SUSTAINABLE MSME FINANCE REFERENCE GUIDE SUSTAINABLE MSME FINANCE REFERENCE GUIDE Acknowledgments The Sustainable MSME Finance Reference Guide has been developed at the initiative of the International Finance Corporation (IFC) Green Bond Technical Assistance Program (GB-TAP), which aims to stimulate the supply of green bonds in emerging markets by creating and disseminating best practices and knowledge as global public goods. The GB-TAP is a multi-donor program managed by IFC and in partnership with the State Secretariat for Economic Affairs of Switzerland SECO; the Swedish International Development Cooperation Agency, SIDA; and the Ministry of Finance of Luxembourg. The program has two overarching goals: to facilitate capital flows from responsible investors in developed countries into green projects in emerging economies; and to grow markets by stimulating the demand for and supply of green bonds in emerging markets. The team would like to thank CFA, Member of WSP, the consulting firm partner in this project, for shaping the initial version of this Guide and giving the basis for the approach laid out on it. The team would also like to thank Irina Likhachova and Yolanda Yun Zhu from IFC, as well as Ashia Bio Sawe and Laurent Granier and their team from Compact with Africa – Green Business Fund for their peer review and feedback. About IFC IFC — a member of the World Bank Group — is the largest global development institution focused on the private sector in emerging markets. We work in more than 100 countries, using our capital, expertise, and influence to create markets and opportunities in developing countries. 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Additionally, “International Finance Corporation” and “IFC” are registered trademarks of IFC and are protected under international law. Contents Table of Contents Foreword 2 I. Introduction 4 II. Implementing sustainable finance for MSMEs 8 Step 1. Prepare to build an investment pipeline 9 Step 2. Check use of proceeds (UoP) 10 Step 3. Evaluate and select opportunity 12 Step 4. Manage proceeds 12 Step 5. Ensure impact measurement and reporting 13 III. Eligible sustainable MSME Use of Proceeds 14 IV. Practical examples 30 Appendix A. Sustainable certifications and standards 33 Appendix B. Green taxonomies 37 Appendix C. Glossary and acronym list 40 References 42 List of Tables Table 1. Sustainable UoP for MSMEs in the agribusiness sector 17 Table 2. Sustainable UoP for MSMEs in the textile sector 21 Table 3. Sustainable UoP for MSMEs in the tourism sector 22 Table 4. Sustainable UoP for MSMEs in other services 24 Table 5. Sustainable UoP for other manufacturing MSMEs 27 List of Figures Figure 1. Example of capital flow for sustainable MSME finance 5 Figure 2. Disentangling sustainable finance 6 Figure 3. Sustainable MSME finance gaps and this Guide 7 Figure 4. Steps to operationalize sustainable MSME finance 9 Figure 5. Classification of use of proceeds 10 SUS TA IN A B LE 1 M S ME FIN A N CE R EFER EN CE G U ID E Foreword SUS TA IN A B LE 2 M S ME FIN A N CE R EFER EN CE G U ID E Foreword James Fergusson Director Climate Business Department IFC Micro, small and medium enterprises (MSMEs) represent The Guide has been developed in partnership with the 90% of businesses worldwide. Not only are they important SME Finance Forum, established in 2012 by the G20 Global drivers of employment, technological change, and social Partnership for Financial Inclusion, and was inspired by mobility. They are also essential to the transition to a discussions held at the Forum’s 2021 annual conference. low-carbon, resilient and sustainable economy. Climate action by MSMEs is, however, constrained by knowledge, I hope you will find this Reference Guide a useful tool for capacity and access to capital. addressing your climate ambitions while growing your portfolio of sustainable, high-quality MSME investments. Scaling up capital to help transition this important sector will only happen if financial institutions (FIs) can effectively target, assess and implement sustainable finance to MSMEs. This is why IFC is excited to launch this Sustainable MSME Finance Reference Guide, a practical guide to help FIs in emerging markets deploy sustainable finance to MSMEs. The Guide offers a framework and supporting templates that FIs can adopt to address the varied context of MSMEs’ financing needs. The Sustainable MSME Finance Reference Guide leverages IFC’s extensive experience supporting MSMEs, having grown its global MSME finance portfolio to over $19 billion as of 2023. It also leverages IFC’s Green Bond Technical Assistance Program (GB-TAP), which supports the mobilization of sustainable finance in emerging markets by providing technical assistance to FIs on green, social and sustainability bond issuances. Since 2018, GB-TAP has trained over 1,000 professionals from over 280 financial institutions across 70 countries and stimulated the issuance of over 80 green, social and sustainability bonds for a total value of US$7 billion. SUS TA IN A B LE 3 M S ME FIN A N CE R EFER EN CE G U ID E I. Introduction SUS TA IN A B LE 4 M S ME FIN A N CE R EFER EN CE G U ID E I. Introduction Employment through small business is essential to implement climate solutions but also their to reduce poverty and spread prosperity. Micro, business growth and overall sustainability efforts. small and medium enterprises (MSMEs) contribute Financial institutions (FIs) play an important role significantly to the gross domestic product (GDP), in bridging the MSME finance gap while enabling a making up 90 percent of businesses and more than 50 green and just transition. Sustainable finance can be percent of all employment¹. At the same time, they have used to fill this gap while providing benefits to FIs a significant participation in total global greenhouse gas themselves. There are a growing number of investors (GHG) emissions from the business sector². Therefore, with sustainability mandates, such as institutional global efforts to address climate change in an inclusive investors, development financial institutions, and and fair way cannot ignore the participation of MSMEs impact funds, among others. By providing sustainable in the transition to a more sustainable economy. MSME finance with the exclusive purpose of financing eligible green and/or social projects, FIs may have Despite their importance, MSMEs’ access to access to alternative sources of funding, and expand finance in emerging markets remains severely and diversify its investor base (Figure 1). constrained³, restricting not only their ability Figure 1 Example of capital flow for sustainable MSME finance Institutional Sustainable Financial Sustainable MSMEs investors, bonds/loans institutions loans development financial institutions Use of Proceeds ¹ World Bank (2023). ² According to the European Commission (2022), in the European Union MSMEs are responsible for 60 percent of all GHG emissions by enterprises. ³ International Finance Corporation (2017). SUS TA IN A B LE 5 M S ME FIN A N CE R EFER EN CE G U ID E I. Introduction Sustainable finance is defined as finance that aims to contribute to substantial progress on environmental, social, or governance objectives (Figure 2). In general, it can be implemented by following two approaches: Follow the money. This is structured in alignment with the Green Loan Principles (GLP), Green Bond Principles (GBP), Social Loan Principles (SLP), and Social Bond Principles (SBP)⁴, hereafter collectively called “the Principles” for the purposes of this Guide. Use of proceeds is restricted to activities and assets that are eligible in accordance with the Principles or based on a taxonomy. Follow the impact. This is structured in alignment with the Sustainability-Linked Loan Principles or Sustainability-Linked Bond Principles. Use of proceeds is general purpose but there are financial implications (e.g., step up or down in pricing) if targets are achieved or missed. Figure 2 Disentangling sustainable finance Climate Low change Carbon mitigation Environmental Climate Climate change adaptation GREEN Sustainable Finance Biodiversity Blue finance (oceans & water) Other environmental Social Governance / Other SDGs This Guide uses the follow the money approach when evaluation and selection, management of proceeds, referring to Sustainable finance for MSMEs. It and reporting. Sustainability-linked instruments with encompasses finance with specific green and/or social a follow the impact approach have a distinct structure use of proceeds (UoP) or ambitious environmental and/ and, therefore, are not included in this Guide (but will be or social goals, and aligns with the core components considered for future development). of the Principles: use of proceeds, process for project ⁴ The Green Loan Principles and the Social Loan Principles are voluntary frameworks developed by the Loan Syndications and Trading Association (LSTA). The Green Bond Principles and the Social Bond Principles are voluntary frameworks developed by the International Capital Market Association (ICMA). All of them aim to promote the integrity and transparency of the green, social and sustainability loan and bond markets. SUS TA IN A B LE 6 M S ME FIN A N CE R EFER EN CE G U ID E I. Introduction In line with general MSME financing needs, this This Guide aims to set out a practical approach for Guide categorizes sustainable MSME finance by type: financial institutions to translate sustainable finance finance for capital expenditures (CapEx) and finance principles into supporting sustainable MSME finance for operational expenditures (OpEx). Although MSMEs in emerging markets. It does this by developing a often need to finance OpEx, much sustainable finance suitable UoP list for CapEx, select OpEx, and an approach guidance to date has focused on use of proceeds for CapEx for supporting MSME OpEx finance needs more broadly. needs.