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finance cycle

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by

geert schuite

on 5 September 2016

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Transcript of finance cycle

Let's take a country, somewhere in Africa
it's a small, but prosperous country
with a growing economy
A
B
C
the companies need money
needs a loan
wants leasing
seeks investment
so they approach a Financial Intermediary
the FI
(let's say it's a BANK)...
... does the math...

.... assesses the risks....

... signs the deals...
Now, let's look again at the bigger picture
and they live happily ever after?
Hmm..

Not sure yet.
Let's take a look at the bigger picture
the African Development Bank promotes
inclusive growth
AfDB focuses on
poverty alleviation and
sustainable development
A
B
C
use of fresh water
unsustainable deforestation?
wastewater emission?
food processor
woodprocessing
furniture factory
sugar cane plantation
field worker employment
local community resettlement?
Companies create an impact

Labor related aspects
Environmental and Social Impact of Businesses
and the Shared Responsibilities of AfDB and Financial Intermediairies
Three specific companies attract our attention...
A company
The FI
AfDB
Managing impact through shared responsibilities
... and gets involved in the success of the three businesses.
AfDB promotes the success of private sector companies, as they generate jobs, earnings, tax revenues
lends money and insists on responsible and legal activities
of its clients
manages its social and environmental impact
provides
funds to the FI and insists on proper E&S risk management
within the FI's
portfolio
companies have a responsibility
they need to manage impact by understanding their influence ...
... on use of resources: water, energy, chemicals
... on quality of water, soil, air
... on health and safety of workers, communities
they must comply to legislation
they have to address concerns of stakeholders
the FI becomes part of this responsibility
impact is being created with THEIR money
earnings are being generated with THEIR money
The FI and the company have to minimise risks
- it's in their mutual interest
financial risks, as well as
environmental and social risks!!
AfDB is ALSO part of the responsibility
AfDB provides funds to the FI
AfDB
and
the FI
and
the company share an interest in minimizing risks
Again: financial risks, as well as environmental and social risks!!
Resettlement of people
Pressure on ecosystems
Pollution, emissions
Health and Safety for employees and communities
AfDB: Financial Intermediaries need an ESMS
E
nvironmental

and
S
ocial
M
anagement
S
ystem
PLAN
DO
CHECK
ACT
Say What?
Q: Does the FI make clear how its activities impact the environment, health and safety, and labor - Do they have a written policy and a plan to mitigate negative impact and stimulate positive impact?
Q: Does the FI assess the social and environmental impact of the individual companies in its portfolio - Does the assessment result in specific actions per individual company or sector?
Q: Does the FI evaluate the social and environmental performance of its clients, after disbursement, and does the FI keep track of E&S data related to its portfolio?
ESMS
Q: Does the FI use the results of its portfolio and internal monitoring and evaluation to improve it performance and adapt its policy?
An ESMS is a systematic process to assess the environmental and social risks and opportunities arising from the clients’ business activities and to manage the Bank’s exposure to them.

An ESMS involves setting social & environmental standards for selected clients and assuring clients’ compliance with these standards.

With designing and implementing an ESMS, the Bank aims at structurally improving the social and environmental quality of its loan portfolio.
ESMS
plan
do
check
act
An ESMS provides:
E&S impact
Managing
Enterprising
Internal
External
system and consistency
qualification for AfDB lending
risk management:
financial risks
reputational risks
business opportunities:
access to capital
competitive advantage
business development
engaging with local communities
Go to Homepage
Click on one of the buttons below
Go to Risk Evaluation
Read introduction on Policy and Procedures
Evaluating and Managing Social and Environmental Risks and Opportunities
Social and Environmental Assessment Tool (SEAT)
Click on any of the sectors in the list in order to open the specific guidelines and tools
go to Tool Layout page
04/11/2010
TO ASSESSMENT FORM
Back to Sector Overview
Prohibited trade in endangered animals or plants, or any other illegal activity
In general no specific need for REMA or other certificate
The client might profit from subsidies or other measures that support energy efficiency
From an environmental or social / health and safety perspective, there are no significant risks associated to this sector.
Click for additional sector info (IFC factsheet, pdf)
Legal obligations:
Opportunities:
Main risks:
Sector: Trade and Commerce
04/11/2010
Classification: Low Risk
Full transcript