GLOBAL PROGRESS REPORT of the Sustainable Banking Network Innovations in Policy and Industry Actions in Emerging Markets October 2019 Case Studies: Good Practices among Financial Institutions © International Finance Corporation [2019], as the Secretariat of the Sustainable Banking Network (SBN). All rights reserved. 2121 Pennsylvania Avenue, N.W. Washington, D.C. 20433 Internet: www.ifc.org The material in this work is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of ap- plicable law. IFC and SBN encourage dissemination of their work and will normally grant permission to reproduce portions of the work promptly, and when the reproduction is for educational and non-commercial purposes, without a fee, subject to such attributions and notices as they may reasonably require. 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Additionally, “International Finance Corporation” and “IFC” are registered trademarks of IFC and are protected under international law. The following sections present case studies drawn from SBN countries and from leading financial institutions. Good practices among financial institutions Market-Level FI Practices .........................................................................................................1 China – Using KPIs to drive sustainability in Chinese banks ....................................................... 1 Indonesia – Standardizing sustainability reporting in the Indonesian banking sector ................ 1 Latin America – Tracking green finance performance of Latin American banks in 18 countries..1 Individual FI Case Studies ........................................................................................................2 Pillar I: Strategic Alignment ....................................................................................................2 XacBank – Align commercial bank lending to UN SDGs and NDC .............................................. 2 OECD example ........................................................................................................................2 BBVA Spain – Strategy update and commitments aligned with international best practices .....2 Pillar II: Climate and Green Finance ........................................................................................3 Ant Financial – Expanding the reach and impact of green digital finance................................... 3 HSBC Vietnam and GIC Investment Joint Stock Company, HDBank, and BIDV – Green finance for solar power and climate resilience in Vietnam ........................................................................... 3 Access Bank – Leading the expansion of the green bond market in Nigeria .............................. 4 IFC Green Bonds – Building the foundation for climate smart investments in emerging CASE markets........................................................................................................................................ 5 Argentina’s Banco Galicia – Moving forward with climate smart agriculture and green STUDIES lending in Argentina .................................................................................................................... 5 Bancolombia and Davivienda – Innovations in green lending and climate smart investment in the construction sector .......................................................................................................... 5 JSE and Nedbank – Leading the charge for Green Bonds in South Africa ................................... 6 OECD example ........................................................................................................................6 Société Générale – Sustainable and Positive Impact Finance ..................................................... 6 Natixis (France) – Green Weighting Factor .................................................................................. .7 Standard Chartered – Harnessing emissions data to unlock climate investment opportunities ..7 Pillar III: ESG Integration ..........................................................................................................8 Industrial Bank – Evolution of governance structures to drive growth in sustainable finance...8 BRAC Bank and City Bank – Striving to be the market leaders in Green Finance in Bangladesh ..9 Ecobank – Aligning ESRM practices with international standards .............................................. 9 OECD example .......................................................................................................................10 ING – Comprehensive environmental and social risk management framework ........................ 10 Good practices among financial institutions Market-Level FI Practices Latin America – Tracking green finance performance of Latin American banks in 18 countries China – Using KPIs to drive sustainability in Chinese banks In 2017, the Latin American Federation of Banks (FELABAN), IFC, CBRC introduced the Green Credit Implementation Key Performance and eco.business Fund joined forces to prepare a report on the state Indicators (KPIs) in 2014, and required the largest 21 banks to submit of green finance in Latin America. The goal of the report is to identify self-evaluation reports against those KPIs on an annual basis. These 21 opportunities and challenges remaining for the adoption of sustainable major banks account for over 70 percent of China’s banking assets. banking practices, as well as the steps and achievements required Banks’ self-evaluation reports, with supporting evidence, are verified from the banking sector to contribute to climate change mitigation. It by a third-party agency, under the supervision of a panel comprising is hoped that the results will feed into discussions and debates on the CBRC, China Banking Association (CBA), and bank representatives. The topic. 2018 findings identified progress in banks’ development of ESMSs and Methodology integration of banks’ green lending performance into business targets. Case Studies – Good Practices among Financial Institutions – Market Level The report analyzes the sustainable banking situation in 18 Latin A number of KPIs stood out in terms of achieving a high level of American countries, with a focus on the private banking sector. The compliance, including (i) integrating E&S risks into compliance check, findings and conclusions are based on extensive desktop and market (ii) including E&S covenants in loan agreements for category A&B research, together with a survey carried out by 101 private banks in clients, and (iii) ensuring staff have the necessary knowledge to review the region (58 percent of which were local banks). E&S risks and seek support from third parties as needed. 