International Finance Corporation

1. International Finance Corporation IFC’s mission is to promote sustainable private sector investment in developing countries, helping to reduce poverty and improve people’s lives

2. International Finance Corporation About IFC IFC in China IFC Financing for Environmental Projects

3. International Finance Corporation IFC’s mission is to promote sustainable private sector investment in developing countries, helping to reduce poverty and improve people’s lives • Member of World Bank Group - owned by 175 governments • Operates on a commercial basis • Profitable every year since founded in 1956 • AAA rated international borrower • Net worth of $6.3 billion • Committed loan and equity portfolio of $15.1 billion • In FY02, IFC approved $4.0 billion of financing for 223 new investments with a total project cost of $15.5 billion

4. IFC’s Guiding Principles Mobilization of capital Minority position, non-operating role Investment limit of 25%-35% Complements, not displaces, private sector Same risks/returns as other investors Market pricing No government guarantees Honest broker/neutral partner Benefits host country economy Commercially viable Environmentally sound Socially sound  Catalyst Partner Sustainable

5. The resources of a development bank and the flexibility of an investment bank • Long-Term Financing • Debt – Project finance and corporate finance • Equity / Quasi-equity Global industry and local country knowledge • Capital Mobilization • Syndication with commercial banks (B loan program) • Co-financing Understanding of government policies IFC’s Products Commercial and technical skills in emerging markets • Advisory Services • Financial structuring • Industry and technical • Government (capital markets, foreign investment) Plus special initiatives for high priority sectors: SMEs, Environment, Social Development

6. IFC’s Investment Portfolio by Region Investment commitments of $15.1 billion in 1,402 companies in 117 countries as of 30 June 2002.

7. IFC’s Investment Portfolio by Sector Investment commitments of $15.1 billion in 1,402 companies in 117 countries as of 30 June 2002.

8. IFC in China • Active investor in China for 15 years • Cumulative commitments (IFC + participants) over $1.2 billion in almost 50 projects • Current investment for IFC’s account of $534 million in 42 projects • FY02 committed $150 million in 8 new projects • Offices in Beijing, Chengdu (SME Facility), Hong Kong

9. IFC’s China Portfolio by Sector 42 investments totaling $534 million outstanding at 30 June 2002

10. IFC’s China Strategy • Top Priority Country – Actively seeking new projects • Objectives: • Finance model transactions that catalyze private investment • Deepen and broaden financial sector • Set standards for corporate governance, accounting, environment • High priority sectors: • Domestic private companies and entrepreneurs • Emerging private financial institutions • Focus on interior provinces (CPDF in Sichuan Province) • Assist in restructuring companies • Social and physical infrastructure projects • Environmental technologies and improvements

11. IFC’s Approach to Environmental Projects • Mainstream IFC Projects Encourage improvements in all IFC projects by adding value through IFC’s new Sustainability Framework • Environmental Projects Support projects with direct environmental benefits (e.g. clean water) and alternative technologies (e.g., renewable energy) • Environmental Initiatives Where appropriate, access limited concessional funding to expand the range of sustainable private-sector activities

12. IFC’s Sustainability Framework

13. IFC’s Sustainability Framework Performance Level Level 1: Complies with IFC and national minimum standards Level 2: Added environmental, social, or corporate governance value Level 3: High performance Level 4: Leadership • Developmental Benefits • The economic activity conducted by the project or company is in accordance with accepted national and international (IFC) standards for mitigating potential environmental or social harm stemming from the activity. • Handling of environmental/social issues materially exceeds minimum standards. • In so doing, the project or company creates local or global benefits in terms of reduced waste, emissions, or use of natural resources of its economic activity or helps spread the benefits accruing from its economic activity to the local community or to groups which often fail to benefit from such activity. • Corporate governance practices are good enough to affect positively views of investors about investing in the country. • Handling of environmental and social issues materially exceeds WBG minimum standards. • Formalization of practices or other steps enable good practices on environmental, social and corporate governance issues to leverage change broadly within a region, a sector, or a supply chain. • Economic activity beyond the firm is influenced in the direction of improved resource intensity and inclusion of new beneficiaries. • Corporate governance attributes of the project are sufficiently advanced so that a demonstration effect is possible. • Company is actively engaged on many fronts in the dissemination of best practice. • Economic activity well beyond the firm is influenced in the direction of improved resource intensity and inclusion of new beneficiaries • Firm is seen as a global corporate governance leader, with wide influence.

14. Making the Business Case for SustainabilityHow good economic, environmental, social and corporate governance performance creates financial value for companies in emerging markets • Earn price premiums • Strengthen customer loyalty • Develop new product lines • Lower costs • Decrease operating risks • Reduce supply chain disruptions • Better access/lower cost financing • Increase employee satisfaction • Reap reputational benefits

15. Developing ValueBusiness Case Matrix

16. Developing Value – Key Findings • Solid evidence on the ‘business case’ for pursuing sustainability in emerging markets • Business case is company-specific • Not “one-size-fits-all” • Varies by region, company-size • Potential for all firms to integrate into business strategy – even small improvements count • Sustainability risks and opportunities are evolving rapidly

17. Example from China #1: Bank of Shanghai • Sustainability Factor: New corporate governance structure including audit, compensation and risk management committees • Business Case Benefits: Investment from HSBC and likely faster listing on stock exchange

18. Example from China #2 Sino-Forest Corporation Community – Based Operation Model Sino-Forest Corporation Local Professionals Sustainable Intensive Plantation Management System Technology Eco-Econ Practices Funding Better Land-Use Higher Yield Multi-Products / Cycles Better Cash-Flow Ecological Knowledge Base Study,Design & Plan Land Plantation Service Contracts (Planting & Harvesting) Agroforestry Co-Operation Local Community