⁵ This has created a gap in understanding of how to It also outlines steps for project identification and leverage sustainable finance principles to provide more evaluation, and provides resources for FIs’ governance financing for sustainable MSME operational activities. processes, as well as guidance on potential reporting This guide provides a practical approach to address this metrics. The main audience for this guide is professionals information gap. As noted, sustainable MSME finance for from emerging market FIs seeking to address their CapEx must align to an appropriate UoP, such as those climate objectives and grow their business by applying outlined in Chapter III; sustainable MSME finance for and expanding sustainable finance approaches to support OpEx should align to appropriate UoP if possible. If an MSMEs. Figure 3 maps the core elements of sustainable appropriate UoP cannot be identified (for instance in the finance, some of the barriers to MSME sustainable case of working capital loans or trade finance), the MSME finance, and the support provided in this Guide. in question should achieve appropriate green and/or social standards at the enterprise level, as assessed by an independent third party. Figure 3 Sustainable MSME finance gaps and this Guide Process for project Use of proceeds Management of proceeds Reporting evaluation and selection • Green projects or assets should • Clear communication and • Proceeds should be tracked • Information on UoP should Sustainable finance provide clear environmental identification of how projects to maintain transparency be kept up-to-date and benefits or assets fit into eligible and integrity of the financial renewed annually principles • Social projects or assets should categories product • Qualitative and aim to address a specific social • May be framed in terms of • Borrowers are encouraged quantitative indicators issue and/or seek to achieve the overall objectives of the to set up internal governance should be utilized to track positive social outcomes entity or organization that processes to track and communicate project relates to environment and sustainable finance impacts sustainability • Often lack clarity and • Often insufficient data is • Often insufficient • Often insufficient understanding regarding gathered for sustainable governance processes/ resources or data barriers MSME appropriate UoP for the financing project selection and capacity to manage collection for adequate of sustainable projects or assets evaluation sustainable financing reporting • Finance needs are often operational not capital • Defines UoP for some sectors • Outlines steps for sustainable • Provides guidance and • Provides guidance on support • Is aligned with Green Bond and MSME project selection and resources on sustainable reporting processes, Guide Green Loan Principles, as well evaluation finance governance including reporting metrics as Social Bond and Social Loan • Distinguishes between processes for MSME lenders that are suitable for MSME Principles operational and capital needs sustainable finance This Guide will continue to evolve as the market develops and matures. Given the diversity of MSMEs and the evolving nature of sustainable finance, this Guide does not intend to offer a finite and comprehensive overview of activities and projects that could be financed under a sustainable label. Rather, it is intended to be a living document, which will be reviewed and updated periodically to accurately reflect developments in this financial space. ⁵ Examples of this include the Green Loan Principles, Green Bond Principles, Social Loan Principles, and Social Bond Principles, and country-specific guidelines such as China’s Guidelines for Establishing the Green Financial System. SUS TA IN A B LE 7 M S ME FIN A N CE R EFER EN CE G U ID E II. Implementing sustainable finance for MSMEs SUS TA IN A B LE 8 M S ME FIN A N CE R EFER EN CE G U ID E II. Implementing sustainable finance for MSMEs This Chapter summarizes the approach for practitioners to operationalize sustainable MSME finance. Practitioners include professional from FIs, such as commercial banks, microfinance institutions, or other financial intermediaries. It is suggested that practitioners take the steps and sub-steps summarized in Figure 4 and detailed in the following sections, to operationalize sustainable finance in the context of MSMEs. Figure 4 Steps to operationalize sustainable MSME finance 1. 2. 3. 4. 5. Prepare to build an Check use of Evaluate and select Manage Measure impact investment pipeline proceeds (UoP) opportunity proceeds and report 1.a. Consider developing 2.a. Distinguish between 3.a. Ensure environmental, 4.a. Set up a separate 5.a. Ensure continued a sustainable framework CapEx or OpEx financing social & sustainability account or ringfence loans alignment to UoP needs objectives are recorded 1.b. Leverage technical 4.b. Support MSMEs 5.b. Clearly differentiate assistance 2.b. Ensure financing 3.b. Conduct checks to in their reporting between CapEx or OpEx need aligns with an ensure no ESG-related requirements loans 1.c. Train staff to identify appropriate UoP negative impacts will occur & support sustainable 5.c. Address the challenges MSME opportunities 2.c. Map the UoP to the 3.c. Bear in mind the with MSME capacity & data relevant SDG(s) country context collection 2.d. MSMEs with OpEx 3.d. Make sure the activity/ 5.d. The methodology for finance needs with no asset is aligned with quantitative measurement identified UoP should jurisdiction requirements of impacts should be meet appropriate disclosed standards 3.e. Collect data 5.e. Commission an audit of management of proceeds Step 1. Prepare to build an investment pipeline Building a pipeline of eligible opportunities will allow for scaling up sustainable MSME finance at the organization level. There are multiple approaches for developing a pipeline of investment-ready MSMEs that meets sustainable finance criteria. To be prepared for that, FIs might consider the following actions. 1.a. Consider developing a sustainable MSME finance framework at the organizational level. Well defined sustainable classifications and procedures can help lenders implement sustainable finance. Practitioners may consider developing their own sustainable loan framework at the organizational level. In such case, practitioners should commission a third-party review to ensure that the framework aligns with the Principles. 1.b. Leverage technical assistance and project structuring support to develop a pipeline or support the preparation of the sustainable framework. This may be provided in-house or by third parties (governments, non-governmental organizations, etc.). For instance, engagements with local government agencies, such as entities tasked with economic development or focused on working with the local MSME community. These agencies will have registries of MSMEs by sector and region and are often interested in working with practitioners to scale MSME finance initiatives. Other resources may be available via governments’ in-country MSME-technical assistance programs offered by regional development banks, trade associations, and others. Global resources may include: SUS TA IN A B LE 9 M S ME FIN A N CE R EFER EN CE G U ID E II. Implementing sustainable finance for MSMEs Global SME Finance Facility: The Global SME Finance Facility is an IFC-based blended-finance partnership focused on helping to close the financing gap faced by SMEs in emerging markets. OECD Platform for Financing SMEs for Sustainability: The platform, hosted by the Organization for Economic Co-operation and Development (OECD), provides a forum to advance knowledge sharing, data and analytical work, and policy dialogue on sustainable finance for SMEs. It brings together public and private financial institutions, governments, fintech companies, regulators, and SME representatives. Compact with Africa – Green Business Fund: SME-focused trust fund hosted by the World Bank, it is a G20 initiative aimed at enabling African SMEs to attract climate/green finance to adopt/scale climate-smart practices and technologies across different sectors. 1.c. Train staff to identify and support sustainable MSME opportunities. Make sure that staff understand the difference between regular and sustainable MSME finance, and sustainable MSME finance for OpEx and CapEx. Ensure staff are familiar and trained in the relevant UoP and country- or region-specific taxonomies. Training might be part of (or added to) existing processes to roll out sustainable MSME finance, or it might require new processes to support sustainable MSME finance. Step 2. Check use of proceeds (UoP) UoP identifies activities or assets that are classified as eligible green and/or social opportunities. In the context of sustainable finance, eligible UoP are those that provide environmental benefits and/or seek to achieve positive social outcomes, and can be assessed, measured, and quantified. To be considered sustainable finance, activities and assets may be classified only as green opportunities, only as social opportunities, or a combination of factors that make them a mix of green and social opportunities. Figure 5 provides a visualization of the assessment to be undertaken to classify a certain use of proceeds by MSMEs as sustainable finance. Figure 5 Classification of use of proceeds CapEx UoP in: Yes a. any of Chapter III tables OR b. in green/ sustainable No taxonomy? Sustainable Finance MSME Not financing considered needs OpEx UoP in: No MSME has No sustainable a. any of Chapter green/social finance III tables OR standards/ b. in green/ certifications? sustainable Yes taxonomy? Yes SUS TA IN A B LE 10 M S ME FIN A N CE R EFER EN CE G U ID E II. Implementing sustainable finance for MSMEs 2.a. Distinguish between CapEx and OpEx financing needs. Practitioners of MSME finance should make this distinction upfront; this determines if additional information is needed for the UoP check (for CapEx financing and some OpEx), or whether MSMEs need to meet additional requirements to ensure that proceeds are being used for a ‘sustainably-aligned’ activity (OpEx). 