Environmental, Social, and Governance
1. What’s ESG
A set of environmental, social, and governance (ESG) factors considered by companies when managing their operations, and investors when making investments, in respect of the risks, impacts, and opportunities relating to but not limited to:
Environmental issues: potential or actual changes to the physical or natural environment (e.g. pollution, biodiversity impacts, carbon emissions, climate change, natural resource use);
Social issues: potential or actual changes on surrounding community and workers (e.g. health and safety, supply chain, diversity and inclusion); and
Governance: corporate governance structures and processes by which companies are directed and controlled (e.g. board structure and diversity, ethical conduct, risk management, disclosure and transparency), including the governance of key environmental and social policies and procedures.
Read more: www.ifc.org
2. What’s ESMS
A Environmental and Social Management System is a set of policies, procedures, tools and internal capacity to identify and manage a financial institution's exposure to the environmental and social risks of its clients/investees.
A Environmental and Social Management System states a financial institution’s commitment to environmental and social management, explains its procedures for identifying, assessing and managing environmental and social risk of financial transactions, defines the decision-making process, describes the roles, responsibilities and capacity needs of staff for doing so and states the documentation and recordkeeping requirements. It also provides guidance on how to screen transactions, categorize transactions based on their environmental and social risk, conduct environmental and social due diligence and monitor the client’s/investee’s environmental and social performance.
Read more: ESMS Implementation Handbook
Supplemental information:
IFC ESMS 101 Presentation (PDF)
ESMS Self-Assessment and Improvement Guide (PDF)
ESMS Toolkit - General (PDF)
Environmental & Social Management (ESMS) System Diagnostic Tool for Financial Institutions (FIs):
Helps FIs, institutional investors and asset managers assess an ESMS against IFC’s Performance Standard 1 and good market practices.
3. Financial Institutions: Resources, Solutions and Tools (FIRST)
FIRST is a one-stop shop for professionals working with financial institutions to get guidance and tools to understand and manage environmental and social (E&S) risks as well as explore E&S business opportunities. This includes guidance on how to implement an Environmental and Social Management System (ESMS), conduct environmental and social due diligence, creating a pipeline of new business and offerings tailored to the E&S needs of clients, and a wide variety of other topics. Read more:
4. Sustainable Banking and Finance Network (SBFN)
The Sustainable Banking and Finance Network (SBFN) is a platform for knowledge sharing and capacity building on sustainable finance for financial sector regulators and industry associations across emerging markets. Facilitated by IFC as secretariat, and supported by the World Bank Group, SBFN helps mobilize information, resources, and practical support for members to design and implement national initiatives that advance sustainable finance at national, regional, and global levels.
Members are committed to moving their financial sectors towards sustainability, with the twin goals to:
• Improve the management of environmental, social, and governance (ESG) risks – including climate risks – across the financial sector.
• Increase capital flows to activities with positive environmental and social impacts, including climate change mitigation and adaptation.
SBFN Framework Library: a comprehensive and searchable collection of national sustainable finance framework documents introduced by members to date. It includes national roadmaps, policies, regulations, voluntary principles, guidelines, research, templates, taxonomies, and tools to guide and enable sustainable finance in emerging markets.
SBFN Global and Country Progress Reports – 2021 & 2022: SBFN’s 3rd Global Progress Report — released on 29 October 2021 — captures the significant increase in collective efforts across 43 emerging markets, to develop national enabling frameworks for sustainable finance. It is the most comprehensive benchmarking of national sustainable finance initiatives globally and applies a robust measurement framework agreed on by all SBFN members.
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5. IFC E&S Performance Standards
IFC's Environmental and Social Performance Standards define IFC clients' responsibilities for managing their environmental and social risks.
Performance Standard 1: Assessment and Management of Environmental and Social Risks and Impacts
Performance Standard 2: Labor and Working Conditions
Performance Standard 3: Resource Efficiency and Pollution Prevention
Performance Standard 4 : Community Health, Safety, and Security
Performance Standard 5: Land Acquisition and Involuntary Resettlement
Performance Standard 6: Biodiversity Conservation and Sustainable Management of Living Natural Resources
Performance Standard 7: Indigenous Peoples
Performance Standard 8: Cultural Heritage
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6. ESRM TOT Project
The State Bank of Pakistan (SBP) launched the Green Banking Guidelines (GBGs) in October 2017 as a first step to integrating environmental and social (E&S) risks into overall credit assessment, ensuring a level-playing field for the financial sector, and promoting sustainable economic development. The guidelines align with IFC’s sustainable finance approach. The SBP, with support from IFC, developed the Environmental and Social Risk Management (ESRM) Implementation Manual to provide banks with the right tools and procedures to overcome challenges they have encountered in implementing the guidelines.