19 of 21 banks have complied with these requirements. The 2018 evaluation Main findings noted that banks’ understanding of KPIs and the quality of supporting evidence vary from bank to bank, with leading banks consistently The report’s results highlight the need for further commitment maintaining a high quality over the years. A steady and gradual and investment from financial institutions in seizing opportunities improvement across all indicators is noted for all banks. offered by green and sustainable sectors, including renewable energy, sustainable agriculture, and energy efficiency. Indonesia – Standardizing sustainability reporting in the It has been noted that numerous banks surveyed have now included Indonesian banking sector E&S criteria in their credit and investment decisions, a significant With OJK’s issuance of the regulation on Sustainable Finance in 2017, improvement over previous years. the largest banks and foreign banks (around 55 banks) are required Figure 17: Green finance adoption to submit annual action plans to OJK, setting out their implementation From Corporate Social Responsibility (CSR) to strategic business pillar. of the sustainable finance initiative, as well as to prepare an annual sustainability report. In June 2018, eight Indonesian banks launched the Indonesia Sustainable Finance Initiative (ISFI) to support implementation of sustainable finance in Indonesia. OJK reviewed the portfolios of these eight banks in 2016-2018. They found that the green component of banks’ portfolios is at 2 percent of total financing, with growth of 14 percent per annum from 2016 to 2018. OJK data shows that as of December 2018, for eight banks surveyed Green products and services representing over 50 percent of total banking assets, seven banks 49 percent of banks offered green products and 88 percent of the have formalized an E&S policy, while five banks have included E&S remaining ones expressed interest in doing so. However, demand for covenants in loan agreements and have defined an E&S function to green products remains at the corporate banking level. There is thus varying extents. Gaps remain on climate aspects with only two banks a strong need to commercialize green products for small and medium tracking environmental benefits achieved. sized clients, and the Latin American region is well positioned to face 1 this challenge. Indeed, the Green Bond market is a growing trend. 
 Individual FI Case Studies Sustainable finance strategic commitments Pillar I: Strategic Alignment XacBank – Align commercial bank lending to UN SDGs and NDC Only 46 percent of surveyed banks have committed to a green or sustainable finance strategy, making this dimension the least mature XacBank is a leading financial institution in Mongolia and a pioneer in one. To promote this practice and guide FIs in engaging in sustainable sustainable banking and climate finance. The bank’s strategic direction practices, several countries have implemented mandatory and is aligned with the Sustainable Development goals (SDGs) and with the voluntary E&S sustainability protocols and guidelines. government of Mongolia’s commitment under the Paris Agreement to supply 20 percent of the country’s energy through renewable energy ESRM by 2020, and 30 percent by 2030. 64 percent of respondents have an ERMS (environmental risk As the first commercial bank and first private entity from a developing management system) in place, with IFC standards most commonly nation to achieve National Implementing Entity accreditation for the used. The rest of the FIs have adopted good practices in this area. Green Climate Fund (GCF) in 2016, XacBank is enabling action to slow ERMS’s are mostly applied to corporate banking activities. Despite climate change and adapt to the impacts already affecting Mongolia, some barriers remaining – including lack of resources and knowledge, including more extreme weather conditions, desertification, and urban air pollution. Climate finance products developed and marketed Case Studies – Good Practices among Financial Institutions – Pillar I and resistance in corporate culture – banks seem to acknowledge the benefits arising from environmental risk management practices, such by XacBank include a business loan program with preferential rates as reduced risks and costs, and improved reputation. for greenhouse gas (GHG) reduction projects by SMEs, a renewable energy loan facility for utility scale solar power projects, and an energy efficiency loan program for residential and commercial clients. Eco-efficiency practices XacBank has also adopted international principles and standards This dimension is the most diverse, with 74 percent of the 101 for sustainability. For instance, XacBank has mapped its sustainable participants applying eco-efficiency practices, with energy efficiency finance lending offerings to the SDGs. In support of SDG #5 for Gender practices as the most common. However, improvements are still Equality, at least 50 percent of GCF-financed business loans for GHG required at monitoring level, with only 68 percent of banks that have reduction projects must go to women-led businesses. In 2018, XacBank eco-efficiency practices also measuring the financial and environmental surpassed this target and achieved a 77 percent rate of lending to impacts of their actions. women-led businesses. In support of SDG #7 for Affordable and Clean Energy, XacBank co-financed a 10 MW utility scale solar facility that produces over 15,000 MWh per year of clean electricity for the Mongolian grid and will reduce GHGs by over 300,000 tonnes over the project’s lifetime. XacBank is actively developing climate finance initiatives with the GCF to expand their lending activities in energy efficiency, renewable energy, and climate-smart livestock practices. With its commitment to sustainable banking and climate finance, XacBank is playing a leadership role in enabling the growth of sustainable and climate-friendly businesses in Mongolia. OECD example BBVA Spain – Strategy update and commitments aligned with international best practices At the 2018 United Nations Climate Change Conference (COP24) in Katowice (Poland), five leading banks (BBVA, BNP Paribas, Société Générale, Standard Chartered, and ING) committed to measure the climate alignment of their lending portfolios, and to explore ways to progressively steer financial flows through their lending towards Paris Agreement goals. 