2.b. Ensure CapEx or OpEx related finance aligns with an appropriate UoP. Practitioners should ensure that the project/activity to be financed is positively verified against: i) an appropriate taxonomy, such as a national or regional green or sustainable investment taxonomy, AND/OR ii) against the UoP listed in Chapter III of this Guide, which contains a comprehensive, yet non-exhaustive, list of eligible green and/or social MSME UoP. Appendix B contains a summary of relevant taxonomies, but practitioners should check equivalents that might apply to their corresponding jurisdiction. 2.c. Map the UoP to the relevant Sustainable Development Goals (SDGs). Doing this will ensure that the contribution to SDGs from the proposed UoP is clear. 2.d. Ensure MSMEs with OpEx-related finance needs and no identified UoP meet appropriate standards. OpEx loans, such as working capital loans or trade finance, may not have a specific UoP as set out in the taxonomies or in Chapter III. In such cases, for lending to be considered eligible sustainable lending, enterprises must meet appropriate third-party green and/or social standard(s) or achieve certification(s). This is a risk mitigation tool. While most MSMEs keep records, they are not necessarily standardized or high-quality, which increases borrower risk. To obtain certification, MSMEs must adopt rigorous standards and processes and tend to have higher-quality management systems, controls, and operational standards. Such certifications assess MSME environmental, social, and/or governance standards, hence providing assurance to lenders that the MSME meets the minimum green and/or social standards. The appropriate certification would depend on the sector and the MSME in question; various standards and certifications exist across sectors. Practitioners of MSME finance should make sure that appropriate governance processes are being used or are in place to monitor compliance with relevant standards and/or certifications. Refer to Appendix A for a non-comprehensive list of certifications and standards; other regional, national, or local certifications and standards that are relevant to the jurisdiction can also be used by the practitioner. OpEx related to obtaining such certifications and standards can also be considered eligible sustainable lending. If the MSME or MSME opportunity does not meet the green and/or social criteria as set out in 2.b. or 2.d. above, the lending cannot be classified as sustainable MSME finance. SUS TA IN A B LE 11 M S ME FIN A N CE R EFER EN CE G U ID E II. Implementing sustainable finance for MSMEs Step 3. Evaluate and select opportunity The MSME opportunity should be evaluated against appropriate environmental and social assessment processes. This would provide a secondary screen for opportunities that pass through the UoP stage.⁶ 3.a. Ensure that the opportunity’s environmental, social, and sustainability objectives are clearly recorded. To achieve this, practitioners may use existing processes or develop new ones. In either case, the process should clearly articulate how the opportunity fits within the eligible UoP categories and how it does not impede other environmental or social objectives. 3.b. Conduct additional checks to ensure no additional ESG-related negative impacts will occur. Lenders may look to the IFC Environmental and Social Performance Standards⁷ as they assist entities in identifying and evaluating environmental and social risks of activities. They also help to identify adequate mitigation options to reduce and avoid negative impacts to “works, affected communities, and the environment”. 3.c. Bear in mind the country context. Practitioners should consider the country context in which MSMEs operate, including the ESG status on the ground. This will help to account for the difference between adopted ESG processes and standards across markets. 3.d. Make sure that the activity/asset is aligned with relevant requirements and regulations from the jurisdiction in which the MSME operates. This step likely entails a desk review of regulations, laws, and codes that are relevant in the operating jurisdiction. Additionally, outreach to relevant stakeholders regarding potential jurisdictional requirements should be conducted where necessary and available. Lenders operating in the EU, or those who seek to issue green bonds or access green loans, may wish to align with the European Union (EU) Taxonomy for Sustainable Activities for the proposed use of proceeds, the Do No Significant Harm (DNSH) and Minimum Safeguards (also required by the EU Taxonomy). 3.e. Collect data in a standardized, framework-compliant, and manageable way. Lenders may use fintech solutions to help organize data collections. Such solutions can facilitate compliance with regulations that require banks to disclose information about the ESG performance and impacts of their portfolios. Many banks and financial institutions have found it difficult to comply with such regulations because of a lack of high-quality data. Step 4. Manage proceeds This stage demonstrates that funds are used for the eligible UoP agreed upon in the selection stage. It requires timely and transparent use of proceeds reporting. ⁶ World Economic Forum (2020). ⁷ IFC’s Environmental and Social Performance Standards ensure that investments are well-assessed and managed. They also ensure that investments meet strict environmental and social standards ranging from the treatment of indigenous peoples to biodiversity conservation. They comprise eight performance standards: Risk Management, Labor, Resource Efficiency, Community, Land Resettlement, Biodiversity, Indigenous People, and Cultural Heritage. SUS TA IN A B LE 12 M S ME FIN A N CE R EFER EN CE G U ID E II. Implementing sustainable finance for MSMEs 4.a. Set up a separate account or ringfence loans. To track proceeds, practitioners of sustainable MSME finance should set up a separate account in which sustainable MSME loans are deposited and debits to eligible beneficiaries are made. Alternatively, they may ring-fence a sub-account within an existing account. Practitioners should consider the former option, which provides more operational transparency. 4.b. Support MSMEs in their reporting requirements. MSMEs may not be familiar with the required reporting and may face higher transaction costs. To help offset this, practitioners should devise reporting templates that can standardize this step for their clients and their own portfolio management teams, and to facilitate regular reporting cycles. Clients will still likely need high-touch guidance and potentially capacity building, at least in the early stages of the relationship, especially if sustainable projects experience delays. Step 5. Measure impact and report MSME sustainable finance opportunities should be measured and reported as widely as possible. This should be done even when data is sparse (where possible). Procedures for measuring and reporting will help to ensure transparency and confidence in individual MSME sustainable finance opportunities and at the portfolio level. 5.a. The impact measurement and reporting should ensure CapEx-related finance continues to align with an appropriate UoP. Reporting requirements include keeping current information on UoP and renewing this annually. To measure impact, qualitative and quantitative performance measures should be gathered where permissible. Metrics may include: GHG emission reductions, renewable energy generated, energy savings, water savings, and jobs created. The last columns of the tables presented in Chapter III contain suggested metrics according to the UoP of the project/activity. 5.b. The impact measurement and reporting should clearly differentiate between CapEx or OpEx loans. If a specific UoP is not identified (such as the case for some OpEx-needs), the enterprise must prove that it continues to meet third-party green and/or social standard(s) or maintains its relevant certification(s). 5.c. Practitioners and enterprises should address the well documented challenges with MSME capacity and data collection. Fintech innovations for gathering, organizing, and communicating environmental and social data might facilitate measuring and reporting. Applicable projects should also be aligned with the ICMA Handbook – Harmonized Framework for Impact Reporting⁸ and the Harmonised Framework for Impact Reporting for Social Bonds.⁹ 5.d. The methodology underlying any quantitative measurement of impact should be disclosed. Practitioners and enterprises should consider the reporting templates in the ICMA Handbook – Harmonized Framework for Impact Reporting and the Harmonised Framework for Impact Reporting for Social Bonds. 