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Taking environmental, social and governance risks into account and assisting our clients
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PROPARCO - SUSTAINABLE DEVELOPMENT REPORT
Development operations have risks by nature with regard to the environment and to people. Proparco’s approach aims to master environmental and social (E&S) risks as well as governance (G) risks. The goal? To avoid, mitigate or offset the negative impacts of projects financed.
Our ESG approach
Our approach, similar to that of AFD and to best practices of international financial institutions, is based on the performance standards of the IFC, the norms of the International Labour Organization (ILO), the guidelines of the United Nations Food and Agriculture Organization (FAO) on land
Environmental and social issues in projects financed by Proparco
These are all subjects concerning or possibly having an impact on the environment and people. Based on IFC performance norms, E&S issues include the following main themes: Assessment and management of E&S risks and impacts; Labor force and working conditions; Rational use of resources and prevention of pollution; Health, security and safety of communities; Acquisition of land and involuntary resettling; Conservation of biodiversity and sustainable management of living natural resources; Indigenous peoples; Cultural heritage. tenure, the guidelines relative to companies and to human rights as well as the resources of the Corporate Governance Development Framework. This approach consists of evaluating the environmental and social risks and impacts of each project presented to Proparco’s decision-making bodies. Based on internal or external expertise, we then propose to the financial beneficiaries’ actions to implement in order to manage these risks and to improve their environmental and social practices. During the operation phase, we monitor the implementation of these actions and we ensure that the project properly manages any risks and unforeseen negative environmental and/ or social contigencies. Finally, if necessary, we can provide specific in-depth support for the client to strengthen their capacities in the management and implementation of their environmental, social and governance performances.
ESG: added value for every project
Common sense says that a project/client which masters the full set of its ESG risks according to the best standards is a financially more viable project/ client. And this has now been proven by crosscutting studies on the consequences of applying the best environmental, social and governance practices in enterprises. Beyond better risk management, the project creates additional value. This added value appears in the form of coherence in decisions, access to new markets via certifications, greater attractiveness thanks to securing new financing, better productivity and competitiveness, and finally, a contribution to the improvement of
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Corporate governance refers to all the relations between the management of a company, its Board of Directors, its shareholders and the other stakeholders. It is also the framework in which the company’s objectives are set, the means to achieve them are determined and performance is monitored. Its evaluation is based on the analysis of five main components: The structure and operation of the Board of Directors; The control environment and procedures; The transparency and dissemination of information; Shareholders’ rights, conflicts of interest and related party transactions; The company’s commitment to good governance.
people’s living conditions and to protection of the environment. By maximizing the integration of ESG dimensions into the life of the enterprise/ project, the project/client becomes more resilient when facing environmental and/or social crises in sectors, types of enterprises and contexts with allow for better ownership of the standards of
the coming years.
Monitoring ESG performance throughout the project life
Respecting best practices over the long term requires monitoring the implementation of ESG recommendations. Such monitoring is subject to indicator calculations, regularly produced and managed by Proparco teams. This way, it makes it possible to identify trends in ESG performance and levels of residual risk for the life of each project. In some cases, depending on the indicators and the relationship with the client, it can be decided to give specific support to the project. This support, whether E&S and/or G, is specific to each project, depends on each client, and may include technical assistance.
In early 2020, Proparco strengthened its ESG division with a 16-person team focused on the team is involved in the appraisal and monitoring phases of all projects financed, according to the issues (risks and support) determined in a standardized and shared approach.
Proparco is preparing specific tools adapted to the IFC and other development finance institutions, notably EDFIs. These harmonized tools proper implementation of ESG approaches. The
reference by all.
The ESG risk management tools (screening, evaluation, monitoring, support)
Proparco has several tools at its disposal for client assessment and support. Iterative research is carried out on the E&S situation, focusing on the activities of the project/client. This contextual
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PROPARCO - SUSTAINABLE DEVELOPMENT REPORT
With Proparco’s support, the NEOEN company is carrying out a photovoltaic project of 200 MW at an altitude of 4,000 meters in Argentina (see page 15).
BIOSIDUS: good governance and gender promotion
In 2018, Proparco invested in the capital of the company Biosidus, alongside FMO and the ACON IV fund. This Argentine family company develops, produces and distributes so-called biosimilar medicine, which is based on living matter, in thirty emerging and developing countries. On the basis of a detailed assessment of Biosidus carried out by Proparco and FMO experts, a governance action plan was formalized in 2019, with a focus on gender promotion at the level of the company’s board of directors. This plan has brought the governance of Biosidus closer to international standards, notably concerning its general assemblies, its board of directors and the appointment of independent administrators.
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research is based on external data bases as well as Proparco’s local knowledge. The E&S assessment of project/client activities may be carried out in the form of questionnaires and interviews or by subcontracting thorough due diligence studies. After financing and agreement on an E&S action plan for the project/client to carry out, internal and/or external reporting is set up between Proparco and the beneficiary of the financing to monitor the evolution of E&S performance. To assess the company’s governance practices and propose improvements, Proparco mainly uses: Rapid Risk Screening (a pre-analysis rating tool); the progression matrix (a measure of the maturity of governance); ad hoc questionnaires; a results matrix (a tool for rating diligence results); and model documents targeting enterprises (company regulations for a board of directors, for example).
A guide to good practices for entrepreneurs, among others, has also been written.
PROPARCO’S ESG RISK MANAGEMENT TOOLS
Total project portfolio, sorted by their E&S ranking 9% IF-C 17% A
28% IF-B
541 projects
20% IF-A
8% B 18% B+
Projects signed in 2019, sorted by their E&S ranking 16% IF-C
38% IF-B
76 projects
14% IF-A
15% A
5% B 12% B+
Note: Of the 593 portfolio projects in the information system on 31 January 2020, 52 projects are unranked (projects entered before 2012). The portfolio considered here thus consists of 541 projects.
NEOEN: developing solar energy at high altitude
In 2019, Proparco granted a 50-milliondollar (USD) loan to the French company NEOEN to carry out the photovoltaic project Altiplano – La Puna (200 MW) located 4,000 meters high in Argentina. In the scope of this financing, Proparco supports the developer and builder in the management of E&S issues, notably in improving the practices of supervising subcontractors or in determining detailed management plans for road traffic, working conditions, water resources and waste management.