2 In 2018, BBVA launched the “2025 Pledge,” its climate change and Pillar II: Climate and Green Finance sustainable development strategy, in which it sets three main objectives for the bank: Ant Financial – Expanding the reach and impact of green digital finance 1. Increase financial mobilization in fields contributing to reaching In January 2017, the United Nations Environmental Program and the SDGs. China’s Ant Financial jointly launched the Green Digital Finance 2. Manage environmental and social risks to minimize potential Alliance. Launched at the World Economic Forum, the partnership aims negative direct and indirect impacts. to leverage digital technologies and innovations to enhance financing for sustainable development. 3. Engage with stakeholders to promote the contribution of financial industry to sustainable development. In 2016, Ant Financial developed the Alipay Ant Forest initiative to BBVA provides details for each of these three pillars and has promote greener lifestyle choices by encouraging users to engage in implemented the following best practices: low-carbon activities, such as paying utility bills online and commuting by walking or cycling instead of driving. Users earn “green energy” • BBVA presents its commitments and performance in a dynamic points that can be used to grow a virtual tree in Ant Forest within way: the Alipay app. With enough energy points, the virtual tree can be o converted into a real tree and planted in the desert by Alipay and its For pillar 1, BBVA presents both current exposure and Case Studies – Good Practices among Financial Institutions – Pillar II philanthropic partners. targeted exposure up to 2025 for various economic sectors. o For pillar 2, direct environmental impacts are presented for The Ant Forest program attracted 200 million users in the first six 2015, 2020, and 2025. months, and currently has over 500 million users, resulting in over 100 million trees planted in Gansu Province, Inner Mongolia Autonomous • BBVA is aligned with most major initiatives, including: Region, and other areas in China. Inspired by Alipay Ant Forest, o The Green Bond Principles and Sustainable Bond Principles Phillippines-based GCash, Alipay’s e-wallet partner in the Philippines, recently introduced GCash Forest, a new feature accessible through the o The TCFD’s recommendations on metrics and targets. GCash app, which enables local users to contribute to reforestation and BBVA is involved in multiple best practice initiatives, such as UNEP-FI, environmental preservation by adopting low carbon activities. UN Principles for Responsible Investment, CDP, Equator Principles, UN Global Compact, RE 100, and the Social Bond Principles. As part of a developing collaboration with IFC, Ant Financial is also seeking to expand its green digital finance business and develop for its clientele a first-of-its-kind Green Rating Standards for Micro and Small Enterprises (“MSEs”), many of which are sole proprietorships. Once the methodology has been validated, Ant Financial will integrate the standards as part of its online MSE green rating application and include it in the credit underwriting process. HSBC Vietnam and GIC Investment Joint Stock Company, HDBank, and BIDV 29 – Green finance for solar power and climate resilience in Vietnam Context – Modernizing Vietnam’s energy sector As part of the Government of Vietnam’s commitment to the SDGs, initiatives are underway to modernize the energy sector, increase the use of renewable energy, reduce environmental impacts, ease the 29 Information in this case study has been partly derived from the following sources: United Nations Industrial Development Organization (UNIDO). 2018. Handbook on How to Access Green Financing in Vietnam; HSBC Vietnam press release. 2019. HSBC Vietnam is now supporting homeowners to invest in rooftop solar power with new ‘Green Loan’; and Bach Khoa Investment and Development of Solar Energy Corporation (SolarBK) press release BigK – The first rooftop solar power system in Vietnam accompanied by electricity insurance and finance service, available at: https://solarbk.vn/en/bigk-the-first-rooftop-solar-power-system- in-vietnam-accompanied-by-electricity-insurance-and-finance-service/ 3 strain on the national power grid, and improve climate resilience. Access Bank – Leading the expansion of the green bond market in Several innovative green financing mechanisms have been launched by Nigeria30 leading financial institutions in Vietnam, including i) a residential solar In June 2018, the Nigerian Securities Exchange (FMDQ), the Climate power green loan product from HSBC Vietnam, in collaboration with Bonds Initiative (CBI), and Financial Sector Deepening Africa (FSD GIC Investment Joint Stock Company (GIC); ii) utility-scale and SME- Africa) collaborated to launch the Nigerian Green Bond Market scale solar power green loan programs offered by HDBank, and iii) Development Program. The program is designed to promote the use innovative electricity insurance and green loan products from SolarBK of green bonds and provides training and capacity development for Holdings, in partnership with Bank for Investment and Development regulators, bond issuers, and the investment community. of Vietnam Insurance Joint Stock Corporation (BIC) and Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV). Access Bank is a leading African commercial bank operating a network of more than 600 branches and service outlets, spanning three Growth phase – Expanding green financing options for solar continents, 12 countries, and 29 million customers. Building on its power established reputation for sustainable finance and environmental and In 2017, HSBC announced a global commitment to sustainable finance, social risk management, Access Bank became the first bank to issue a and its intention to provide $100 billion of sustainable financing and certified corporate green bond in Africa on the FMDQ OTC Securities investment by the year 2025 around the world. As part of this initiative, Exchange. HSBC Vietnam, in collaboration with GIC, has created a new green Access Bank’s bond issuance is the first corporate green bond to Case Studies – Good Practices among Financial Institutions – Pillar II lending product to support the production and use of solar energy in benefit from the Nigerian Green Bond Market Development Program. residential areas. HSBC Vietnam’s customers looking to install