5.e. Practitioners may commission an audit of its management of proceeds. This is in line with all the Principles and would confirm that the proceeds have been allocated to appropriate sustainable investments or enterprises. ⁸ International Capital Market Association (2023b). ⁹ International Capital Market Association (2023c). SUS TA IN A B LE 13 M S ME FIN A N CE R EFER EN CE G U ID E III. Eligible sustainable MSME Use of Proceeds SUS TA IN A B LE 14 M S ME FIN A N CE R EFER EN CE G U ID E III. Eligible sustainable MSME Use of Proceeds This Chapter presents tables with activities/projects production, manufacturing, and distribution of textiles. by sector that can be considered as eligible sustainable ‘Other manufacturing’ comprises all other types of UoP for MSME financing, illustrating Step 2 detailed in manufacturing enterprises not involved in agribusiness Chapter II. The tables also map activities/projects to or textiles. ‘Other services’ comprise all other types of environmental and/or social objectives of the Principles enterprises that provide services that do not fit into that they contribute to, as well as suggested metrics for other sectors mentioned. impact reporting. It is relevant to emphasize that the tables below are For purposes of this Guide, five major sectors are indicative and illustrate if an activity or project could outlined: agribusiness, tourism, textiles, other contribute to the Principles’ environmental and/or social manufacturing, and other services. ‘Agribusiness’ objectives, which metrics could be used for impact encompasses enterprises involved in agriculture, reporting, and are provided as a reference. Specific livestock, fishing, aquaculture, and forestry, as well activities will need to be considered individually based as directly related input supply and processing on their available information and context. In individual businesses. ‘Tourism’ enterprises provide goods and/or cases, an activity or project could contribute to services to people that visit places outside their usual additional environmental and/or social objectives in the environment for personal or professional purposes. Principles, as well as have different metrics that better ‘Textile’ enterprises are those involved in the describe its environmental and/or social impacts. SUS TA IN A B LE 15 M S ME FIN A N CE R EFER EN CE G U ID E III. Eligible sustainable MSME Use of Proceeds agribusiness sector textile sector 5 major sectors tourism sector other services other manufacturing SUS TA IN A B LE 16 M S ME FIN A N CE R EFER EN CE G U ID E III. Eligible sustainable MSME Use of Proceeds Table 1 Sustainable UoP for MSMEs in the agribusiness sector (1/4) Contribution to environmental objective Contribution to social objective Mitigation Adaptation Natural Biodiversity Pollution Affordable Access to Affordable Employment Food Socioeconomic Projects / Activities resource conservation prevention basic essential housing generation security and advancement Suggested reporting conservation and control infrastructure services sustainable and food systems empowerment metrics Aquaculture with a Certification document certification that confirms that the investment does not undermine the function and resilience of ecosystems, such as mangroves, salt marshes, seagrasses, and critical habitats Production or trade of Certification document agricultural products certified under Roundtable on Sustainable Biomaterials Production or trade of soy Certification document certified under Roundtable on Responsible Soy Association Production or trade of sugar Certification document certified under Bonsucro Production or trade of Certification document agricultural products certified under Fairtrade Small-Scale producer Production or trade of Certification document agricultural products certified under Rainforest Alliance Efficient cold chain with low Avoided food losses based Global Warming Potential on annual capacity or use (GWP) refrigerant (e.g. of equipment (ton/y) ammonia) Plant based biodegradable Avoided plastic packaging packaging (ton/y) Biomethane collection Biomethane collected and and use used (ton/y or MMBTU/y) Reduction by more than 20% Annual water savings in water consumption per ton (m3/y and % of the total of product over the life of the water consumption) project SUS TA IN A B LE 17 M S ME FIN A N CE R EFER EN CE G U ID E III. Eligible sustainable MSME Use of Proceeds Table 1 Sustainable UoP for MSMEs in the agribusiness sector (2/4) Contribution to environmental objective Contribution to social objective Mitigation Adaptation Natural Biodiversity Pollution Affordable Access to Affordable Employment Food Socioeconomic Projects / Activities resource conservation prevention basic essential housing generation security and advancement Suggested reporting conservation and control infrastructure services sustainable and food systems empowerment metrics Renewable energy Annual Renewable applications (solar, wind, Energy Consumed or sustainable biomass) in power Generated (MWh/y); generation, pumping, drying, GHG emissions savings heat and/or steam generation (tCO2eq/y) Production or trade of crops Certification document certified under Better Cotton Initiative, Cotton Made in Africa, Fairtrade Hired Labour, Friend of the Earth, or Global Gap Electric vehicles Avoided fuel consumption (m3/y) or avoided GHG emissions (tCO2eq/y) Efficient irrigation – promote Annual water savings efficient water allocation, (m3/y and % of the total water recycling, sustainable water consumption) reuse of graywater, rainwater harvesting, and utilization of native species that have low water consumption, conditional to avoid depletion of natural water resources Climate adaptation and Increase in agricultural resilience measures that land using more also conserve and/or restore drought resistant crops ecosystems (for example, (hectares); drought-resistant seeds, Reduction in land-loss nutrient cycling, water storage, from inundation and/or ecotone levees, floodplain coastal erosion (km²) restoration, water storage with watershed restoration or conservation – all projects that make agribusiness more resilient to threats like flooding and drought) Rehabilitation of degraded Hectares rehabilitated lands with native and/or (ha/y); naturalized species Number of native or naturalized species SUS TA IN A B LE 18 M S ME FIN A N CE R EFER EN CE G U ID E III. Eligible sustainable MSME Use of Proceeds Table 1 Sustainable UoP for MSMEs in the agribusiness sector (3/4) Contribution to environmental objective Contribution to social objective Mitigation Adaptation Natural Biodiversity Pollution Affordable Access to Affordable Employment Food Socioeconomic Projects / Activities resource conservation prevention basic essential housing generation security and advancement Suggested reporting conservation and control infrastructure services sustainable and food systems empowerment metrics Reduction in synthetic Annual fertilizer savings fertilizer use by at least 20% (ton/y and % of the total over the life of the project fertilizer used) to reduce downstream eutrophication, and to promote use of biofertilizer and other organic solutions (for example, composting) Reduction in pesticide use by Annual pesticide reduced at least 20% over the life of (ton/y and % of the total the project and promotion of pesticide used) biosolutions Switching from monocropping Area covered by to diversified cropping sustainable land systems, including and water resources intercropping and use of cover management practices crops to improve resilience (ha and % of the total and soil quality area) Significant reduction of tillage Hectares under no tillage or implementation of no-till (ha/y) practices Cultivation of native or Area covered (acres); naturalized species that Number of native or can more readily adapt to naturalized species variations in production cycles, water quality/quantity, and temperatures Use of sustainable agricultural Additional production practices/varieties/technology (ton/y) without and/or infrastructure that increasing GHG increases crop yields/quality emissions on existing land without increasing the environmental footprint Adoption of practices and/ Avoided deforestation or technologies for zero (ha/y) deforestation or other positive effects on biodiversity SUS TA IN A B LE 19 M S ME FIN A N CE R EFER EN CE G U ID E III. Eligible sustainable MSME Use of Proceeds Table 1 Sustainable UoP for MSMEs in the agribusiness sector (4/4) Contribution to environmental objective Contribution to social objective Mitigation Adaptation Natural Biodiversity Pollution Affordable Access to Affordable Employment Food Socioeconomic Projects / Activities resource conservation prevention basic essential housing generation security and advancement Suggested reporting conservation and control infrastructure services sustainable and food systems empowerment metrics Weather insurance for Area covered (acres) smallholder producers Expansion of agribusiness Number of jobs created capacity with the generation of employment positions Adoption or improvement of Number of employees safety protocols reached Creation or operation of Avoided food losses compost systems that reduce based on annual capacity food loss and waste or use of equipment (ton/y) Improvement of food Avoided food losses storage, processing and/or based on annual capacity transportation to reduce food or use of equipment loss and waste (ton/y) Initiatives to increase women Number of women participation in workforce integrated into formal workforce Woman-led entrepreneurship Number of employees Initiatives to improve gender Share of women in parity in leadership positions leadership positions (% of total employees) Initiatives to promote decent Number of workers work conditions reached Initiatives to obtain or Certification document maintain recognized business certification or standard on environmental and/or social aspects (see Table A.1. in Appendix A) SUS TA IN A B LE 20 M S ME FIN A N CE R EFER EN CE G U ID E III. Eligible sustainable MSME Use of Proceeds Table 2 Sustainable UoP for MSMEs in the textile sector Contribution to environmental objective Contribution to social objective Mitigation Adaptation Natural Biodiversity Pollution Affordable Access to Affordable Employment Food Socioeconomic Projects / Activities resource conservation prevention basic essential housing generation security and advancement Suggested reporting conservation and control infrastructure services sustainable