Currently, there is evidence showing that sustainable financing has considerably increased worldwide, and that it is growing persistently. The number of companies managing assets and that are now including social, environmental and governance factors in their investment selection process has increased from approximately 100 in 2006 to more than 1,000 in 2013, which represents nearly USD $ 35 billion in assets (United Nations Principles on Responsible Investment – UNPRI). A similar pattern has been observed regarding international project financing. Throughout the last decade, 78 large banks have adopted the Ecuador Principles for defining, assessing and managing environmental and social risks in project financing. These banks account for 70% of international project financing in emerging markets. Furthermore, the financial sector has achieved to create financial instruments for sustainable development, such as macro finances, carbon financing, impact investments and green investments.
With an adequate management of its environmental and social risks, a bank may substantially improve the general quality of its credit portfolio. Currently, the majority of international financial institutions (IFI), as well as bilateral and multilateral development agencies (e.g., IDB), follow appropriate environmental and social guidelines. Local FIs with an access to financial resources from IFIs are frequently required to apply environmental and social regulations of the latter to their own operations. Some IFIs, among them the International Financial Corporation (IFC) and the IDB promote the use of ESMS (environmental and social management systems) on a worldwide basis. Besides from bilateral and multilateral development agencies, several international funds for the environment have applied ESMS criteria for deciding about financial eligibility matters.
For example, among the financing mechanisms regarding climate change there are: the Global Environmental Facility (GEF), the Adaptation Fund and the Green Climate Fund. Design and implementation of an ESMS must consider:
- Guaranteeing the permanent support and back-up from the top management, for achieving personnel participation.
- Integrating the ESMS into the operational procedures and the bank’s documentation, instead of creating an independent system.
- Planning the implementation process with other changes in operational procedures.
- Ensuring not to over load personnel and clients, maintaining nonetheless the practical and concrete nature of the system and its procedures.