a rooftop Following the launch of the program, Access Bank established a Green solar energy system for a residential property are eligible to receive Bond Committee in September 2018, with a specialized business preferential financing rates and repayment periods. Participants are unit to support its clients and to identify and realize environmental also eligible for purchasing discounts on solar power equipment from and climate change related investment opportunities. The team GIC. was guided by Access Bank’s Green Bond Framework, a substantive HDBank of Vietnam is also providing green loan products for grid- policy document principally designed to guide the Bank’s approach to scale solar power plant development, and for SMEs looking to install financing/re-financing of identified eligible green assets and projects. solar power systems on factories and warehouses. Eligible applicants Issued in March of 2019, Access Bank’s N15bn Fixed Rate Senior benefit from access to loans up to 70 percent of the project’s required Unsecured Green Bond is rated AA with a five-year maturity, and was investment capital cost, in addition to preferential lending rates and fully subscribed with participation from institutional investors, Pension flexible, longer term repayment conditions. Fund Administrators (PFAs), and high net-worth individuals. The bond SolarBK Holdings has partnered with Bank for Investment and was verified by PwC-UK and certified by the Climate Bonds Initiative. Development of Vietnam (BIDV) and BIDV’s insurance arm (BIC) to The net proceeds of the bond will finance/refinance solar power provide innovative electricity insurance in addition to green financing. generation, flood water defense, sustainable agriculture projects, and Eligible participants can have a significant portion of the simulated green assets certified by the Climate Bond Standard. Access Bank will energy output of the solar system guaranteed for a period of five years publicly report on the use of the bond’s proceeds over time, in addition via BIC’s electricity insurance product. Green loans by BIDV provide to sustainability impact metrics as part of a third-party verified Green preferential rates and loan terms to incentivize the adoption of solar Progress Report. power technologies. Moving forward – Energy sector modernization and climate resilience With Vietnam’s projected annual increase in power demand of 8 percent during 2021 – 2031, green finance and insurance innovations to promote solar power use are expected to continue to gain market acceptance and play a key role in mobilizing private sector investment 30 Information for this case study has been partly derived from the following to promote the sustainability of Vietnam’s energy sector. sources: FMDQ OTC Securities Exchange. April 1, 2019. Access Bank PLC Pioneer Climate Bond Certified Green Bond available at: https://www.fmdqotc. com/63990-2/; Market Screener. March 3, 2019. Access Bank: N15bn Africa’s First Green Bond Fully Subscribed available at: https://www.marketscreener.com/ ACCESS-BANK-PLC-6500790/news/Access-Bank-N15bn-Africa-s-First-Green- Bond-Fully-Subscribed-28189450/ 4 IFC Green Bonds – Building the foundation for climate smart bank, Banco Galicia, to realize investment opportunities for CSA, investments in emerging markets 31 biofuels, renewable energy and other resource efficiency projects as Since launching its Green Bond Program in 2010, IFC has established a part of Argentina’s objective to reduce greenhouse gases and produce unique ‘one stop shop’ offering a holistic approach to the development 20 percent of the country’s electricity needs from renewable sources of green bonds, including acting as issuer, investor, and provider of by 2025. advisory services and technical assistance to develop the potential As part of this effort, IFC worked with Banco Galicia to develop its of green bonds in emerging markets. Since 2015, IFC has helped 17 technical capacity to identify and develop green-lending opportunities, banks and non-bank financial institutions issue green bonds worth $1.8 including the development of a green bond framework, and aligning billion – nearly all of which were first-time green bond issuances. To the bank’s organization and processes with the Green Bond Principles. date, IFC has issued approximately 150 green bonds in 16 currencies In 2018, Banco Galicia successfully issued the first green bond by a amounting to almost $10 billion. private sector institution in Argentina, valued at $100 million with a The prospects for further growth of green bond issuances in emerging seven-year tenor. markets are bright. Emerging market issuances of green bonds from IFC fully subscribed to the $100 million bond, which has enabled 2012 to 2018 totaled $140 billion cumulatively, with $43 billion issued Banco Galicia to increase its investments in energy efficiency, biofuels in 2018 representing 3 percent of total bond issuances in emerging and renewable energy, and sustainable construction projects that markets. Outstanding green bonds in emerging markets are projected span corporate and agribusiness lending. In fiscal year 2018, Banco Case Studies – Good Practices among Financial Institutions – Pillar II to increase to between $210 billion and $250 billion by 2021. Galicia financed $9.5 million in climate-friendly investments which are IFC has played a key role in developing the market infrastructure expected to reduce GHG emissions by 190,000 tons CO2e. needed to promote green bonds, including assisting in the development The IFC partnership with Banco Galicia has created a market for of the Green Bond Principles (GBP), the most accepted guidelines for climate finance in Argentina, and the successful launch of the green the issuance and impact reporting related to green bonds globally, and bond has triggered interest from several other banks in the country through the efforts of the Sustainable Banking Network and the IFC and across Latin America. Green Bond Technical Assistance Facility (GB-TAP) to develop green bond frameworks, build capacity, and catalyze local bond issuances. IFC Bancolombia and Davivienda – Innovations in green lending and is also taking the lead on deploying innovative ways to mobilize private climate smart investment in the construction sector capital to fill the financing gap required to tackle climate change Colombia’s population is rapidly urbanizing, with 75 percent of through pioneering funds including the Emerging Green One (EGO) Colombians now living in