and food systems empowerment metrics Manufacture or trade of Units of production (e.g. sustainable hemp, wool, ton/y) organic cotton, soy silk, bamboo fabrics, jute, corn fiber Application of green enzymes Avoided chemicals (ton/y along the stages of textile per type of chemical) processing: desizing, scouring, bleaching, dyeing, finishing and composting Recirculation and water Annual water savings reduction in water consumption (m3/y and % of total per unit of product (e.g. m3 of water consumed) saved water per m2 of fabric) by more than 20% over the life of the project Expansion of business Number of jobs created capacity with the generation of employment positions Adoption or improvement of Number of employees safety protocols reached Improvement of accessibility Number of disabled to people with disabilities people benefitted Initiatives to increase women Number of women participation in workforce integrated into formal workforce Woman-led entrepreneurship Number of employees Initiatives to improve gender Share of women in parity in leadership positions leadership positions (% of total employees) Initiatives to promote decent Number of workers work conditions reached Initiatives to obtain or Certification document maintain recognized business certification or standard on environmental and/or social aspects (see Table A.1. in Appendix A) SUS TA IN A B LE 21 M S ME FIN A N CE R EFER EN CE G U ID E III. Eligible sustainable MSME Use of Proceeds Table 3 Sustainable UoP for MSMEs in tourism sector (1/2) Contribution to environmental objective Contribution to social objective Mitigation Adaptation Natural Biodiversity Pollution Affordable Access to Affordable Employment Food Socioeconomic Projects / Activities resource conservation prevention basic essential housing generation security and advancement Suggested reporting conservation and control infrastructure services sustainable and food systems empowerment metrics Electric vehicles (bikes, boats, Avoided fuel consumption passenger vehicles) (m3/y) or avoided GHG emissions (tCO2eq/y) Sustainable or ecotourism Certification document ventures that meet established standards for best practices, conserve or restore habitats or avoid increasing encroachment on habitat, and work to reduce carbon emissions Tourism concessions and Standard used operations inside marine and terrestrial conservation areas that create opportunities or incentives for enhanced biodiversity protection or reduced biodiversity threat. These opportunities could be economic (for example, alternative livelihoods), social (for example, supporting changing norms or behaviors through education/best practice), or fiscal (for example, profit-sharing user fees with conservation areas). Tourism operations must meet recognized ecotourism standards Ecotourism ventures Standard or certification and operations outside used conservation areas that are consistent with ecotourism principles. For example, these ventures could be located in buffer zones of protected areas, in critical habitats, or in other sensitive sites, or where there is strong community participation or ownership Expansion of business capacity Number of jobs created with the generation of employment positions SUS TA IN A B LE 22 M S ME FIN A N CE R EFER EN CE G U ID E III. Eligible sustainable MSME Use of Proceeds Table 3 Sustainable UoP for MSMEs in tourism sector (2/2) Contribution to environmental objective Contribution to social objective Mitigation Adaptation Natural Biodiversity Pollution Affordable Access to Affordable Employment Food Socioeconomic Projects / Activities resource conservation prevention basic essential housing generation security and advancement Suggested reporting conservation and control infrastructure services sustainable and food systems empowerment metrics Adoption or improvement of Number of employees safety protocols reached Improvement of accessibility to Number of disabled people with disabilities people benefitted Initiatives to increase women Number of women participation in workforce integrated into formal workforce Woman-led entrepreneurship Number of employees Initiatives to improve gender Share of women in parity in leadership positions leadership positions (% of total employees) Initiatives to promote decent Number of workers work conditions reached Initiatives to obtain or Certification document maintain recognized business certification or standard on environmental and/or social aspects (see Table A.1. in Appendix A) SUS TA IN A B LE 23 M S ME FIN A N CE R EFER EN CE G U ID E III. Eligible sustainable MSME Use of Proceeds Table 4 Sustainable UoP for MSMEs in other services (1/3) Contribution to environmental objective Contribution to social objective Mitigation Adaptation Natural Biodiversity Pollution Affordable Access to Affordable Employment Food Socioeconomic Projects / Activities resource conservation prevention basic essential housing generation security and advancement Suggested reporting conservation and control infrastructure services sustainable and food systems empowerment metrics Electric vehicles (bikes, boats, Avoided fuel passenger vehicles) consumption (m3/y); Avoided GHG emissions (tCO2eq/y) Renewable energy Annual renewable applications for power, heat, energy consumed drying, etc (MWh/y); GHG emissions savings (tCO2eq/y) Provision of affordable Number of facilities sanitation facilities to served; underserved areas, including Number of people maintenance, emptying, benefitted; transport, treatment, reuse or Number of dwellings disposal served Provision and/or maintenance Number of people of the infrastructure related to benefitted clean drinking water, sewage, and/or sanitation systems in underserved areas Provision and/or maintenance Number of people of the infrastructure related to benefitted renewable energy generation, transmission, or distribution in underserved areas Construction or upgrade Number of facilities built/ of healthcare facilities in upgraded; underserved and low-income Number of patients areas benefitted Healthcare services Number of facilities built/ focused on elderly people in upgraded; underserved and low-income Number of patients areas benefitted Technological upgrade to Number of patients provide telemedicine services benefitted in underserved areas SUS TA IN A B LE 24 M S ME FIN A N CE R EFER EN CE G U ID E III. Eligible sustainable MSME Use of Proceeds Table 4 Sustainable UoP for MSMEs in other services (2/3) Contribution to environmental objective Contribution to social objective Mitigation Adaptation Natural Biodiversity Pollution Affordable Access to Affordable Employment Food Socioeconomic Projects / Activities resource conservation prevention basic essential housing generation security and advancement Suggested reporting conservation and control infrastructure services sustainable and food systems empowerment metrics Construction or upgrade of Number of facilities built/ daycare facilities upgraded; Number of children benefitted Technological upgrade to Number of students provide online learning reached (breakdown by education to undereducated gender) segments of society Skill development and/ Number of people or vocational training to trained (breakdown by undereducated segments of gender) society Provision of heating, Number of dwellings ventilation, and air served; conditioning (HVAC) systems Number of people to affordable housing units benefitted Shared working space Squared meters; Number of employees Expansion of business Number of jobs created capacity with the generation of employment positions Adoption or improvement of Number of employees safety protocols reached Creation or operation of Avoided food losses compost systems that reduce based on annual capacity food loss and waste or use of equipment (ton/y) Improvement of food Avoided food losses storage, processing and/or based on annual capacity transportation to reduce food or use of equipment loss and waste (ton/y) Improvement of accessibility Number of disabled to people with disabilities people benefitted SUS TA IN A B LE 25 M S ME FIN A N CE R EFER EN CE G U ID E III. Eligible sustainable MSME Use of Proceeds Table 4 Sustainable UoP for MSMEs in other services (3/3) Contribution to environmental objective Contribution to social objective Mitigation Adaptation Natural Biodiversity Pollution Affordable Access to Affordable Employment Food Socioeconomic Projects / Activities resource conservation prevention basic essential housing generation security and advancement Suggested reporting conservation and control infrastructure services sustainable and food systems empowerment metrics Initiatives to increase women Number of women participation in workforce integrated into formal workforce Woman-led entrepreneurship Number of employees Initiatives to improve gender Share of women in parity in leadership positions leadership positions (% of total employees) Initiatives to promote decent Number of workers work conditions reached Technological modernization Number of facilities to improve access to modernized; information and digital Number of benefitted products/services in households underserved areas Initiatives to obtain or Certification document maintain recognized business certification or standard on environmental and/or social aspects (see Table A.1. in Appendix A) SUS TA IN A B LE 26 M S ME FIN A N CE R EFER EN CE G U ID E III. Eligible sustainable MSME Use of Proceeds Table 5 Sustainable UoP for other manufacturing MSMEs (1/3) Contribution to environmental objective Contribution to social objective Mitigation Adaptation Natural Biodiversity Pollution Affordable Access to Affordable Employment Food Socioeconomic Projects / Activities resource conservation prevention basic essential housing generation security and advancement Suggested reporting conservation and