19. Environmental Sectors Pollution Abatement Industrial Household Sustainable Use Sustainable Agriculture Sustainable Forestry Sustainable Tourism Water/Waste Water and Wastewater Solid Waste Management Energy Renewable Energy (Biomass, wind, geothermal, solar …) Energy Efficiency (Industrial, T&D, ESCOs, FIs …) Advanced Power & Transport Technologies

20. Examples of EnvironmentalProjects Financed by IFC • Aguas Argentinas– $4,000 M water/wastewater concession • Manila Water Privatization – Advisor on pathbreaking project • Energia Global in Central America – $40 M renewable energy fund • Bananas in Ecuador – Certified ‘Ecofriendly’ by Rainforest Alliance • Cement in Estonia – 98% reduction in particulate emissions • Ecotourism in Tanzania – Conservation through community ownership • Ecomex in Mexico – Low-emission vehicles using compressed natural gas • Sino-Forest in China – Pursuing FSC Certification

21. Potential Challenges:Transactional Barriers

22. Potential Challenges:Market Distortion Barriers • Inadequate regulatory  Uncertainty too high for framework private sector investors Example: Government calls for private sector to build wastewater treatment plants without adequate regulations and/or pricing • Conventional competitors  Reduced competitiveness using underpriced resources of environmental project Example: Government policy subsidizes use of fossil fuels Example: Wind project competes with coal-fired plant that is not fully paying for mine reclamation or particulate & GHG emissions • Excess concessional funding  Commercial financing crowded out Example: Home country aid agency provides concessional funding for export of wind turbine without considering whether it is necessary

23. Environmental Initiatives On a highly selective basis, IFC accesses concessional funding to support increased environmental and social sustainability Objectives • Expand the range of activities associated with IFC’s market-rate investments • Accelerate market adoption of new technologies, services and business models Sources • Global Environment Facility • Donor Trust Funds • 3 New Environmental Facilities • IFC-Netherlands Carbon Facility

24. IFC’s Strategy for UsingConcessional Funding • Cautious with subsidies: Projects must have a clear path to financial sustainability • Market-based interventions: Stay as close to commercial viability as possible • Market-based instruments: Match the type of support to the obstacles or risks blocking the way • Prefer non-grant financing • Minimize use of concessional resources • Maximize leverage of concessional resources • Where possible, co-finance with IFC

25. IFC/GEF Activities • GEF provides limited, concessional funding for projects that achieve global environmental goals • Climate change, biodiversity and international waters • IFC/GEF portfolio –12 projects totalling $130 M • Highly innovative projects that have pioneered the use of non-grant financing (e.g., loans, guarantees, equity) • Primarily clean energy but also biodiversity • IFC/GEF pipeline –$20 M p.a. (2-4 projects) • Increasing share of biodiversity + more clean energy

26. Examples of IFC/GEF Projects • Hungary Energy Efficiency Cofinancing Program* $17 M partial guarantee facility • Solar Development Group* $40m global equity/TA fund for off-grid solar power • Terra Capital Fund* $15 M equity fund for biodiversity ventures in Latin America • Small and Medium Scale Enterprise Program $21 M for SMEs from Costa Rica to Viet Nam • Photovoltaic Market Transformation Initiative $30 M to accelerate solar power in India, Kenya, Morocco * Includes both GEF and IFC financing.

27. New Environmental Facilities Environmental Opportunities Catalytic project development funding and flexible investment financing for innovative projects that address local environmental problems Corporate Citizenship Guidance and support to the private sector in developing and implementing corporate citizenship initiatives and activities Financial Institutions Comprehensive and innovative sustainability program to strengthen the capacity of the financial sector through training courses and local consultant development • Facilities began operations July 2002 • Combined program targeted at $55 M over 5 years • IFC has approved funding but most will come from donors

28. IFC-Netherlands CarbonFacility • $40 M to purchase greenhouse gas emission reduction credits (‘carbon credits’) on behalf of the Dutch government • Pursuant to ‘Clean Development Mechanism’ of the Kyoto Protocol • Supplemental funding for IFC and third-party projects that reduce GHG emissions compared to baseline • Increased funding for sustainable projects • Improve access to cleaner technologies in developing countries • Reduce cost of compliance with Kyoto Protocol • Develop a new market for environmental services • Target sectors: Renewable energy, energy efficiency, fuel switching

29. Challenges and Strategies Challenges for IFC, New Ventures and other investors: • Business case still to be proven for many sectors in many countries • Projects face all the challenges of any business PLUS others – new business models, less established markets, longer lead times, etc. Strategies to consider: • Level the playing field – Work with government to provide appropriate regulatory climate and appropriate pricing of resources/products • Support sustainable ventures – Projects must demonstrate economic, commercial, environmental and social viability • Choose your partners wisely – Finding the right enterpreneurs and co-financiers is critical to success • Stay close to the market – Use concessional funding with caution and make sure there’s a clear path to commercial viability • Don’t push the market too hard – We’ve tried it … and it pushes back!

30. Contacts IFC Beijing Office Ms. Karin Finkelston (kfinkelston@ifc.org) Tel: 010-6554-4191 Fax: 010-6554-4192 IFC Hong Kong Office Mr. Azmat Taufique (ataufique@ifc.org) Tel: 00852-2509-8100 Fax: 00852-2509-9363 IFC Headquarters Louis Boorstin (lboorstin@ifc.org) Yuebin Zhang (yzhang@ifc.org) Website: www.ifc.org