cities. Consequently, the country has one of Bond Fund and the Real Economy Green Investment Opportunity the fastest growing construction sectors in the world. Opportunities for (REGIO) Bond Fund. climate-friendly projects as part of urban development are a key facet Building on a decade of engagement in the green bond market, IFC is of Colombia’s commitment to the SDGs, as well as the country’s target positioned to continue to play a key leadership role as a collaborator to reduce greenhouses gases by 20 percent by 2030 as part of the Paris and innovator to help catalyze the use of green bonds to unlock Agreement on climate change. Bancolombia and Davivienda are two financing for climate smart investments in emerging markets. leading Colombian financial institutions leading the charge to expand green finance opportunities in Colombia. Argentina’s Banco Galicia – Moving forward with climate smart With 30 percent of its portfolio in the construction market in Colombia, agriculture and green lending in Argentina Bancolombia began a collaboration with IFC in 2016 to build capacity As part of its commitments under the Paris Agreement on climate for climate-friendly investments in the construction sector. This led change, the Government of Argentina has been pursuing policies to to Bancolombia becoming the first private financial institution to enable climate-smart agriculture (CSA) and promote the greening of issue green bonds in Latin America in late 2016, including a $115 its financial institutions. IFC has collaborated with Argentina’s largest million green bond fully subscribed by IFC. To date, approximately half of the bond proceeds are financing construction projects involving 31 Information in this case study has been partly derived from the following buildings with Leadership in Energy and Environmental Design (LEED) sources: Amundi Asset Management and International Finance Corporation certification, while the remaining proceeds are financing renewable (IFC). 2018. Emerging Market Green Bonds Report available at: https://www.ifc. energy (with a focus on small hydro facilities), and energy efficiency org/wps/wcm/connect/9e8a7c68-5bec-40d1-8bb4-a0212fa4bfab/Amundi- projects. IFC-Research-Paper-2018.pdf?MOD=AJPERES; and other information from the IFC Green Bonds website: https://www.ifc.org/wps/wcm/connect/corp_ For Colombia, the Bancolombia bond issuance with IFC created ext_content/ifc_external_corporate_site/about+ifc_new/investor+relations/ir- a new market in the country for climate-friendly investments. In products/grnbond-overvw 5 2017, Davivienda joined the green finance wave and launched the socially responsible organizations. As a pioneer in this space, Nedbank largest green bond issuance at the time, a $150 million green bond has recently undergone a process of aligning its commercial activities fully subscribed by IFC. Davivienda’s green bond is financing the with the SDGs, the result of which has been the commitment of a construction of two large climate-friendly office buildings with significant portion of the bank’s lending book towards sustainable significant energy and water savings, in addition to investments activities, particularly in the renewable energy space. supporting cleaner energy production, energy efficiency, and renewable energies—particularly hydropower, biomass, wind, and solar energy. OECD example Société Générale – Sustainable and Positive Impact Finance JSE and Nedbank – Leading the charge for Green Bonds in South Africa32 The momentum of impact finance is growing. Two major initiatives aim to promote the concept, and to develop the methodologies and In 2017, the Johannesburg Stock Exchange (JSE) launched the Green transparency of financial institutions. Bond Segment following a series of successful multi-stakeholder consultations and market-wide awareness raising events led by JSE o The UNEP-FI Positive Impact Initiative – led by UNEP-FI members and South Africa’s Financial Services Conduct Authority (FSCA), with across the finance chain, as well as a range of public and private the support of IFC. stakeholders beyond the finance sector – focuses on addressing The JSE has aligned its Green Bond listing requirements with SDG financing. Case Studies – Good Practices among Financial Institutions – Pillar II international best practice, including the Green Bond Principles. To o The Operating Principles for Impact Management have been ensure the integrity of the green bonds, the JSE requires institutions developed by IFC in consultation with external stakeholders, issuing these products to appoint an independent, external reviewer including impact asset managers, asset owners, and industry and to disclose the proceeds generated through the issuance as well as associations. The nine principles defined by IFC are articulated how the funds are to be allocated over the lifetime of the bond. through five key steps: strategy, creation and structuring, portfolio In April 2019, Nedbank became the first commercial bank in South management, exit, and independent audit. Africa to list a green bond on the JSE’s Green Bonds Segment as part In response, Société Générale Group has established its own of Nedbank’s pioneering renewable energy green bond. The issue Sustainable and Positive Impact Finance analytical framework. It is was oversubscribed by 3.28 times at auction with a final allocation of underpinned by a few key methodological choices: R1.7 billion, and Nedbank succeeded in diversifying the order book to ► It intends to remain linked to the ongoing include international investors. development of leading E&S standards. In accordance with the JSE’s requirements, Nedbank engaged ► It aims to encompass a variety of sustainable the Climate Bonds Initiative to act as the certification agency and development issues, including environmental, appointed the Carbon Trust to be the approved verifier. The bond’s social and societal, governance, and economic proceeds support investments in underlying renewable energy assets, development. including three 75 megawatt (MW) solar power plants and a 120 MW wind energy development, all slated to begin commercial operation ► It considers both positive impacts and the in 2020. Collectively, these projects are projected to reduce annual treatment of negative impacts. greenhouse gas emissions by over 200,000 tonnes. ► It covers all the activities of Société Générale Group. As the South African green bond market further deepens, issuers will be encouraged to strengthen their credentials