control infrastructure services sustainable and food systems empowerment metrics Variable speed drive efficient Energy savings (MWh/y) motor Waste-to-energy projects Avoided fuel consumption (m3/y); Avoided GHG emissions (tCO2eq/y) Waste collection, recycling Amount of materials and management projects recycled (ton/y) that recover or reuse materials and waste (only if net emission reductions can be demonstrated) Energy efficiency Energy savings (MWh/y); improvement in Avoided GHG emissions lighting, appliances, and (tCO2eq/y) equipment, including energy-management systems Substitution of existing Energy savings (MWh/y); heating or cooling systems for Avoided GHG emissions buildings by co-generation (tCO2eq/y) plants that generate electricity in addition to providing heating or cooling Optimize the use of Energy savings (MWh/y); compressed air to address Avoided GHG emissions inefficiencies such as leaks in (tCO2eq/y) the distribution network and oversized air compressors Treatment of wastewater, Avoided discharge of including wastewater untreated water (m3/y); collection networks Wastewater collected or treated (m3/y) Waste management projects Avoided GHG emissions that capture or combust (tCO2eq/y) methane emissions SUS TA IN A B LE 27 M S ME FIN A N CE R EFER EN CE G U ID E III. Eligible sustainable MSME Use of Proceeds Table 5 Sustainable UoP for other manufacturing MSMEs (2/3) Contribution to environmental objective Contribution to social objective Mitigation Adaptation Natural Biodiversity Pollution Affordable Access to Affordable Employment Food Socioeconomic Projects / Activities resource conservation prevention basic essential housing generation security and advancement Suggested reporting conservation and control infrastructure services sustainable and food systems empowerment metrics Charging stations and other Number of charging, infrastructure for electric hydrogen or sustainable vehicles, hydrogen or biofuel stations dedicated sustainable biofuel fueling Projects producing Energy savings (MWh/y); components, equipment Avoided GHG emissions or infrastructure dedicated (tCO2eq/y) to the renewable and energy efficiency sectors, or low-carbon technologies Measures in existing Avoided GHG emissions supply chains dedicated to (tCO2eq/y) improvements in energy efficiency or resource efficiency upstream or downstream, leading to an overall reduction in GHG emissions Equipment or appliances with Energy efficiency label an energy efficiency label and score A on a scale of A-F Expansion of business Number of jobs created capacity with the generation of employment positions Adoption or improvement of Number of employees safety protocols reached Creation or operation of Avoided food losses compost systems that reduce based on annual capacity food loss and waste or use of equipment (ton/y) Improvement of food Avoided food losses storage, processing and/or based on annual capacity transportation to reduce food or use of equipment loss and waste (ton/y) SUS TA IN A B LE 28 M S ME FIN A N CE R EFER EN CE G U ID E III. Eligible sustainable MSME Use of Proceeds Table 5 Sustainable UoP for other manufacturing MSMEs (3/3) Contribution to environmental objective Contribution to social objective Mitigation Adaptation Natural Biodiversity Pollution Affordable Access to Affordable Employment Food Socioeconomic Projects / Activities resource conservation prevention basic essential housing generation security and advancement Suggested reporting conservation and control infrastructure services sustainable and food systems empowerment metrics Improvement of accessibility Number of disabled to people with disabilities people benefitted Initiatives to increase women Number of women participation in workforce integrated into formal workforce Woman-led entrepreneurship Number of employees Initiatives to improve gender Share of women in parity in leadership positions leadership positions (% of total employees) Initiatives to promote decent Number of workers work conditions reached Initiatives to obtain or Certification document maintain recognized business certification or standard on environmental and/or social aspects (see Table A.1. in Appendix A) SUS TA IN A B LE 29 M S ME FIN A N CE R EFER EN CE G U ID E IV. Practical examples SUS TA IN A B LE 30 M S ME FIN A N CE R EFER EN CE G U ID E IV. Practical examples This Chapter presents examples on how practitioners can assess whether the MSME financing need can be considered sustainable or not. It materializes Step 2 presented in Chapter II for illustration purposes. Example A Agribusiness MSME needs capital to purchase electric vehicles 1 2 3 CapEx UoP in: Yes a. any of Chapter III tables OR b. in green/ sustainable No taxonomy? Sustainable Finance MSME financing Not needs considered OpEx UoP in: No MSME has No sustainable a. any of Chapter green/social finance III tables OR standards/ b. in green/ certifications? sustainable Yes taxonomy? Yes 1 The purchase of electric vehicles is a CapEx financing need. 2 The next step is to check whether this need is contained in the jurisdiction green or sustainable taxonomy and/or in the ‘Agribusiness’ table in Chapter III (Table 1). The purchase of electric vehicles is described in Table 1 of Chapter III as an eligible UoP. 3 As a result, the loan can be considered as sustainable MSME finance. SUS TA IN A B LE 31 M S ME FIN A N CE R EFER EN CE G U ID E IV. Practical examples Example B Textile MSME requests working capital to deliver a large demand of an important client CapEx UoP in: Yes a. any of Chapter III tables OR b. in green/ sustainable No taxonomy? Sustainable Finance MSME financing Not needs considered OpEx UoP in: No MSME has No sustainable a. any of Chapter green/social finance III tables OR standards/ b. in green/ certifications? sustainable Yes taxonomy? Yes 1 2 3 4 1 The MSME might need the capital to purchase additional material or exceptionally hire additional workers to deliver the contract. In this case, the financing need is OpEx-related. 2 The next step is to check whether this need is included in the jurisdiction green or sustainable taxonomy and/or in the ‘Textiles’ table in Chapter III (Table 2). This OpEx is not explicit in Table 2 of Chapter III as an eligible UoP and might not be either in the relevant taxonomy. 3 The next step is to check whether the enterprise meet appropriate standards. Table A.1. in Appendix A can be consulted for this purpose, as well as the practitioner might be aware of other certification or standard that would be applicable for the requesting type of MSME. 4 If the MSME follows an applicable standard, the loan can be considered as sustainable MSME finance. SUS TA IN A B LE 32 M S ME FIN A N CE R EFER EN CE G U ID E Appendix A. Sustainable certifications and standards Table A.1. Sustainable Certifications and Standards Certification Summary Sector Rainforest Alliance Third party auditors certify products and ingredients at the farm-level against Certification requirements in three pillars: social, environmental, and economic. Their pillar standards are shaped around forests, climate, human rights, and livelihoods. Agribusiness, Non-agricultural products/services may use the 'frog seal' if they comply with Tourism partner sustainability standards (e.g. forestry - FSC, tourism - Sustainable Tourism Standard). Note: the UTZ certification, popular in Europe and strictly focused on tracing the entire producer-to-buyer chain, merged with RA in 2018. Both labels are still used. Union for Ethical Biotrade Evaluates product supply chains along social, environmental, and economic pillars to see whether they respect biodiversity and people. Standards were developed in tandem with UNCTAD's BioTrade Initiative and International Labour Organisation Agribusiness conventions. Preferred by Nature Soon to be replaced by the Standard for Sustainable Travel Activities, the Tourism Standard for Sustainable Tourism Standards Standard is developed by the Global Sustainable Tourism Council and assesses organizations' performance according to business, sociocultural, and environmental Tourism practices that span management requirements, to respect for local cultures, and biodiversity and resource conservation. Forest Stewardship FSC evaluates companies and products for how well they manage forest use Council Certification according to social, environmental, and economic standards. The certification is not only for large-scale forest operations but also small and community forests. They Agribusiness cover forest products other than just wood. Friend of the Earth Friend of the Earth vets companies for how their operations impact biodiversity, Sustainable Agriculture Certification disturb soils, use energy, release emissions, and affect local communities. Agribusiness Fairtrade Certification Third party auditors certify many businesses from small cooperatives to large companies on product supply chains. They focus on labor standards, community impacts, and sustainability. They also have textile standards. Agribusiness, Textiles SUS TA IN A B LE 33 M S ME FIN A N CE R EFER EN CE G U ID E Appendix A. Certification Summary Sector Roundtable on Sustainable Certifies palm oil supply chains as 'sustainable' from the plantation level. Their Palm Oil Standards standards focus on ethical governance, sustainable livelihoods and poverty reduction, and ecosystem protection and conservation. Agribusiness Bluesign Apparel and textile certifier focusing on reducing the use of chemicals. It also examines social, governance, and quality aspects of the textile supply chain as well. Field visits to offices and factories are required. Textiles Textile Exchange Textile Exchange offers various responsible textile standards that are often specific Standards to the textile, e.g. responsible wool standard, organic content