the role of development finance institutions in green governance & finance: the adfiap...

f i n a n c i n g

d e v e l o p m e n ts u s t a i n a b l e

Association of Development Financing Institutions in Asia and the Pacific

The Asia-Pacific Finance & Development Forum“Fiscal and Financial Policies for Low-carbon Economic

Development”

The Role of Development Finance Institutions in The Role of Development Finance Institutions in Green Governance & Finance: The ADFIAP Green Governance & Finance: The ADFIAP

ExperienceExperience

Octavio B. PeraltaSecretary General, ADFIAP

www.adfiap.org

AGENDAAGENDA

ADFIAP and its Mission

The Need for and Role of DFIs

The Business Case for Green Governance

ADFIAP & DFIs: Case Studies on Green Finance

Green Governance Initiative

Concluding Remarks

Asia-Pacific Finance & Development Forum, November 26, 2010, Shanghai, China

Introducing…ADFIAPIntroducing…ADFIAP

Asso. of Development Financing Institutions in Asia & the Pacific120 member-institutions in 43 countries & territoriesFounded in 1976 during the 6th ADB conference for DFIsFounding member & Secretariat of the World Federation of DFIsAn NGO in consultative status with the UN ECOSOCMember, UNEP Finance Initiative Asia-Pacific Task ForceEU-Asia Pro Eco Programme grantee on Environmental Governance2008 Winner of ASAE’s Associations Make a Better World AwardPermanent secretariat is in Manila, Philippines


ADFIAP’s Mission & Focus AreasADFIAP’s Mission & Focus Areas

Economic Social

Environment

GovernanceGovernance

•Financial Inclusion•Social Housing•Education & Health

•MSMEs•Trade•Agriculture•Industry•Technology•Infrastructure•Services

•Climate change•Environment finance

•CDM•Carbon finance•Others

•Corporate Governance •Institutional Integrity

“Financing Sustainable Development”

Mission & Focused AreasMission & Focused Areas


Sustainable Development

Good Governance SME Finance

Social FinanceEnvironmental Finance

ADFIAP’s Sustainable Development PillarsADFIAP’s Sustainable Development Pillars

DFI vis-à-vis DBDFI vis-à-vis DB

A Development Financing Institution (DFI) connotes a broader term since not all DFIs are “banks” per se. However, alternatively and for ease of terminology, it can also be referred to as a “development bank.”


The Need for Development BanksThe Need for Development Banks

4 A case of “market failure” requiring national governments to intervene in the financial markets.

3 Commercial banks are usually contented with short-term banking activities and are reluctant or are not in a position to support national priorities of long-term investment in the real sectors.

2 Need to provide financing to the “engines of growth” to achieve a higher degree of productivity and efficiency in the economy.

1 Need for an “special purpose institution” to accelerate long-term investments to create employment and achieve rapid national growth.

The underlying principle is that long-term resource allocation should be done by business-oriented financial institutions vis-à-vis direct allocation by the government.


Roles of a Development BankRoles of a Development Bank

Assists projects that no other financial institution will fund, thus promoting new & innovative economic activities, e.g., funding for inventors, cooperatives and high-risk investments

Bank of Last Resort

Promotes the ‘business’ of development such as job generation, domestic resource mobilization, country-side development, MSMEs

Development Advocate

Takes a lead role in creating new financial packages with involvement of banks & other financial institutions, e.g., loan syndication of large projects; guarantee schemes for industry sectors

Catalyst

Develops new methodologies & systems in raising capital & increasing investments through non-traditional areas, e.g., financing large projects via BOT, BOL, BOO, etc.; capital market; microfinance

Institution-Builder

Plays a “supply-leading” role (in anticipation of future demand) e.g., technology transfer, strategic industries, environmental projects

Initiator


Institutional Linkages of a Institutional Linkages of a Development BankDevelopment Bank

DEVELOPMENT BANK

Government

Commercial Banks

Financial Institutions

IFIs

Capital Markets

Project

Proponent

Regulatory Body

Public /

Private Sector

• job creation• earnings• technology transfer• other economic benefits

• Repayment• Participant

• Capital• Enabling policyInstitutional

Strengthening

• Dividend• Development advice

• Wholesale Loans• Syndication

Loan

T.A.

