djordjija petkoski head of private sector development and corporate governance,

Djordjija PetkoskiHead of Private Sector Development

and Corporate Governance,World Bank Institute

Financial Markets’

Responsibility

Djordjija PetkoskiHead of Private Sector Development and Corporate Governance, World Bank Institute

Overview

A World Out of Balance

The Role of Financial Institutions

The Equator Principles

Socially Responsible Investment (SRI)

The World Bank and the World Bank Institute

Concluding Remarks

I.

II.

III.

IV.

V.

VI.


A World Out of Balance


A World Out of Balance…

Poverty and Developing Countries Today:3 billion people (survive on) under $2/day1.2 billion people (survive on) under $1/day

Global Gross Domestic Product (GDP) Year 2000:30 trillion – 5 billion people – 20% global GDPYear 2050:140 trillion – 8 billion people – 40% global GDP (assuming 3.5% growth)

Population Growth 2000 2025 2050Developing Countries

5 billion 7 billion 8 billion

Developed Countries

1 billion 1 billion 1 billion

Global Issues


1990 1997 Today

Private (FDI, PI, Bank Lending) $30

billion/year$300

billion/year$170

billion/year

Overseas Development Assistance

(ODA)

$60 billion/year

$50 billion/year

$50 billion/year


Change in the Form of Aid


The Role of Financial

Institutions

• Continuum of Investment InstrumentsGrants & Philanthropic Gifts Market Loans & Equity.

• Capital Market PlayersPhilanthropic Institutions, Traditional Capital Development Agencies & Institutions (Banks, Banks Mutual Funds, etc.).

• Continuum of Value CreationTraditional Separation Blended Value (“Triple Bottom Line”) Proposition.

• Multi-sectoral Partnership (MSP)The less-developed market mechanism, the higher need for MSP common ground; Competitiveness.


The Big Picture

FTSE4Good


The Role of Financial Institutions

• Project financing plays an important role in financing development worldwide.

• Project financiers often encounter environmental and social policy issues, particularly in emerging markets.

• The role of project financier affords opportunities to promote responsible environmental stewardship and socially responsible development.

Why is exercising environmental & social responsibility in financing important?

• Risk management & mitigation– CSR of growing importance to the insurance industry.

• Stakeholder engagement & participation reduces risks & long-term costs

• Creates an enabling environment for increased investment

• Customer & shareholder satisfaction• Reputation


Importance to Financial Institutions

• To provide environmentally and socially responsible criteria for financial institutions.

• To lead by example (The Equator Principles).– Set conditionalities for lending (Environmental &

Social Safeguards).

• To create attractive conditions for increased investment and to set an example of how this is procured and disbursed.


Role of the World Bank

• World Bank involvement in projects signals a positive investment climate and encourages increased foreign direct investment (FDI).

• Guarantee of continuing income: the creation of appropriate conditions establishes an environment for financial institutions to move in.


Role of the World Bank, cont.


The EquatorPrinciples


The Equator Principles

• Voluntary guidelines for managing environmental & social issues in project finance lending.

• Developed by leading financial institutions.• Based on the IFC environmental & social

standards.• Applicable globally to development

projects in all industry sectors with a capital cost of $50 million or more.

• June 4, 2003: 10 international banks adopt the Equator Principles.

• Today: 33 adopting institutions.• Approximately 75% of all project loan market

volume.• Potential to become the de facto standard for

all banks & investors on how to deal with potential social & environmental effects of projects to be financed.


The Equator Principles, cont.



What does adoption of the Equator Principles mean for financial institutions?

• Offers significant benefits to the financial institutions, their customers & other stakeholders.

• Fosters ability to document & manage environmental & social risk exposure in project finance.

• Allows the ability to work with customers in their management of environmental & social policy issues relating to their investments in emerging markets.



• ABN Amro• Banco Bradesco• Banco do Brasil• Banco Espírito Santo Group• Banco Itaú• Banco Itaú BBA• Bank of America• Barclays• BBVA• Calyon• CIBC• Citigroup• Credit Suisse Grp• Dexia• Dresdner Bank• Eksport Kredit Fonden

• HSBC• HVB Group• ING• JPMorgan Chase• KBC• Manulife Financial Corporation• Mediocredito Centrale• Mizuho Corporate Bank• Rabobank• Royal Bank of Canada• Royal Bank of Scotland• Scotiabank• Standard Chartered• Unibanco• Wells Fargo & Company• WestLB• Westpac

Will the adoption of the Equator Principles be sufficient to change the terms of project

financing?

NO

- Equity and investment institutions must get involved as well.

- Socially Responsible Investment (SRI)



Socially Responsible Investment

(SRI)

• An investment process and approach that considers social and environmental concerns and consequences, both positive and negative, into investment decisions.

• Significant effect/change in behavior: Pension funds, shareholder resolutions affects project financing.

SRI – a definition


• Individuals • Businesses• Institutional Investors• Universities• Hospitals• Foundations• Pension funds• Religious institutions• Nonprofit organizations.