standard, responsible alpaca standard, responsible mohair standard, global recycled standard. The Textiles focus of their certification is on social and labor impacts; however they also have environmental, governance, and quality criteria. Sustainably Grown Common set of environmental, social, and economic requirements that agricultural and fiber/textile crops must meet. The bulk of the standards focus on environmental and social aspects. The organization focuses on aligning their certification scheme to the Agribusiness, sustainability goals of large companies like Walmart, Unilever, ALDI, and Costco. Textiles Sustainable Rice Platform Mostly focused on South and Southeast Asia, SRP focuses on environmental and labor aspects of rice cultivation and production. Under the environmental umbrella, it focuses on water, biodiversity, forests, input, and waste. Agribusiness Audobon Green Audobon International's verification of lodging facilities focused on water quality, Lodging Program water conservation, waste minimization, resource conservation, and energy efficiency. Tourism GoodWeave International Standard that focuses on the textile supply chain, requiring transparency, Generic Standard unannounced inspections, and commitment to child welfare, workers' rights, and communities. Textiles Green Seal Healthy Green Hotels Green Seal is mostly known for its certification of the environmental and human safety of cleaning products. However, it also provides certification of accommodations focused on water savings, carbon emissions, employee standards, and chemical use. Tourism Global Organic Processing standard for textiles made from organic fibers. It focuses on high-level Textile Standard environmental criteria along the entire supply chain, with some social criteria. It focuses on organic fibres, ecological and social standards, all processing stages, and Textiles third-party certification. ARSO Sustainable Cocoa Focused on Africa, this standard works on (1) Promoting, structuring, and supporting farmers/farmer organization efficiently; (2) Improving farmer’s income and resilience of their livelihoods; (3) Addressing cocoa quality; (4) Addressing Agribusiness traceability from the farm to export; (5) Addressing worst forms of child labour; (6) Addressing deforestation and climate change. Alliance for Water Focused on good water governance, sustainable water balance, good water quality, Stewardship Standard related water areas, and safe water, sanitation, and hygiene, the AWS standards use a catchment approach to understanding how products and services can affect Agribusiness, communities. Applies broadly to many different products and services. Textiles SUS TA IN A B LE 34 M S ME FIN A N CE R EFER EN CE G U ID E Appendix A. Certification Summary Sector CarbonTrust Verifies products and services by using a GHG lifecycle approach. The sum of Carbon Neutral Certification greenhouse gas emissions can be offset by natural carbon sinks and/or carbon credits. Agribusiness, Textiles, Tourism, Other manufacturing Bonsucro Focused on communities, water use, and carbon emission, Bonsucro is the global platform and certifier for sustainable sugarcane. Many of the largest food companies like Mars, Pepsico, Unilever, Hershey, and General Mills are part of the platform. Agribusiness Biosphere Responsible Certifies hotels, apartment hotels, hostels, holiday rentals, campsites, and rural Tourism accommodations with relevant sustainability criteria. These fall under three themes of Environment and Climate Change, Society and Culture and Governance Tourism and Economy. These are tied to SDGs. It offers two tiers: committed and certified (more stringent). Better Cotton Standard for sustainable cotton production, focused on crop protection, water, soil Standard health, biodiversity, fiber quality, decent work, and management systems. Done at the farm level. Agriculture, Textiles Wildlife Friendly Global network of companies and products that conserve threatened wildlife while Enterprises contributing to rural communities' economic vitality. The label denotes verification based according to strict conservation standards, produced collaboratively with Agriculture, conservationists, artisans, producers, and harvesters. Textiles Sea Turtle Developed by the Wildlife Friendly group and Wider Caribbean Sea Turtle Friendly Tourism Conservation Network, this standard focuses specifically on mitigating tourism-linked threats to sea turtle populations: fisheries impacts, direct take, Tourism coastal development, pollution and disease, and climate change. Climate, Community & Developed for any projects, companies, or products with land use impacts, the Biodiversity Standards - CCB Standards standards are used to identify projects that simultaneously address climate change, support local communities and smallholders, and conserve biodiversity. They can Agriculture, vary substantially by sector or product type. Textiles, Tourism, Other manufacturing Equitable Food Focuses on ethical and labor-friendly certification of fruits, vegetables, and Initiative Standards fibers. Their standards are split into social standards, food safety standards, pest management standards, processing and packing standards, and ethical charter - Agriculture, not all of which are applicable to all types of operations. Textiles Cradle to Cradle Used across industries to certify products and materials that are safe, circular, and responsibly made. Five categories of sustainability performance are evaluated: material health, product circularity, social fairness, water and soil stewardship, Agriculture, and clean air and climate protection. The certification is awarded based upon four Textiles, Other ascending levels of achievement according to the product performance. manufacturing EDGE Certification Global standards for diversity, equity, and inclusion. Two standards, EDGE (gender-binary) and EDGEplus (gender and intersectionality), offer a holistic framework in which organizations can measure where they stand in terms Agribusiness, of gender and intersectional equity. Four pillars are assessed by a third-party Textiles, Tourism, certification body: representation, pay equity, effectiveness of policies and Other manufacturing, practices to ensure equitable career flows, and inclusiveness of the culture. Other services SUS TA IN A B LE 35 M S ME FIN A N CE R EFER EN CE G U ID E Appendix A. Certification Summary Sector UNDP Gender Developed by the United Nations Development Programme for the private Equality Seal sector, the tool helps companies to incorporate a gender perspective into its overall management system. Companies conduct a self-assessment, develop Agribusiness, gender-sensitive capacities, adopt a gender equality policy, and execute an action Textiles, Tourism, plan to eliminate inequalities in the workplace. Upon third party verification, a Other manufacturing, bronze, silver, or gold seal certification recognizing gender equality is awarded by Other services national governments and institutional partners. Women’s Empowerment Founded by United Nations Women and United Nations Global Compact, they are a Principles (WEPs) set of principles offering guidance to businesses on how to advance gender equality and women’s empowerment in the workplace, marketplace, and community. Agribusiness, Textiles, Tourism, Other manufacturing, Other services Accessibility Indicator Developed by ARS Foundation, it compiles a series of standards that assess the System (AIS) level of accessibility found in services, facilities, installations, and products. The certification evaluates usability, comfort and safety conditions and certify, on a Textiles, Tourism, five-star scale, the level of excellence in accessibility. Other manufacturing, Other services Well Certification Building certification focused on people’s health, safety, and well-being to optimize he human and social capital performance of businesses and maximize real state value. Agribusiness, Textiles, Tourism, Other manufacturing, Other services EDGE Green EDGE (Excellence in Design for Greater Efficiencies) is composed of a green building Building standard and an international green building certification system. There are three choices for EDGE certification. Level 1, EDGE Certified, reflects 20% or more savings Textiles, in energy, water, and embodied energy in materials. Level 2, EDGE Advanced, Other manufacturing, reflects EDGE Certified with 40% or more on-site energy savings. Level 3, Zero Other services Carbon, reflects EDGE Advanced with 100% renewables on-site or off-site. B Corp Certification Holistic approach that measures a company’s entire social and environmental impact based on performance, accountability, and transparency standards. Agribusiness, Textiles, Tourism, Other manufacturing, Other services SUS TA IN A B LE 36 M S ME FIN A N CE R EFER EN CE G U ID E Appendix B. Green taxonomies Table B.1. Summary of taxonomies Joint MDB EU CBI ASAP QII Methodology Description Classification Identifies the assets, A classification A set of voluntary, Two distinct system established activities and framework to non-binding methodologies – to clarify and classify projects needed to qualify Adaptation principles that with fundamentally which activities and deliver a low carbon SMEs based on types reflect a common different approaches investments are economy of technologies, direction and – to track climate environmentally products and aspiration for quality change adaptation sustainable services offered and infrastructure finance and climate determine the SME’s investment change mitigation contribution toward finance adaptation Official/Market Official Market Based Market Based Official Official Based Geographic Scope European Union Global Global Global Global Source institution European Union¹⁰ Climate Bonds The Lightsmith G20 African Initiative Group, with Development support from the Bank, Asian Global Environment Infrastructure Facility, Development Bank, Conservation European Bank for International, and Reconstruction the Inter-American and Development, Development Bank European Investment Bank, Inter-American Development Bank Group, Islamic Development Bank, World Bank Group ¹⁰ It has voluntary use as a guide for investments, aiming to direct capital to sustainable and environmentally beneficial ends and now a mandatory use for disclosure (EU’s Non-Financial Reporting Directive (NFRD) and the Sustainable Finance Disclosure Regulation (SFDR)), although only for EU entities. SUS TA IN A B LE 37 M S ME FIN A N CE R EFER EN CE G U ID E Appendix B. Joint MDB EU CBI ASAP QII Methodology Intended use case Intended for use by Largely designed Intended use by Intended use by Intended for use large corporates, to assess financial investors or funds infrastructure by development asset managers and assets and products that support SMEs planners and finance institutions other investors to focused on climate developers to to create a assess and disclose adaptation activities maximize the common approach the taxonomy positive impact to tracking, and alignment level (i.e., social, eventually, reporting environmental, climate finance economic) of infrastructure investment Object of Activity Financial Asset/ Entity Project Financial Asset/ assessment (i.e., Project Project activity, financial asset, project, etc.) Environmental (i) Climate change (i) Climate change (i) Climate change (i) Sustainable (i) Climate change objectives mitigation mitigation adaptation development mitigation (ii) Climate change (ii) Climate change (ii) NDC alignment (ii) Climate change adaptation adaptation (iii) Environmental adaptation (iii) Sustainable use Other ‘green’ impact assessment and protection of objectives are (iv) Disaster water and marine indirectly included resilience resources in sectors such as (iv) Transition to a “waste and pollution circular economy control” and “land (v) Pollution use & marine prevention and resources” control (vi) Protection and restoration of biodiversity and ecosystems Threshold Alignment requires Employs a “traffic To meet the ASAP Encouraged as For adaptation, requirements/ that activities: light” system to requirement, a SME guidance rather than three steps are criteria 1) Make a determine eligibility must: as a rating system; applied: ‘Substantial 1) Green: Certain 1) Meet the ASAP other organizations 1) Determining Contribution’ assets are definition of an (OECD) have climate vulnerability to one of the six automatically Adaptation SME; developed detailed context of the environmental eligible 2) Be screened in handbooks/ project; objectives, in 2) Orange: Some according to ASAP tools to support 2) Stating project alignment with the assets must meet screening criteria; implementation intent to reduce Technical Screening certain additional 3) Classify their climate vulnerability; Criteria; screening criteria to adaptation solution; and 2) Do No Significant be eligible and 3) Linking project Harm (DNSH) to the 3) Red: Ineligible 4) Measure their activities to reduce other five objectives; assets contribution toward climate vulnerability. and [Grey: no screening climate adaptation For mitigation, 3) Meet minimum criteria have been the project must be social safeguards determined/ classified as climate Technical Screening developed for mitigation finance criteria for certain sectors and as according to a Objectives 3-6 have assets] list of agreed upon yet to be established activities SUS TA IN A B LE 38 M S ME FIN A N CE R EFER EN CE G U ID E Appendix B. Joint MDB EU CBI ASAP QII Methodology Sectors NACE codes used As defined by the All as determined by Infrastructure For adaptation: as a framework to taxonomy: Energy, NACE all related to capture all economic transport, water, development sectors. Financial buildings, land use For mitigation: products (e.g., & marine resources, energy (renewable projects, use of industry, waste and energy, proceeds) are also pollution control, lower-carbon and covered. and ICT sectors. efficient energy Technical Screening No external generation, Criteria (TSC) sector/industry energy efficiency); developed for classification used agriculture, Energy Production aquaculture, forestry and Generation, and land-use; Forestry and non-energy GHG Agriculture, reductions; water Manufacturing, and wastewater; Water and Waste, transport; ICT, Transportation, low-carbon Storage and technologies; Construction and cross-cutting issues; Real Estate miscellaneous Explicit Yes, Minimum Social No No Yes, principles No requirements Safeguards (MSS) include sustainable beyond must be met for growth and environmental alignment¹² development, social, (i.e., social, and governance economic)¹¹ considerations Link to Source EU Taxonomy CBI Taxonomy ASAP Solutions QII Principles Joint Report Taxonomy for Quality on Multilateral Infrastructure Development Banks’ Investment Climate Finance ¹¹ Although activities that meet climate adaptation / mitigation objectives inherently deliver social and economic co-benefits, this row refers to whether the classification system itself specifically requires considering non-environmental standards or impacts. ¹² Both Minimum Social Safeguards and DNSH standards rely heavily on and reference EU law, but OECD Guidelines on Multinational Enterprises and the United Nations Guiding Principles on Business and Human Rights may also be used as a proxy. SUS TA IN A B LE 39 M S ME FIN A N CE R EFER EN CE G U ID E Appendix C. Glossary and acronym list Selected definitions Climate Change Adaptation: The process of adjustment to actual or expected climate and its effects. In human systems, adaptation seeks to moderate or avoid harm or exploit beneficial opportunities. In some natural systems, human intervention may facilitate adjustment to expected climate and its effects. Climate Change Mitigation: A human intervention to reduce the sources or enhance the sinks of greenhouse gases (e.g., replacing fossil-based sources of energy with renewable resources or reducing population or agriculture-based deforestation pressure on forests). Capital Expenditure (CapEx): Expenditure types that pertain to a capital investment, such as purchasing machinery, equipment, land, or buildings, mostly tangible assets or sometimes to acquire intangible assets. These are incurred irregularly, and depend on the asset lifespan, and / or investment needs of a business. Micro, Small, and Medium Enterprises (MSMEs): every jurisdiction might have its own definition of what type of business classifies as a micro, small, or medium enterprise. For IFC, an enterprise qualifies as a micro, small or medium enterprise if it meets two out of three criteria of the IFC MSME Definition¹³ (employees, assets and sales): Indicator Employees Total assets (USD) Annual sales (USD) Micro enterprise < 10 < $100,000 < $100,000 Small enterprise 10-49 $100,000 - < $3 million $100,000 - < $3 million Medium enterprise 50-300 $3 million - $15 million $3 million - $15 million Operational Expenditure (OpEx): Expenditure types that pertain to business operations, such as overheads, wages, rent, and administration. These are incurred regularly, recurring expenses over the course of operating a business. ¹³ International Finance Corporation (2023). SUS TA IN A B LE 40 M S ME FIN A N CE R EFER EN CE G U ID E Appendix C. Acronyms CBI Climate Bonds Initiative CapEx Capital Expenditure ESG Environmental, Social and Governance EU European Union FI Financial Institution GBP Green Bond Principles GDP Gross Domestic Product GHG Greenhouse Gas GJ Gigajoule GLP Green Loan Principles IFC International Finance Corporation kWh Kilowatt-hour MDB Multilateral Development Banks MSME Micro, Small, and Medium Enterprise MSS Minimum Social Safeguards OECD Organization for Economic Co-operation and Development OpEx Operational Expenditure QII G20 Quality Infrastructure Investment SBP Social Bond Principles SDG Sustainable Development Goal SLP Social Loan Principles SME Small and Medium Enterprise UoP Use of Proceeds SUS TA IN A B LE 41 M S ME FIN A N CE R EFER EN CE G U ID E References European Commission. 2022. Annual Report on European SMEs 2021/2022 – SMEs and environmental sustainability, Background document. International Capital Market Association. 2021. Green Bond Principles. International Capital Market Association. 2023a. Social Bond Principles. International Capital Market Association. 2023b. Handbook – Harmonised Framework for Impact Reporting. International Capital Market Association. 2023c. Harmonised Framework for Impact Reporting for Social Bonds. International Finance Corporation. 2012. IFC’s Environmental and Social Performance Standards. International Finance Corporation. 2017. MSME Finance Gap – Assessment of the Shortfalls and Opportunities in Financing Micro, Small and Medium Enterprises in Emerging Markets. International Finance Corporation. 2023. IFC’s Definitions of Targeted Sectors. Loan Syndications and Trading Association. 2023a. Green Loan Principles. Loan Syndications and Trading Association. 2023b. Social Loan Principles. People’s Bank of China. 2016. Guidelines for Establishing the Green Financial System. World Bank. 2023. Small and Medium Enterprises (SMEs) Finance. World Economic Forum. 2020. Measuring Stakeholder Capitalism Towards Common Metrics and Consistent Reporting of Sustainable Value Creation. SUS TA IN A B LE 42 M S ME FIN A N CE R EFER EN CE G U ID E Contacts Francisco Avendaño Senior Operations Officer, IFC Climate Business favendano@ifc.org Helena Dill Consultant, IFC Climate Business hdill@ifc.org Kaikham Onedamdy GB-TAP’s Team Leader, IFC Climate Business konedamdy@ifc.org