Repay

Loan

Repayment

Funds

F/S

Info/

support

Project Ideas


General Types of Development Banks TodayGeneral Types of Development Banks Today

policy bankspolicy banks – directly support the national government’s economic policy plans & directions. Ex. China, Malaysia, etc.

special-purpose DBsspecial-purpose DBs – support focused sectors of the economy. Ex. SME Bank Thailand, Agro Bank Malaysia, Housing Bank India, etc.

multi-purpose DBsmulti-purpose DBs – also called “universal banks” – support both development projects as well as commercial businesses. Ex. Philippines, India, Sri Lanka, etc.

commercially-oriented DBscommercially-oriented DBs – support development through commercial banking services. Ex. Singapore


The Business Case for Green GovernanceThe Business Case for Green Governance

Climate change effects on business organizationsAs early as 2006, a report analysing greenhouse gas emissions of the 500 world’s largest publicly-traded companies found that businesses will not be immune to the predicted changes and may experience disturbance to their operations and profitability.



Climate change effects on business organizations

it makes good business sense for business organizations to start accounting for their own greenhouse gas emissions, according to a report issued by the World Resources Institute.

The benefits include:- identifying reduction & subsequent money-saving

opportunities; - cutting the company’s regulatory risks that may result

from more stringent regional, national, or international efforts to curb global warming; and

- enhancing reputational status in the eyes of the consumers and other stakeholders.



Direct financial gains• cost savings (in energy/water use, paper, etc.)

• cost-consciousness among employees• lower future compliance costs

Reputational/Image benefits• attract & retain customers

• attract & retain good employees• better recognition in society & public in general

Work place benefits• proper facility management

• accident-free environment• healthier working environment

Environmental/Ecological Gains• clean environmental services & access to natural resources




reductions in resource use, health and safety

excellence, responsibility beyond

compliance, environmental performance measurement, sustainability communication

Stakeholder interests on the company‘s products &

services

Tangible value drivers:

Intangible value drivers:

Being a value-driven company

Profitability

Asset utilization

Service quality

Customer relationships

Brand equity & reputation

Alliances

Shareholder value

creation

TechnologySource: GEMI

Starting from within:The Environmental Governance ProjectThe Environmental Governance Project

www.egs-asia.com

The issue of environmental governance has been and will always be in the forefront of ADFIAP’s activities.

ADFIAP’s “Greening of DFIs” Project is its collective and responsive effort to pursue sustainable development through its adherence to the principles of a safe and clean environment, not only as part of good corporate citizenship, but more importantly, as an integral part of sound business practice.- ADFIAP Board of Directors

•About 300 CEOs and senior staff were involved in the project in ADFIAP regional, sub-regional and national meetings & conferences;•A new ADFIAP publication, Greenbank, was developed and produced for dissemination to members and other networks; and•An Environmental Category has since been included in the annual ADFIAP Awards program for outstanding achievements of member banks.


Starting from within: The The “Greening of DFIs”“Greening of DFIs” Project Project

Sustainability Report 2009 Water Financing Carbon Offset Certificate Green Banking Book Launch

Project Partners


www.devbankphil.com.ph

DBP ForestDBP Forest: Greening the countryside

Clean Development MechanismClean Development Mechanism* (CDMCDM):

The CDM is an arrangement under the Kyoto Protocol which allows industrialized countries with a greenhouse gas reduction commitment to invest in initiatives that lessen emissions in developing countries as an alternative to more costly emission reduction measures.

Environmental Development ProjectEnvironmental Development Project* (EDPEDP)Local government units, government-owned and controlled corporations, cooperatives, water districts, private corporations and private water service providers can access long-term funds through DBP and its participating financial institutions to mobilize, encourage, and support activities and investments in environment-friendly projects.

