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Corporate social responsibility (CSR)

Hommes de d'eau portant des casques et gilets de sécurité dans le désert
© I. Ezzerelli

In addition to its contribution to economic development through wealth and job creation, infrastructure construction and the integration of countries into world trade, the private sector, in the North and South alike, has a broader social responsibility: sustainable and inclusive development requires a commitment by companies and financial institutions to act in a responsible manner.

This means managing the impacts that their activity has on society and the environment, adopting ethical and transparent practices, and complying with applicable local laws and key international standards on labor, the fight against corruption, the environment and human rights.

In developing countries, environmental, social and governance (ESG) issues are gaining ground in both large corporations and SMEs.

As a development finance institution, Proparco’s role is to encourage this trend and promote the highest ESG standards in the companies it finances. Indeed, for these companies, they are powerful tools for ensuring their development and contributing to the development of the countries where they are located.

Through its mandate as an investor in companies in the South, Proparco undertakes operations which have environmental and social (E&S) risks.

Several years ago, it strengthened its approach to E&S analysis and management in order to mitigate them. It includes the requirements of AFD Group, the principles common to European donors, IFC’s Performance Standards, the ILO international labor standards, the FAO criteria, and basic principles such as those of the Universal Declaration of Human Rights.

In addition to risk management, Proparco assists its clients in improving their E&S practices. For example, it can finance technical assistance for capacity building for staff, the implementation of E&S management systems and corporate certification (ISO 14 001, fair trade, FSC, etc.).

For Proparco, CSR consequently involves encouraging its clients to reduce their levels of pollution, limit their consumption of natural resources (particularly for water and energy) and greenhouse gas emissions, and protect biodiversity.

Proparco also pays special attention to the protection of the rights of local communities, working conditions for employees, women, and access for local communities to services provided by its clients, particularly in the education and health sectors. In this respect, it can, for example, encourage them to develop scholarship systems in higher education, or introduce preferential healthcare rates for certain vulnerable or disadvantaged populations.

Proparco has a team of specialists on ESG issues. Depending on the client’s needs and potential areas for improvement identified during the project appraisal, the team can define an action plan with the client which sets out the actions that need to be implemented, the responsibilities and the time required. This plan represents a contractual commitment that is set out in the financing agreement, the implementation of which is regularly assessed.

For Proparco’s client companies, CSR is a crucial stage for them to be recognized as a development actor, as it allows the potentially negative effects of their activity to be managed, promotes high ESG standards, attracts investments, increases their productivity (by controlling their consumption of natural resources, limiting accidents at work…), their competitiveness and, ultimately, their contribution to improving living conditions for communities and fighting against environmental degradation.

The steps:

When projects are identified, they are classified in four categories of potential E&S risks, which determine the level of E&S due diligence to be conducted and the reference standards to be applied.

In order to properly assess the E&S risks and opportunities of projects, and the client's commitment to these aspects, due diligence is carried out through site visits by the ESI team and/or specialized consultants, meetings with our customers and their partners, and the analysis of studies already carried out. Projects are assessed on the basis of national regulations and international standards. If deviations from these norms and standards are identified, ESI's team develops E&S action plans to control and manage the identified risks and promote the sustainable development of the companies or financial institutions financed.

E&S action plans define the solutions jointly approved by the company or financial institution and Proparco to improve the company's E&S management and performance. They are integrated into the legal documentation and become de facto contractual commitments.

Throughout the financing period, the implementation of client commitments and the evolution of their E&S performance are regularly monitored by Proparco.

E&S monitoring is carried out on the basis of regular monitoring reports sent by clients, E&S audits carried out by consultants and site visits by Proparco specialists.

If necessary, technical assistance can be financed to improve our clients' capacities, help them obtain certification, define corporate sustainable development policies and E&S risk management systems for projects financed by banks or investment funds, etc.

For several years now, Proparco has been harmonizing its approaches and tools with its European counterparts, with whom it regularly co-finances projects.

  • Very high risks (A): financed activities presenting various significant potential, irreversible or unprecedented E&S risks. These risks can only be mitigated or corrected at a substantial cost.
  • High risks (B+): financed activities with potential E&S risks that are generally limited or site-specific and controllable through specific mitigation measures. A B+ rating implies that a risk classified under IFC PS 5-8 has been identified (displacement of population/activity, biodiversity conservation, indigenous peoples or cultural heritage).
  • Moderate risks (B): financed activities with limited potential E&S risks that are site-specific and easily manageable with well-known mitigation measures.
  • Low risks (C): financed activities that present little or no E&S risk.

High E&S risk portfolio (IF-A)

  • Definition of classification: financial institutions whose portfolio activities or projects involve significant potential social and/or environmental risks.
  • Basic classification criterion: more than 20% of the total amount of the portfolio is invested in high-risk business sectors.

Moderate E&S risk portfolio (IF-B)

  • Definition of classification: financial institutions whose portfolio activities or projects involve limited potential social and/or environmental risks.
  • Basic classification criterion: less than 20% of the total amount of the portfolio is invested in high-risk business sectors.

Low E&S risk portfolio (IF-C)

  • Definition of classification: financial institutions whose portfolio activities or projects involve little or no social and/or environmental risk.
  • Basic classification criterion: over 80% of the total amount of the portfolio is comprised of retail customers or micro-businesses.