also this week, there was another critically important yet much less noticed development regarding international finance and sustainability. The International Finance Corporation (IFC) released their updated Sustainability Framework. The IFC is the private sector arm of the World Bank Group headquartered in Washington DC. It “fosters sustainable economic growth in developing countries by financing private sector investment, mobilizing capital in the international financial markets, and providing advisory services to businesses and governments.”
The IFC’s Sustainability Framework – which will become operational in January 2012 – also provides the basis for the Equator Principles which are “a credit risk management framework for determining, assessing and managing environmental and social risk in project finance transactions.” These Principles have been adopted by over 70 financial institutions, such as Citigroup, HSBC and Société Générale, covering over 70% of international project finance debt in developing countries.
Thus the IFC’s updated Sustainability Framework is also material to the sustainability of international finance. It includes the following Performance Standards for clients of the IFC and the Equator Principle institutions:
- PS1 – Assessment and Management of Social and Environmental Risks and Impacts
- PS2 – Labour and Working Conditions
- PS3 – Resource Efficiency and Pollution Prevention
- PS4 – Community Health, Safety and Security
- PS5 – Land Acquisition and Involuntary Resettlement
- PS6 – Biodiversity Conservation and Sustainable Management of Living Natural Resources
- PS7 – Indigenous Peoples
- PS8 – Cultural Heritage
For example, PS6 on Biodiversity “recognizes that protecting and conserving biodiversity, maintaining ecosystem services, and sustainably managing living natural resources are fundamental to sustainable development.” In this context, IFC clients (e.g. private sector borrowers) should:
- protect and conserve biodiversity,
- maintain the benefits from ecosystem services, and
- promote the sustainable management of living natural resources through the adoption of practices that integrate conservation needs and development priorities.
So what is the business case? In their Policy on Environmental and Social Sustainability, the IFC clearly states their position: “In order to accomplish its mission and achieve its commitments, IFC endeavours to collaborate with clients who identify and manage environmental and social risks and who pursue environmental and social opportunities and outcomes in their business activities with a view to continually improving their sustainability performance. IFC recognizes the relationship between a strong culture of corporate integrity and governance, and sustainability performance, and that a company’s management and board of directors play important roles in driving risk management and sustainable growth. IFC believes that this approach helps improve the financial, social, and environmental sustainability of investments, and enhances the public trust in its operations.”
So while the politicians in the US Congress have been deliberating over the sustainability of US debt financing, down the street, the IFC has been setting out key criteria for positive voluntary actions by private businesses to ensure the sustainability of our planet. Perhaps the US Congress as it goes about spending the billions of borrowed dollars could also benefit from having a closer look at the IFC’s updated Sustainability Framework.