* With the Japan Bank for International Cooperation (JBIC)


www.dfccbank.com

Renewable Energy for Rural Economic Renewable Energy for Rural Economic Development (RERED) ProjectDevelopment (RERED) Project

To expand the commercial provision and utilization of renewable energy resources and improve the quality of life in rural areas in Sri Lanka.

Cumulative Approvals & Disbursements of Credit under RERED & RERED-Additional

Financing as at 30 Sept. 2008


www.bpmb.com.my

Biofuel Financing Scheme Biofuel Financing Scheme

Financing to all biofuel-related activities including processing of biofuel produced from agricultural products such as palm oil, rapeseeds, soybeans, linseed, jatropha, coconut oil and mustard seeds, or from waste cooking oils and other organic products.

Renewable Energy & Energy Efficiency SchemeRenewable Energy & Energy Efficiency Scheme

Supports government efforts in developing and enhancing the RE & EE projects that have an environmental benefits from the renewable-related projects.


Financing Scheme for Energy-saving projects in the MSME Sector – Financing Scheme for Energy-saving projects in the MSME Sector – encourage MSMEs to undertake energy-saving investments in production facilities to reduce energy consumption, enhance energy efficiency, reduce CO2 emissions, use alternative and renewable energy sources, etc.

www.sidbi.in


CDB’s initiatives: controlling loans to industries with high energy consumption and high pollution. expediting the upgrade of outdated production methods. financing industrial pollution treatment and ecological environment protection projects.

www.cdb.com.cn


SME Development Bank of ThailandSME Development Bank of Thailand – provides loans for hire-purchase of natural gas vehicles

Bank of KhyberBank of Khyber – assists small entrepreneurs to finance purchase of /conversion to natural gas auto rickshaw

Lankaputhra Development BankLankaputhra Development Bank – to open avenues for small farmers to move towards new technology, techniques and market opportunities

Land Bank of the PhilippinesLand Bank of the Philippines – provides financing for bio-fuel projects sourced from a kind of plant called jatropha curcas

Bank of MaharastraBank of Maharastra – provides loans for adoption of renewable energy practices and use of solar home systems

Green Green Finance of other ADFIAP MembersFinance of other ADFIAP Members


Green Green Finance of other ADFIAP MembersFinance of other ADFIAP Members


Weather-Indexed Insurance for Agriculture in Developing CountriesA Market Mechanism for Climate Adaptation

aimed at alleviating the negative impacts of extreme weather on farming households and village economies by compensating part of the damage caused to farming products

pilot project is a scheme whereby insurance premiums are paid by industrial countries and climate disaster compensation payouts are received by developing country

governments or local governments.

Green Governance InitiativeGreen Governance Initiative

RegulatoryBodies:

Central BankSecurities Com.Stock Exchange

Green Governance

Low Carbon Economy

Sustainable Development & Growth

Business Sector: Banks Corporations Listed Cos.

•Regulations•Directives

•Policies•Practices

•Board structure•Board policy•“Scorecard”

•Renewable Energy•Clean Technology•Others


Driving the initiative

Green Governance InitiativeGreen Governance Initiative

Corporate Governance Green Governance

1. Independent directors/fit & proper rule 1. At least one director knowledgeable on climate change/environmental issues

2. Board committees 2. A separate environment committee or as part of the risk management committee; an environmental management unit under the Board

3. Corporate governance code 3. Environmental governance code or policy approved by the Board; environmental risk management integrated in operational decisions

4. Reporting and disclosure 4. Issuance of an integrated annual and sustainability report or a standalone sustainability report


Concluding RemarksConcluding Remarks

Currently, climate change and environmental issues are not merely discussed in boardrooms or part of company CSR, they are being imbedded as part of new a business model and future sustainability.

A “green governance” initiative can be built in into existing corporate governance policies and practices.

One organization like ADFIAP can only do so much to advocate green governance and finance. It takes other like-minded institutions and partners to make it work.


Thank you for your kind attention!Thank you for your kind attention!


Let’s all help save our one Earth!

Image: Miguel Villagran/Getty

the role of development finance institutions in green governance & finance: the adfiap...

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universal banks support

commercial banks

national priorities

chinathe need

missionthe need

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