It is also an important vehicle for sustainable development. Indeed, the private sector can play a key role in the dissemination of good environmental practices (reduction of pollution, renewable energy development…), social practices (working conditions, fight against discrimination…) and good governance.
To ensure the commitment of its clients, several years ago it enhanced an analytical and risk management framework related to the operations it supports – not only for financial aspects (risks of fraud, corruption, money laundering, etc.), but also for environmental and social (E&S) aspects and governance.
This framework includes criteria and principles that are specific to AFD Group (its financial security policy , its climate commitment , its environmental and social responsibility approach…), the European donor community ( principles for responsible investment …) and multilaterals (IFC Performance Standards ), as well as the major international institutions ( ILO standards , FAO criteria , etc.).
In addition to strict risk management, particularly for E&S issues, Poparco’s role is to assist its clients in improving E&S or governance aspects that create added value for the companies that are financed. For example, it finances technical assistance that aims to help improve working conditions for their employees, reduce their carbon footprints, obtain environmental certification, enhance the company’s governance or introduce a corporate policy against gender discrimination. The objective is to promote the emergence of a responsible private sector in Southern countries.
Proparco also measures the impacts that funded projects have on local development and can assist certain clients in increasing their impacts (income in the corporate value chain for example).
In 2010, Proparco set up an “Environmental, Social, Governance and Impact” (ESGI) Division to carry out this activity, which today comprises 18 people, who are assisted by independent consultants.
Corporate social responsibility (CSR): a development issue
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, 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 (the “Environmental, Social, Governance and Impact” – ESGI – Division). Depending on the client’s needs and potential areas for improvement identified during the project appraisal, the Division 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 by ESGI.
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.