• Otaviano Canuto, Executive Director, World Bank Group (chair)
• Osvaldo L. Gratacos, Vice President, Office of the Compliance Advisor Ombudsman (CAO), World Bank Group
• Robin Sandenburgh, Acting Director, Environmental, Social and Governance Group, IFC
• Frazer Lanier, Vice President, Environmental and Social Risk Management, CitiBank
• Nadia Daar: Head of Washington Office, Oxfam International

Session summary: The financial intermediary sector (FI) sector is undergoing important changes including the adoption of greater transparency standards. Many FIs have agreed to standards like the Equator Principles and Global Reporting Initiative, and regulators from the Netherlands to China have mandated enhanced FI disclosure practices. This session featured sector leaders from the banking community, the International Finance Corporation (IFC), and civil society. They discussed their experiences in transparency, its relationship with environmental and social outcomes and how to promote further advances at the World Bank Group and accross the financial sector.

Osvaldo Gratacos, CAO: Many banks are moving toward greater disclosure as is the case with Equator Principle (EP) banks. Green Bond standards also include a high level of disclosure.

At times CAO [Compliance Advsior Ombudsman) does have a chilling effect on clients.ROBIN SANDENBURGH, ACTING DIRECTOR, ENVIRONMENTAL, SOCIAL AND GOVERNANCE GROUP, IFC

While IFC discloses private equity investments, it does not in case of commercial banks. EBRD also discloses ESIA for high risk projects.

Disclosure is also moving in China. IFC sustainability banking network is also undertaking discussion.

Today IFC works with 100 financial institutions, hence need for greater transparency.

Otaviano Canuto, WBG ED:

From Board’s perspective, transparency and accountability are of essence for good governance.

In Brazil there have been efforts to develop environmental and social risk management, such as the green protocol, which is voluntary. In certain instances the Brazilian Central Bank compels banks to assess and measure ES impact. A Brazilian Central Bank note demands that FIs address stakeholder concerns.

The Cetral Bank also requires disclosure of physical and social risk and this is used to assess financial health.

Robin Sandenburgh, IFC: Transparency is very high on the IFC agenda. The IFC applies a different approach to FI lending from direct project lending. IT delegates investment decisions to FI clients as is the case with the environmental and social (ES) assessment. IFC then supports work in-country.

FIs allows IFC to dramatically increase reach – which requires delegation.

IFC focuses on ensuring FI clients have ES and governance (ESG) management system – initially perhaps 70 per cent have nothing – IFC supports them to develop them and provides continued support in the system’s development.

In high-risk projects FIs develop ES management system, which is evaluated.

FIs must develop mechanisms for stakeholder grievance mechanism. – Clients are responsible, but IFC supports the process. This continues to be ‘best practice’.

Where there is no progress the IFC may, as a final step, exit.

IFC acknowledges civil society organisations (CSOs) concerns about IFC untargeted loans, which are not ‘traceable’. IFC has 700 clients and had few ESG staff. It also understands the concerns about transparency mechanism of clients.

1. untargeted loans have been reduced dramatically – less than 20 per cent are non untargeted loans. Funds increasingly ‘ear-marked’.
2. Reduced high-risk investments – 5 high-risk investments this year (ending July).

IFC has also pressed on more clear definition of women-owned business and micro-lending. It has also dedicated more resources for ESG work. The toughest part remains transparency. IFC continues to work closely with Equator Principle Banks and continues to push clients for voluntary disclosure.

IFC also continues to lead on the Sustainable Banking Network, which has developed a measurement framework for Banks (34 countries). Banks use the framework to measure themselves against peers. IFC has also been developing a disclosure and transparency toolkit, which will be launched in January at the London Stock Exchange.

Frazier Lanier, CitiBank:

Citi uses the IFC Performance Standards (PS) and their use may result in lending conditions on clients.

As regards transparency at Citi, there is a strong internal focus on client confidentiality. Citi must ask permission from clients for disclosure. However, Citi is a founding member of EP and releases name of projects – with 99 per cent consent. But these relate to loans within the EP framework of which, out of thousands of Citi transactions, 400 triggered ESF policies with 5 projects disclosed.

Other realm of disclosure exist – eg. Bond issuance. Some lending facilities.

Disclosure can assist Citi’s sustainability reporting. Many clients have little to no knowledge of ESG management issues/ processes.

Citi and other larger banks have an incentive to push for upward harmonisation of standards as it results in ‘more even playing field’.

Citi is currently working in over 100 countries.

Nadia Daar, Oxfam:

CSOs have been working for a number of years to advocate for change in IFC’s disclosure policies. Pleased with some progress made. However more must be done.