“Social investors consciously put their money to work in ways designed to achieve specific financial goals while working to build a better, more just and sustainable economy.”

Social Investment Forum, 2001 Report on Socially Responsible Investing Trends in the United States

Who are the Investors?


• Investment portfolios involved in SRI grew by more than 240 percent from 1995 to 2003.

• In 2003, a total of $2.16 trillion in assets was identified in professionally managed portfolios using one or more of the three core socially responsible investing strategies – screening, shareholder advocacy, and community investing.

• Total assets under management in portfolios screened for one or more social issues climbed from $1.49 trillion in 1999 to $2.01 trillion in 2001 to 2.16 trillion in 2003.

• More than one out of every nine dollars is involved in socially responsible investing.

How Much Do They Invest?


Social Investment Forum, 2001 Report on Socially Responsible Investing Trends in the United States The Economist, Ethical investment, Jul 12th 2001

2003 Report on Socially Responsible Investing Trends in the United States

• SRI & CSR are mutually beneficial:– SRI consolidates the contribution of CSR to

competitiveness;– SRI underscores the role of social

responsibility for a wider audience;– Innovation;– Expression of shareholders’ priority;– Potential for direct impact through

shareholders’ resolution.

CSR & SRI: Mutually Beneficial


Best 100 CSR companies (*) in Japan vs. Tokyo S.E.

020406080

100120140160180

Best 100TOPIX

(*) CSR rating by IntegreX Tokyo,

Similar results are found in:

• Dow Jones Sustainability Index

•The Domini Index

•FSTE4Good (UK)

Do SRIs Out-Perform the Market?


Domini Index



Best Practices

• Barclays Bank, EnglandSupports financial inclusion through loans for social housing, they invest in community development i.e. Barclay’s space for sports program, the bank also has a program designed for disabled people and a program to improve and take care of the health of their employees i.e. HIV/AIDS for the branches in Africa.

• Banamex (Mexico) and Citibank (U.S.) – partnershipThis two banks have created a partnership to give Mexican immigrants working in the US the opportunity to send money to their families in Mexico without problems, delays or enormous fees, they also provide free financial education for their customers.


Examples of Best Practices

• SHG Bank Linkage, India Innovative microfinance initiatives pioneered by nongovernmental organizations created links between commercial banks, NGOs, and informal local groups. Better known as "SHG Bank Linkage," this model has effectively targeted poorer segments of the rural population and helped reduce their vulnerability.

• Bank Rakyat Indonesia (BRI)The BRI Units have taken a profitable, sustainable approach to microfinance on a large scale, based on locally mobilized savings without subsidies or funds from the government or donors.


Examples of Best Practices


Examples of Best Practices• K-Rep Bank, Kenya

K-Rep transformed itself from a donor-funded project into a commercial microfinance bank that strives to balance a social and a profit-oriented mission in providing access to financial services to the poor.

• Banco Real /ABN AMRO, BrazilLong-standing Brazilian financial institution with locations in over 70 countries. The bank has strong commitment to environmentally & socially responsible practices:– Total Client Satisfaction - Micro-Credit– Ethical Investment - Diversity– Social and Environmental Financing - Suppliers– Social and Cultural Investment – Eco-Efficiency


The World Bank and the World Bank

Institute


• Four groups work on issues related to Corporate Social Responsibility:

– Private Sector Development Network– Environmentally & Socially Sustainable

Development (ESSD) Network– International Finance Corporation (IFC)– World Bank Institute (WBI)

The World Bank

Launched by Mr. Wolfensohn (former World Bank President) at the World Economic Forum in Davos, 2001.

Committed to building capacity for sustainable private sector development, covering issues of corporate responsibility and accountability, multi-sectoral partnerships, competitiveness, clusters and SMEs, ethics, corporate governance, and transparency.

Explores innovative private sector roles and multi-stakeholder partnerships for development.

World Bank Institute program onCorporate Governance and Corporate Social Responsibility


Web-Based Course Modules:

CSR: Main Concepts

Decision-Making Frameworks

CSR Diamond

Building Sustainable

Competitiveness through CSR

CSR and the Poor

An Introduction to Coalition

Building and Action Plans

Reach:Over 30,000 participants in over 90 countries around the world; offered in 8 languages.

Target audience: Primarily business, but also government, acedemia and NGOs.

Learning Tools

Global E-Surveys Global E-Conferences Web-Based Courses (Global/CF) Video-Conferences/Courses Training-of-trainers Curriculum development Face-to-Face


• Financial institutions have the potential to execute profound influence over the environmental and social responsibility of development project financing.

• The Equator Principles are becoming the de facto standard of responsible financing.

• Responsible investment also plays a key role.

• Multi-sectoral Partnership is of critical importance.


Concluding Remarks

Djordjija PetkoskiHead of Private Sector Development

and Corporate Governance,World Bank Institute

[email protected]

Visit our webpage: www.csrwbi.org

THANK YOU!!

djordjija petkoski head of private sector development and corporate governance,

Documents

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responsible development

financing development

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