The FINANCIAL — IFC, the private sector arm of the World Bank Group, and Peru’s Superintendency of Banking, Insurance and Private Pension Fund Administrators (SBS) highlighted today in an international conference the crucial role the financial sector must play as an engine of green and inclusive growth.
SBS and IFC launched in Lima the International Sustainable Finance Forum with the participation of banking regulators, experts and representatives of the private sector from more than 25 countries. Hosting 150 delegates, the conference represents the largest-ever gathering of banking regulators focused on sustainable finance, the latest indication of the critical nature of this issue for the financial sector. The meeting is coordinated by the Sustainable Banking Network, a platform of regulators and banking associations that has been instrumental in prompting regulators to guide their respective financial sectors towards sustainable finance and the green economy, according to IFC.
In recent years, sustainable finance has made great strides, partly driven by SBN, with the number of member-countries that have incorporated national frameworks to promote it doubling to 10 in the last year alone. Regulators are recognizing the value of guiding banks to understand and manage environmental and social impacts, while realizing the numerous opportunities to lend and invest in green and inclusive sectors.
“Sustainable finance has made great progress and we are excited to see new trends that show that sustainable finance is becoming the norm in emerging economies, which are adapting international best-practices for their local markets,” said Morgan Landy, Director of Environment, Social and Governance at IFC. “Sustainable finance practices are now not only being used by banks, but by the wider financial system with all of types of financial institutions looking at these guidelines,” he said.
A recent example is Peru, where the local regulator has launched a new framework to guide the implementation of social and environmental risk evaluation by the financial sector and encourage the use of international best practices by local banks in these areas.
SBN, an initiative launched with IFC’s support, has led this effort by promoting an exchange of ideas and best practices between its members, which have jumped to 19 countries since its inception in 2012. IFC has also backed regulators in these efforts by providing its technical expertise and Performance Standards, which have been implemented by more than 80 financial institutions worldwide. The conference also showcased how the success of the last few years has created a spillover effect to include capital markets, pension funds and insurance firms, among others.
According to SBS, the objective of this new regulation is to align different the tools for managing environmental and social risk that are used by banks during the structuring and approval of financing for projects that may have social or environmental impacts.
Sustainable finance is essential for banks to have a solid understanding of the environmental and social impact of their activities. It provides banks with the tools to manage these risks in their day-to-day business activities, policies and procedures. This also allows banks to find new business opportunities and confront some of the social and environmental challenges in the countries where they operate.
The result is that banks that successfully incorporate these frameworks add long-term value for their clients and stakeholders while also supporting the sustainable growth of the economies where they operate.
The number of countries that have regulatory frameworks to promote sustainable finance has increased sharply during the last few years. In Latin America, Colombia, Peru and Brazil have developed regulations and protocols to encourage the implementation of sustainable finance mechanisms in their local markets.
SBN has been supported by the government’s Japan, Denmark, Germany’s Federal Ministry for Economic Cooperation and Development (BMZ) and Switzerland’s State Secretariat for Economic Affairs (SECO).
The event is part of the “Road to Lima” initiative which includes a series of high-profile events organized by the Government of Peru, the World Bank Group, and the International Monetary Fund leading up to the 2015 Annual Meetings of the World Bank Group and the International Monetary Fund taking place in Peru in October 2015.
IFC has invested a total of US$3.1 billion in Peru since 1956, when Peru became a member country, including US$1.1 billion in funding mobilized. IFC’s strategy in Peru aims to increase debt and equity financing, improve the investment climate and support key players in Peru’s private sector that can expand the country’s infrastructure as well as deliver products and services to underserved sectors, for example by expanding access to finance for micro, small, and medium enterprises (MSMEs), as well as access to housing, health and education finance.