Oxfam and others have published a number of reports outlining the negative consequences of lack of transparency in financial intermediary (FI) lending.

According to CSO calculations the IFC’s FI portfolio is much larger than the 30 per cent mentioned earlier. Our calculations place the figure at up to 60 per cent untargeted loans.

Oxfam will soon launch a publication on development finance institutions’ (DFI) disclosure. The study finds that DFIs lack coherence in this area.

The Equator Principles Financial Institutions (EPFIs) are ready for disclosure – 62 per cent of them do get information voluntarily.

Much of the information CSOs and communities demand is available in the Thompson and Reuters databases. However these are very expensive. Clients already provide consent for release of information in these commercial databases. We maintain therefore that the general tendency is clearly on the side of increased disclosure. CSOs want commitment from IFC on disclosure of high and significant risk project.

Q&A:

BIC Europe: BIC Europe has released a new report on coal financing in Philippines. How does IFC plan to track its coal investments, particularly in light of lack of transparency?

CAO has recently received its first climate complaint from 19 affected communities in Philippines. 8 were found not eligible – due to nature of corporate bond. CSOs disagree and think IFC is materially exposed. Would urge a second look – Bond issuances could amount to $28 trillion globally.

IFC answer: IFC made commitment within its Sector Economics for Financial Institutions toward better tracking. It has instituted a tracking system. Committed to report to Board periodically. It has conducted an assessment exercise and found that few very clients have meaningful exposure to coal – 5 per cent with exposure.

IFC remains committed to decrease untargeted lending. Also trying to increase business climate. It is trying to attack the problem from both ends.

The IFC accepts that there is some appetite for disclosure, but thinks it remains quite limited, as reflected in the fact that only 60 per cent of EPFI disclose. Privacy law issues remain. It is also expensive.

Oxfam: Oxfam research indicates that many Banks say that most approach disclosure of project name ‘matter-of-factly’.

CAO: Regarding the climate complaint and the bond issue: The complaint technically relates to one client. CAO did quite a bit of research and reached out to client. The issue centres on assessment of exposure from a bond arranger vs. holder perspective. CAO has accepted eligibility of loan and bonds held. Lack of information proved a challenge. Process took much longer than 15 day response period.

Assessment process has begun. Must visit 11 communities. CAO remains community-driven. Are drafting internal report.

IFC: IFC is puzzled by the disconnect between ‘ease of voluntary disclosure’ outlined by Oxfam vs. IFC’s experience. Could this be perhaps due to nature of Oxfam sample?

IFC staff: challenge on disclosure: In many cases IFC cannot disclose as laws will not allow it. There are also issues of confidentiality and competition. Perhaps a matter of jurisdiction. Each market is different.

Citi: Agrees that disclosure remains challenging. Citi has thousands of projects and has only disclosed information on 5. The 99 per cent disclosure figure mentioned earlier relates only to Banks that trigger EP volunteer information.

In some jurisdictions the legal constraints are indeed a challenge.

EP is exemplary but not representative.

Oxfam: EPFI clients also agreed to volunteer information and they also tend to provide information to databases.

Oxfam prefers not to refer to ‘best practices’. No best practice. The Overseas Private Investment Corporation (OPIC) does disclose bank clients.

IFC: Driving for better global performance globally.

Recently met with European DFIs – many don’t disclose direct projects. IFC is quite far ahead in that regard.

Disclosure is complex – on climate there is a greater focus on disclosure. Not a topic of conversation for smaller loans. Focus remains rather on policies rather than disclosure of sub-projects.

Working with the Sustainable Banking Network (SBN) on regulations – to make regulators aware of structural importance of disclosure.

Bretton Woods Project: In past discussions with IFC, we heard legal constraints were not the principal barrier to disclosure. The problem was rather an issue of leverage. Requested educated guess of percentage of jurisdictions where the law is the principal constraint to disclosure.

Citi: Very concerned about consultation and Free, Prior and Informed Consent (FPIC). However much of the lending is general purpose lending. That said, will look for high-risk, displacement, etc.

IFC: Accepts that information is getting out there. Technology will contribute to distribution.

Accepts the importance of CAO. At times CAO does have a chilling effect on clients. Some clients have exited and are therefore ‘out of reach’ of influence.

Nadia Daar, Oxfam: Stressed that CSOs are not asking for disclosure of all or even majority of investments, only a small portion of high and substantial risk projects.

CAO: Acknowledges progress and IFC increased involvement. Hope that CAO does not have a ‘chilling impact’. Need to explain the purpose of CAO.