as sustainable and For each potential transaction, the framework is implemented in three steps, as detailed below: 32 Information for this case study has been partly derived from the following Step 1 - IdenƟficaƟon Step 2 - EvaluaƟon Step 3 - AcƟon sources: Johannesburg Stock Exchange (JSE). October 2017. Press release: JSE Steps Financing integraƟng the monitoring of Target investments/acƟviƟes with Assess E&S impacts management potenƟal negaƟve impacts Launch of the Green Bond Segment available at: https://www.jse.co.za/articles/ potenƟal posiƟve impact (benefits and risks) PosiƟve Impact structuraƟon of financial products Pages/JSE-launches-Green-Bond-segment-to-fund-low-carbon-projects.aspx; JSE. April 2019. Press release: Nedbank Limited’s Listing on the JSE Green Bond RaƟng impact grid E&S general guidelines Tools Segment available at: https://www.jse.co.za/articles/Pages/Nedbank-Limited- ReferenƟal based on origins of impacts (sectors, poorest countries…) E&S procedures for transacƟons and Legal documentaƟon CerƟficaƟon schemes/third party review clients lists-a-Green-Bond-on-the-Johannesburg-Stock-Exchange-(JSE).aspx; Sustainable ReferenƟal impact tab Banking Network (SBN). 2018. Creating Green Bond Markets: Insights, Innovations, and Tools from Emerging Markets. Available at: www.ifc.org/sbngreenbond; and Nedbank. 2019. Case Study: Nedbank Green Renewable Energy Senior Unsecured “Use of Proceeds” Bond. 6 First, potential “positive impact” transactions are identified based To support this objective – and to anticipate a potential European on their sector or location. Société Générale’s framework states that move to promote green assets via prudential ratios – the bank has projects with the following characteristics are eligible for a positive introduced a new in-house capital allocation mechanism called the impact categorization: “Green Weighting Factor.” According to Natixis, this Green Weighting Factor “aims to promote finance deals with a positive impact on both the climate and the environment, by adjusting the expected profitability threshold on these various transactions according to their effects on climate change.” The second step consists of a more thorough evaluation of positive The Green Weighting Factor applies a positive adjustment to analytical and negative project impacts. Seventeen expected impact categories risk-weighted assets (RWA) for deals that create affirmative climate have been developed. and environmental action, and a negative adjustment for deals with an adverse environmental impact. Natixis is testing its green weighting Projects are rated from zero (impact management is unsatisfactory) to factor in four sectors: real estate, electricity, mining, and automotive. four (positive impact) for each applicable impact category. The next steps for this initiative will be to broaden the scope of sectors Eventually, projects that can demonstrate positive impacts, with covered by the Green Weighting Factor and to integrate the future negative impacts that can be identified and remediated, will be Case Studies – Good Practices among Financial Institutions – Pillar II taxonomy of the European Union into the framework. considered as having a ‘positive impact’. Monitoring of remediation might be included in legal documentation; this would represent the Standard Chartered – Harnessing emissions data to unlock climate third step of the assessment process. investment opportunities Standard Chartered is working to help its clients, communities, and Natixis (France) – Green Weighting Factor stakeholders contribute to the achievement of the Paris Agreement In March 2018, the European Commission launched its Action Plan on climate goal to keep warming below 2 degrees Celsius. In September Sustainable Finance. The plan has three main objectives: 2018, Standard Chartered made the commitment to stop financing any new coal-fired powerplants anywhere in the world – a key step in the • To re-orient capital flows toward sustainable investment, to bank’s development of a strategy to mobilize sustainable finance in the achieve sustainable and inclusive growth; markets where it matters most across Asia, Africa, and the Middle East. • To manage financial risks stemming from climate change, The Bank is already committed to finance and facilitate $4 billion in environmental degradation, and social issues; and clean technology by 2020. • To foster transparency and long-termism in financial and As part of these efforts, Standard Chartered recognizes the need economic activity. for accurate greenhouse gas emissions data that can be used by all To achieve these three objectives, the Action Plan sets out a financial institutions to ensure capital flows efficiently towards the comprehensive strategy, including the following key actions: $23 trillion in global climate investment opportunities over the next decade. In the last year, Standard Chartered has taken on this collective • Establish a clear and detailed EU classification system challenge of developing new emission measurement methodologies to (taxonomy) for sustainable activities; allow financial institutions to measure, manage and ultimately reduce • Establish EU labels for green financial products; the emissions related to their own activities and those related to the financing of clients. • Introduce measures to clarify asset managers’ and institutional investors’ duties regarding sustainability; In a recently released white paper,33 Standard Chartered describes its experience with pilot programs to test two emerging methodologies • Strengthen the transparency of companies on their ESG to help measure the emissions related to its financing: one at product policies (ensuring issuers provide the right information to level using a manual calculation process, and the other at sector level investors); using an automated software solution. The white paper discusses the • Introduce a “green supporting factor” in the EU prudential respective strengths and weaknesses of each methodology and invites rules for banks and insurance companies. global financial institutions to join the collaborative effort to refine and In recent years, Natixis, a French corporate and investment bank, has set itself objectives regarding the financing of green activities, namely 33 Emissions White Paper Executive Summary, Standard Chartered, May 2019. by committing 10 percent of its investments each year to green assets. Available at: https://av.sc.com/corp-en/content/docs/emissions-whitepaper.pdf 7 promote a common