ESG: Environmental, Social and Governance Factors

The management of Environmental, Social and Governance (ESG) factors is critical to the ability of any organization to generate long-term value.

  • ‘Environmental factors consider how an organization performs as a steward of nature’. The ‘E’ refers to the performance of a government, a financial institution, or a company with respect to climate change, use of biodiversity and natural resources, management of waste, among other factors or issues to be taken into account.
  • Social factors refer to the relationship of the organization with its different stakeholders; whether employees, customers or suppliers, communities, citizens, etc. The ‘S’ factors involve human rights, labor rights and working conditions, occupational health and safety, equal opportunities, indigenous people rights, and more broadly human rights.
  • Governance factors refer, among others, to the allocation of roles, responsibilities and rights between the different stakeholders in the governance of a financial institution or a company, or in the political governance structures of a country. The ‘G’ factors involve issues such as transparency and reporting.
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Scope of Activities

The IDB Group supports governments, financial regulators, stock exchanges, public and private financial institutions, and corporates – in their respective roles – to support further integration of ESG factors in the financial system and business. It does so by offering bespoke financing and technical assistance, with the aim of promoting the development of the Latin American and Caribbean sustainable finance markets.

Scope of Activities ESG

 

Scope of Activities

The IDB Group supports governments, financial regulators, stock exchanges, public and private financial institutions, and corporates – in their respective roles – to support further integration of ESG factors in the financial system and business. It does so by offering bespoke financing and technical assistance, with the aim of promoting the development of the Latin American and Caribbean sustainable finance markets.

Scope of Activities ESG

 

Where it is implemented

Argentina


  • FONPLATA Fondo Financiero para el Desarrollo de la Cuenca del Plata (FONPLATA)
    Gap analysis of the E&S regulations applicable to FONPLATA vs. the IDB safeguards and the IFC performance standards.

  • BICE Banco de Inversión y Comercio Exterior (BICE)
    E&S Capacity building.

Barbados


  • Central Bank of Barbados (CBB)
    Design of a specific Environmental and Social risks Management System (ESMS) to be applied by a guarantee fund for SMEs.

Brazil


  • Associação Brasileira de Instituições Financeiras de Desenvolvimento (ABDE)
    Support to help its members to comply with a new banking regulation requiring all financial institutions to have an ESMS.

  • Electrobras
    ESG Rating from Vigeo Eiris.

  • Espirito Santo Development BANK (BADES)
    Design of an Environmental and Social risks Management System (ESMS).

  • Brazilian National Bank for Economic and Social Development (BNDES)
    First ESG rating.

  • AFEAM (Amazonas State Development Agency)
    Design of an Environmental and Social risks Management System (ESMS).

Colombia


  • Bancoldex (Business Development Bank)
    Development of an Environmental and Social risks Management System (ESMS) and Green Line for Bancoldex.

  • Bancoldex (Business Development Bank)
    Integration of Renewable Energy projects in its Environmental and Social risks Management System (ESMS).

  • FINDETER (Financial Corporation for the Territorial Development)
    Design and implementation of an Environmental and Social risks Management System (ESMS).

  • FINAGRO (Financing Fund for the Agriculture Sector)
    Design and implementation of an Environmental and Social risks Management System (ESMS).

  • Asobancaria
    Design of a roadmap for the implementation of an Environmental and Social risks Management System (ESMS) for 4 financial institutions that are members of the sustainable finance table.

El Salvador


  • BANDESAL (Development Bank of El Salvador)
    Adjusting its Environmental and Social risks Management System (ESMS) to include its second-tier activities.

Mexico


  • National Bank of Public Works and Services (Banobras)
    Design and implementation of an Environmental and Social risks Management System (ESMS).

  • Trust Funds for Rural Development (FIRA)
    Design and implementation of an Environmental and Social risks Management System (ESMS).

  • National Financial of Agricultural, Rural, Forestry and Fisheries Development (FND)
    Design and implementation of an Environmental and Social risks Management System (ESMS).

Paraguay


  • Development Finance Agency (AFD)
    Design of an Environmental and Social risks Management System (ESMS).

Peru


  • Development Finance Corporation (COFIDE)
    Design of an Environmental and Social risks Management System (ESMS).

Project Map

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Why ESG?

The integration of Environmental, Social and Governance ("ESG") factors continues to expand globally. According to J.P. Morgan, “the year 2020 proved to be a remarkable year for ESG investment flows. Asset managers have been prioritizing the integration of material ESG factors into existing investment solutions, while the development of new sustainable investment solutions continues to accelerate in response to the ever-growing investor interest”.

Environment is, of course, only one aspect of the equation. The Covid-19 pandemic crisis emphasizes the importance of social and governance factors, as companies with a long-term focus have proven to be more resilient to date.

Organizations managing ESG risks are showing a stronger financial and operational performance and a better capacity to attract capital. Sustainable funds have shown to consistently outperform non-ESG funds in different time periods, over one, three, five and ten years. Initial evidence indicates that they also attracted greater interest among market participants and demonstrated heightened resilience when stock markets began to fail due to the Covid-19 pandemic.

Regulators, investors, and financiers are steadily demanding transparency on organizations’ ESG risks profile and management capabilities. Regulators are increasingly recognizing ESG-related risks, and climate-related risks, in particular, as a source of potential material impact on firms’ performance and, more broadly on the stability of the entire financial system. As such, the number of regulatory-related initiatives calling for ESG risk management and disclosure is growing. Examples include the EU’s regulation on sustainability-related disclosures and Non-Financial Reporting Directive, the Statement on disclosure of ESG matters by issuers of the International Organization of Securities Commissions (IOSCO), or Brazil’s Resolution CMN 4.661/2018. Investors’ interest in and demand for ESG information is also growing.

Beyond regulatory compliance, investors realize the value of integrating ESG factors into their investment and voting decisions in order to mitigate risks and detect new business opportunities. This is evidenced by the growing development of ESG guidance and reporting requirements for thematic bond issuers and listed companies respectively. It is also documented by the increasing number of ESG-related shareholders proposals.


 

Success Cases

Eletrobras: A green bond issuance as the opportunity to work on an ESG rating

The objective was to support Eletrobras in getting an ESG Rating from Vigeo Eiris.The results were striking: Eletrobras scored 67/100, while the former score was 30/100, which led the company to become #1 among utilities in the world and Top 39 from a universe of almost 5,000 companies covered.

FIRA

FIRA started a long journey that ended up making it one of the sustainability champs among financial institutions in Mexico. FIRA had also started issuing debt in its domestic market, but the issuance of its first green bond represented a turning point in the process of fully integrating ESG factors into its business model.



 
Resources
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  • Market Regulators For Development
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  • ESG
  • Private Sector
  • Green Social and Thematic Bonds
  • Green Finance
  • Climate Risk
  • Blue Economy

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