IFC’s ESRM in Pakistan (the Program) leverages IFC’s global expertise and knowledge on Sustainable finance, with a particular focus on improving banks’ environmental and social risk management (ESRM) practices. The Program works with regulators and FIs in Pakistan to help 1) create market drivers through working with the State Bank of Pakistan to develop technical guidance; 2) raise awareness and build up capacity and improve the environmental and social performance of financial institutions especially banks in Pakistan; 3) increase the number of intermediaries to provide ESG training and technical support to banks.
About the ESRM TOT Project
In this context, IFC and NIBAF partnered in capacity building for Pakistan banks, and implemented a Training-of-Trainers project (the “Project”) to increase the availability of technical resources and capacity among banks, to enhance the SBP Green Banking Guidelines implementation performances by Pakistan banks. The Project involves 1) develop standardized training materials on ESRM and sustainable banking; 2) deliver of a series of training for both supporting institutions and banks; and 3) identify trainers to provide ESG training and technical support to banks.
The collaboration will support the enabling environment and build market capacity for improved environmental and social (E&S) performance of financial institutions in Pakistan.
Through the following seven training modules, the TOT will combine latest green finance policies, ESRM theories, and practical skills for trainers to strengthen capacity building within banks.
1) Introduction of Environmental and Social Risk Management System.
2) ESRM in Pakistan.
3) Overview of IFC Performance Standards and Other International Standards.
4) Demystifying ESRM: Environmental and Social Management (ESMS) Development.
5) Implementing ESRM: Environmental and Social Due Diligence (ESDD) Fundamentals.
6) Post Transaction Monitoring.
7) Soft Skills for Training Delivery.
The objectives of the TOT project include:
• Provision of training to consulting companies and bank staff (who holds E&S management or training responsibilities) on E&S Risk Management (ESRM) techniques; spanning the business case to development of an Environmental and Social Management System (ESMS) including tools and procedures to enable successful identification and management of E&S risks in banks’ portfolios.
• Building capacity of supporting institutions to understand and review FIs’ portfolios and conduct environmental and social due diligence (ESDD) on existing and potential clients’ operations.
• Improved understanding and experience of using tools to support Pakistan banks in development of systems and reporting structures to aid compliance with the Pakistan Green Banking Guideline.
• Building awareness focusing on the benefits of prioritizing ESRM.
• Demonstrating opportunities for Sustainable banking and sharing of global best practice.
• To establish a collaborative learning environment to support the growth and development of the supporting institutions over the longer training project.
Successful completion of the TOT project will result in in-depth understanding of the format and requirements of a bank’s ESMS, as well as an appreciation of the global context of best practice in successful E&S risk management by banks. Participants will also gain experience in delivery of presentations and development of presentation materials and case studies to be delivered at future training workshops as part of the project.
Three training sessions have been organized in 2022 by NIBAF and IFC in partnership with Government of Japan as follows:
• 1st ESRM TOT session (virtual) on August 1 & 2, 2022
• 2nd ESRM TOT session (physical) on November 10 & 11, 2022 in Karachi.
• 3rd ESRM TOT session (physical) on November 17 & 18, 2022 in Karachi.
Upcoming ESRM TOT sessions:
• 4th ESRM TOT session (physical) on March 13 & 14 in Islamabad.
• 5th ESRM TOT session (physical) in May in Lahore.
Resources:
Pakistan ESRM TOT Brochure (PDF)
Pakistan ESRM TOT presentation (PDF)
Organizers:
In partnership with
7. Disclaimer:
NIBAF is collaborating with IFC on the Integrated ESG Standards Program
to promote the uptake of good sustainability practices in Pakistan and the region. The Program is delivered in partnership with the State Secretariat for Economic Affairs of Switzerland (SECO).
IFC’s FIRST for Sustainability website offers information, guidance, and tools to financial institutions to understand and manage the environmental and social risks of their portfolio as well as to identify and take advantage of business opportunities in this space. The site has been recently redesigned to provide a better user experience, with improved information organization updated content, and enhanced search capability.