approach to measuring emissions. Pillar III: ESG Integration To promote collaboration in the development of a common Industrial Bank – Evolution of governance structures to drive methodology, Standard Chartered has engaged in platforms including growth in sustainable finance the Katowice Commitment,34 alongside BBVA, BNP Paribas, Société Since becoming the first Chinese bank to adopt the Equator Principles Générale and ING. It is also actively working with the Asia Sustainable (EP) in 2008, Industrial Bank (IB) has been a leader in sustainable Finance Initiative (ASFI), led by the World Wildlife Fund (WWF) and finance across sectors such as renewable energy, energy efficiency, and United Nations Environment Programme (UNEP-FI), to engage banks water and waste management, among others. A robust sustainability within markets across Asia, Africa, and the Middle East. strategy and effective governance structure has been a key success factor in the growth of IB’s sustainable finance business. IB’s entrance into the sustainable finance space began in 2006 as part of a cooperation with IFC to launch China’s first energy efficiency project financing products. At that time, a small team from the corporate business line was formulated to implement this special financial product. Beginning in 2009, IB’s senior leadership at the board-level established Case Studies – Good Practices among Financial Institutions – Pillar III a steering committee to guide the implementation of the Equator Principles and entrench green finance as a core value in the bank’s corporate policies, business strategy, and culture. At the institutional level, a Sustainable Finance Center was established in 2009 to guide this transition and evolved, in 2012, into the establishment of Green Finance Departments as top-tier departments in headquarters and at 30 tier-one branches nationwide. The Green Finance Departments coordinated professional research, product innovation, marketing management, project review, operation management, and brand building. E&S risk management policies and a range of survey, analytical, and risk monitoring tools, in addition to IT support and legal systems, were progressively rolled out as part of the development of IB’s E&S management system (ESMS). IB established a bank-wide linkage mechanism to clarify the specific roles and responsibilities for sustainable financial management across various operating agencies of the Bank, including legal, compliance, credit review, and risk management functions. IB has also aligned employee and management incentive structures to promote green finance growth, including establishing green finance business development as a corporate and branch-level key performance indicator (KPI); arranging a special green credit line on an annual basis to ensure that green financial projects are not subject to scale restrictions; setting up special funds to facilitate green lending initiatives and products, including green bonds; and using dedicated review of green finance projects by specialized teams in the credit review process to prioritize approval. To embed sustainability throughout the organization, IB has organized more than 400 trainings over the last 10 years and has trained nearly 50,000 employees. 34 Information on the Katowice Commitment is available at: https://www.sc.com/ In 2015, IB group identified green finance as its core business en/media/press-release/weve-pledged-further-support-for-action-on-climate- change/ 8 development strategy not just for its banking operations, but also for (percentages represent the sector’s share of BRAC Bank’s green leasing, trusts, funds, and capital market operations. IB was rewarded lending portfolio in 2018), including effluent treatment plant financing the “Best Green Bank in China” award in 2017 and 2018 by the UK’s (43 percent); energy efficiency initiatives (32 percent) featuring Global Banking & Finance Review, and the “Best Green Bond Issuance Bangladesh’s first Energy Efficiency Financing Loan to assist ready- in Emerging Market Countries in 2018” by the Climate Bond Initiative. made garments and textile industries to invest in energy efficiency technology; green buildings (21 percent); renewable energy (2 BRAC Bank and City Bank – Striving to be the market leaders in percent), and recycling (2 percent), among others. By offering clients Green Finance in Bangladesh35 a suite of services – including technical support, sustainability advice, Since 2011, the Central Bank of Bangladesh has developed a number and blended finance solutions – BRAC Bank is playing a leadership role of policies to promote sustainable finance, including, among others, in the expansion of green lending in emerging markets. the Policy Guidelines on Green Banking, with a requirement for In 2018, City Bank disbursed over BDT 1,359 m in green finance Bangladeshi banks to adopt the guidelines by 2013, and the Guidelines and energy-efficiency projects. To measure the reduction in energy on Environmental and Social Risk Management (ESRM) in 2017. consumption and CO2 emissions of its lending portfolio, the Bank These guidelines encourage banks and financial institutions (FIs) to has three in-house certified energy auditors. As of end 2018, the incorporate environmental and social risk management into their proportion of Green Finance was 4.06 percent of the total funded credit activities, and to publish green banking and sustainability loan disbursement, and City Bank is actively working to expand green reports. These guidelines reflect the commitment of the Government Case Studies – Good Practices among Financial Institutions – Pillar III financing opportunities moving forward. of Bangladesh to sustainability, and the importance of the banking and financial sector in helping Bangladesh to achieve progress toward the Ecobank – Aligning ESRM practices with international standards SDGs. Ecobank is the leading pan-African bank, with a presence in 36 As an early adopter of sustainable banking principles, BRAC Bank has countries across the continent. As a signatory to the Equator Principles established itself as a regional leader in green lending and sustainable since 2012, Ecobank has established a reputation as a leader in finance. In response to the guidelines of the Central Bank, BRAC Bank sustainable banking. Ecobank is an active member of UNEP-FI and its established a Sustainable Finance Unit (SFU) at the operational level Africa Task Force, and a signatory to the UN Global Compact. as part of its credit risk management. The SFU identifies, develops, and implements financing solutions for clients across a number of green As part of the implementation of the Equator Principles, Ecobank sectors and technologies. The SFU is overseen at the managerial level developed a corporate Environmental and Social Policy in 2014 using by the Sustainable Finance Committee (SFC), chaired by the Deputy international standards, including IFC’s Performance Standards. Managing Director and Chief Risk Officer. Both the SFU and the SFC are The policy received Board approval and has been implemented at overseen by the Board Risk Management Committee, supervising all of the management-level through Ecobank’s Environmental and Social BRAC Bank’s sustainability activities. Management System (ESMS). Environmental and Social Due Diligence (ESDD) is undertaken for transactions in the corporate, project finance, City Bank adopted an environmental risk management framework in commercial retail, and SME business lines, and across sectors including 2012, which evolved into a comprehensive environmental and social oil, gas and mining, agribusiness, manufacturing, heavy construction management system (ESMS) based on the IFC Performance Standards (infrastructure), power generation transmission, and distribution, and in 2016. City Bank’s environmental and social risk management is real estate. managed by a dedicated senior management official, who reports to the bank’s Sustainable Finance Committee comprising representatives As described in the graphic below, Ecobank undertakes ESDD as part from the bank’s major departments, which is itself overseen by the of a multi-stage process. The screening stage determines whether Board Risk Management Committee. the proposed investment is compatible with Ecobank’s Exclusion List and sector strategies, while the E&S classification step assigns the BRAC Bank offers over 50 green lending products across over 30 investment a risk category based on the degree of E&S impacts. sectors and technologies in the bank’s green lending portfolio The E&S due diligence assessment is informed by the review of E&S 35 Information for this case study was partly derived from the following sources: studies and site field visits. Corrective measures to ensure the project BRAC Bank. 2018. Disclosure on Green Banking Report available at: https://www. meets Ecobank’s E&S policies and standards are agreed with the client bracbank.com/storage/app/public/pdf/Disclosure-on-Green-Banking-2018. for implementation according to a specific timeframe as part of an pdf; Sustainable Banking Network (SBN). Country Progress Reports: Bangladesh E&S Action Plan (ESAP) incorporated in the investment agreement. available at: https://www.ifc.org/wps/wcm/connect/9bf5ffc5-9696- Compliance is monitored by Ecobank’s Relationship Manager and the 4d78-80eb-8127fd72ca07/SBN+Country+Progress+Report+-+Bangladesh. pdf?MOD=AJPERES&CVID=mcXM3Rj; and BRAC Bank Sustainability website, E&S Manager. available at: https://www.bracbank.com/en/sustainable-banking 9 Stage Compliance monitoring and Screening Classification Due Diligence E&S Action Plans reporting Inputs Ecobank due diligence / assess- E&S checklist and risk clas- Formulation of E&S Ecobank E&S risk, total exposure, Exclusion List ment (E&S checklist and sector sification criteria Action Plans loan conditions, reporting template guidelines) Outputs Incorporation of due Decision to E&S risk classification, due Specific E&S requirements and E&S monitoring report; Ecobank diligence in Action Plan proceed or reject diligence requirements mitigation measures supervision of E&S performance and Offer Letter Ecobank undertakes an annual E&S risk portfolio review led by the Several functions within the bank are involved in the screening process: Internal Control, Internal Audit, and E&S Risk Management teams. Transactions are reviewed for compliance with the ESMS process based • Front Office – the departments which have direct client contact and originate transactions on the E&S reporting submitted by the client and site visits. Findings from the review are documented, and feedback and requests on E&S • Risk Management – the departments which provide controls Case Studies – Good Practices among Financial Institutions – Pillar III practices are communicated to the client. over Front Office activities Ecobank produces a corporate E&S report as part of its sustainability • ESRM teams – for high risk transactions only and disclosure policies, and provides regular ESG performance • KYC teams – the teams assessing the ESR client risk profile reports to international sustainability initiatives, including the of corporate clients Equator Principles, UNEP-FI, and the UN Global Compact, as well as its The ESR checks are integrated as part of the check processes on development finance institution (DFI) partners, including IFC. the client side as well as on the transaction side, ensuring a proper OECD example assessment and management of E&S risks. In case of low or medium-risk transactions, front office staff and risk ING – Comprehensive environmental and social risk management managers proceed with the engagement. For high-risk transactions, framework the ESR team carries out additional analysis and provides operational UNEP FI’s Principles for Responsible Banking, published in November teams with advice. The ESR Frameworks also include monitoring 2018, intend to align banks with society’s goals, as expressed in the of client ESR profiles and high-risk transactions. The transaction SDGs, and with the Paris Agreement. The Principles were developed by rating and client rating are then combined into a single risk profile 28 banks assisted by 12 civil society organizations. for the engagement (ESR low risk, ESR medium risk, ESR high risk or Principle 5 commits signatory banks to continuously increase their unacceptable). positive impacts while reducing their negative impacts and risks to people and environment arising from their activities, products, and services. ING has developed an Environmental and Social Risk (ESR) Framework. The Framework (reviewed in 2018) applies to all business activity, meaning that transactions and clients are screened against it. However, the level of due diligence and monitoring varies depending on the nature of the client and service provided. The trigger for applying the ESR Framework comes from a new business engagement. 10 Access the SBN Global Progress Report and Country Reports at: www.ifc.org/SBN2019Report Supported by: