Djordjija Petkoski Head of Private Sector Development and Corporate Governance,

1. Financial Markets’ Responsibility Djordjija Petkoski Head of Private Sector Development and Corporate Governance, World Bank Institute

2. Overview Djordjija Petkoski Head of Private Sector Development and Corporate Governance, World Bank Institute • A World Out of Balance • The Role of Financial Institutions • The Equator Principles • Socially Responsible Investment (SRI) • The World Bank and the World Bank Institute • Concluding Remarks I. II. III. IV. V. VI.

3. A World Out of Balance Djordjija Petkoski Head of Private Sector Development and Corporate Governance, World Bank Institute

4. A World Out of Balance… Djordjija Petkoski Head of Private Sector Development and Corporate Governance, World Bank Institute

5. Global Issues Poverty and Developing Countries Today: 3 billion people (survive on) under $2/day 1.2 billion people (survive on) under $1/day Global Gross Domestic Product (GDP) Year 2000: 30 trillion – 5 billion people – 20% global GDP Year 2050: 140 trillion – 8 billion people – 40% global GDP (assuming 3.5% growth) Population Growth Djordjija Petkoski Head of Private Sector Development and Corporate Governance, World Bank Institute

6. Djordjija Petkoski Head of Private Sector Development and Corporate Governance, World Bank Institute Change in the Form of Aid

7. The Role of Financial Institutions Djordjija Petkoski Head of Private Sector Development and Corporate Governance, World Bank Institute

8. Djordjija Petkoski Head of Private Sector Development and Corporate Governance, World Bank Institute The Big Picture • Continuum of Investment Instruments Grants & Philanthropic Gifts  Market Loans & Equity. • Capital Market Players Philanthropic Institutions, Traditional Capital Development Agencies &  Institutions (Banks, Banks Mutual Funds, etc.). • Continuum of Value Creation Traditional Separation Blended Value (“Triple Bottom Line”)  Proposition. • Multi-sectoral Partnership (MSP) The less-developed market mechanism, the higher need for MSP common ground; Competitiveness.

9. Djordjija Petkoski Head of Private Sector Development and Corporate Governance, World Bank Institute FTSE4Good The Role of Financial Institutions • Project financing plays an important role in financing development worldwide. • Project financiers often encounter environmental and social policy issues, particularly in emerging markets. • The role of project financier affords opportunities to promote responsible environmental stewardship and socially responsible development.

10. Djordjija Petkoski Head of Private Sector Development and Corporate Governance, World Bank Institute Importance to Financial Institutions Why is exercising environmental & social responsibility in financing important? • Risk management & mitigation • CSR of growing importance to the insurance industry. • Stakeholder engagement & participation reduces risks & long-term costs • Creates an enabling environment for increased investment • Customer & shareholder satisfaction • Reputation

11. Djordjija Petkoski Head of Private Sector Development and Corporate Governance, World Bank Institute Role of the World Bank • To provide environmentally and socially responsible criteria for financial institutions. • To lead by example (The Equator Principles). • Set conditionalities for lending (Environmental & Social Safeguards). • To create attractive conditions for increased investment and to set an example of how this is procured and disbursed.

12. Djordjija Petkoski Head of Private Sector Development and Corporate Governance, World Bank Institute Role of the World Bank, cont. • World Bank involvement in projects signals a positive investment climate and encourages increased foreign direct investment (FDI). • Guarantee of continuing income: the creation of appropriate conditions establishes an environment for financial institutions to move in.

13. The Equator Principles Djordjija Petkoski Head of Private Sector Development and Corporate Governance, World Bank Institute

14. The Equator Principles Djordjija Petkoski Head of Private Sector Development and Corporate Governance, World Bank Institute • Voluntary guidelines for managing environmental & social issues in project finance lending. • Developed by leading financial institutions. • Based on the IFC environmental & social standards. • Applicable globally to development projects in all industry sectors with a capital cost of $50 million or more.

15. The Equator Principles, cont. Djordjija Petkoski Head of Private Sector Development and Corporate Governance, World Bank Institute • June 4, 2003: 10 international banks adopt the Equator Principles. • Today: 33 adopting institutions. • Approximately 75% of all project loan market volume. • Potential to become the de facto standard for all banks & investors on how to deal with potential social & environmental effects of projects to be financed.

16. The Equator Principles, cont. Djordjija Petkoski Head of Private Sector Development and Corporate Governance, World Bank Institute What does adoption of the Equator Principles mean for financial institutions? • Offers significant benefits to the financial institutions, their customers & other stakeholders. • Fosters ability to document & manage environmental & social risk exposure in project finance. • Allows the ability to work with customers in their management of environmental & social policy issues relating to their investments in emerging markets.

17. ABN Amro Banco Bradesco Banco do Brasil Banco Espírito Santo Group Banco Itaú Banco Itaú BBA Bank of America Barclays BBVA Calyon CIBC Citigroup Credit Suisse Grp Dexia Dresdner Bank Eksport Kredit Fonden HSBC HVB Group ING JPMorgan Chase KBC Manulife Financial Corporation Mediocredito Centrale Mizuho Corporate Bank Rabobank Royal Bank of Canada Royal Bank of Scotland Scotiabank Standard Chartered Unibanco Wells Fargo & Company WestLB Westpac The Equator Principles, cont. Djordjija Petkoski Head of Private Sector Development and Corporate Governance, World Bank Institute

18. Djordjija Petkoski Head of Private Sector Development and Corporate Governance, World Bank Institute Will the adoption of the Equator Principles be sufficient to change the terms of project financing? NO • Equity and investment institutions must get involved as well. • Socially Responsible Investment (SRI)

19. Socially Responsible Investment (SRI) Djordjija Petkoski Head of Private Sector Development and Corporate Governance, World Bank Institute

20. SRI – a definition • An investment process and approach that considers social and environmental concerns and consequences, both positive and negative, into investment decisions. • Significant effect/change in behavior: Pension funds, shareholder resolutions  affects project financing. Djordjija Petkoski Head of Private Sector Development and Corporate Governance, World Bank Institute

21. Individuals Businesses Institutional Investors Universities Hospitals Foundations Pension funds Religious institutions Nonprofit organizations. “Social investors consciously put their money to work in ways designed to achieve specific financial goals while working to build a better, more just and sustainable economy.” Social Investment Forum, 2001 Report on Socially Responsible Investing Trends in the United States Who are the Investors? Djordjija Petkoski Head of Private Sector Development and Corporate Governance, World Bank Institute

22. How Much Do They Invest? • Investment portfolios involved in SRI grew by more than 240 percent from 1995 to 2003. • In 2003, a total of $2.16 trillion in assets was identified in professionally managed portfolios using one or more of the three core socially responsible investing strategies – screening, shareholder advocacy, and community investing. • Total assets under management in portfolios screened for one or more social issues climbed from $1.49 trillion in 1999 to $2.01 trillion in 2001 to 2.16 trillion in 2003. • More than one out of every nine dollars is involved in socially responsible investing. Social Investment Forum, 2001 Report on Socially Responsible Investing Trends in the United States The Economist, Ethical investment, Jul 12th 2001 2003 Report on Socially Responsible Investing Trends in the United States Djordjija Petkoski Head of Private Sector Development and Corporate Governance, World Bank Institute

23. CSR & SRI: Mutually Beneficial • SRI & CSR are mutually beneficial: • SRI consolidates the contribution of CSR to competitiveness; • SRI underscores the role of social responsibility for a wider audience; • Innovation; • Expression of shareholders’ priority; • Potential for direct impact through shareholders’ resolution. Djordjija Petkoski Head of Private Sector Development and Corporate Governance, World Bank Institute

24. Do SRIs Out-Perform the Market? • Similar results are found in: • Dow Jones Sustainability Index • The Domini Index • FSTE4Good (UK) (*) CSR rating by IntegreX Tokyo, Djordjija Petkoski Head of Private Sector Development and Corporate Governance, World Bank Institute

25. Domini Index Djordjija Petkoski Head of Private Sector Development and Corporate Governance, World Bank Institute

26. Best Practices Djordjija Petkoski Head of Private Sector Development and Corporate Governance, World Bank Institute

27. Djordjija Petkoski Head of Private Sector Development and Corporate Governance, World Bank Institute Examples of Best Practices • Barclays Bank, England Supports financial inclusion through loans for social housing, they invest in community development i.e. Barclay’s space for sports program, the bank also has a program designed for disabled people and a program to improve and take care of the health of their employees i.e. HIV/AIDS for the branches in Africa. • Banamex (Mexico) and Citibank (U.S.) – partnership This two banks have created a partnership to give Mexican immigrants working in the US the opportunity to send money to their families in Mexico without problems, delays or enormous fees, they also provide free financial education for their customers.

28. Djordjija Petkoski Head of Private Sector Development and Corporate Governance, World Bank Institute Examples of Best Practices • SHG Bank Linkage, India Innovative microfinance initiatives pioneered by nongovernmental organizations created links between commercial banks, NGOs, and informal local groups. Better known as "SHG Bank Linkage," this model has effectively targeted poorer segments of the rural population and helped reduce their vulnerability. • Bank Rakyat Indonesia (BRI) The BRI Units have taken a profitable, sustainable approach to microfinance on a large scale, based on locally mobilized savings without subsidies or funds from the government or donors.

29. Djordjija Petkoski Head of Private Sector Development and Corporate Governance, World Bank Institute Examples of Best Practices • K-Rep Bank, Kenya K-Rep transformed itself from a donor-funded project into a commercial microfinance bank that strives to balance a social and a profit-oriented mission in providing access to financial services to the poor. • Banco Real /ABN AMRO, Brazil Long-standing Brazilian financial institution with locations in over 70 countries. The bank has strong commitment to environmentally & socially responsible practices: • Total Client Satisfaction - Micro-Credit • Ethical Investment - Diversity • Social and Environmental Financing - Suppliers • Social and Cultural Investment • Eco-Efficiency 

30. The World Bank and the World Bank Institute Djordjija Petkoski Head of Private Sector Development and Corporate Governance, World Bank Institute

31. Djordjija Petkoski Head of Private Sector Development and Corporate Governance, World Bank Institute The World Bank • Four groups work on issues related to Corporate Social Responsibility: • Private Sector Development Network • Environmentally & Socially Sustainable Development (ESSD) Network • International Finance Corporation (IFC) • World Bank Institute (WBI)

32. Djordjija Petkoski Head of Private Sector Development and Corporate Governance, World Bank Institute World Bank Institute program on Corporate Governance and Corporate Social Responsibility Launched by Mr. Wolfensohn (former World Bank President) at the World Economic Forum in Davos, 2001. Committed to building capacity for sustainable private sector development, covering issues of corporate responsibility and accountability, multi-sectoral partnerships, competitiveness, clusters and SMEs, ethics, corporate governance, and transparency. Explores innovative private sector roles and multi-stakeholder partnerships for development.

33. Djordjija Petkoski Head of Private Sector Development and Corporate Governance, World Bank Institute Reach: Over 30,000 participants in over 90 countries around the world; offered in 8 languages. Web-Based Course Modules: CSR: Main Concepts Decision-Making Frameworks CSR Diamond Building Sustainable Competitiveness through CSR CSR and the Poor An Introduction to Coalition Building and Action Plans Target audience: Primarily business, but also government, acedemia and NGOs. Learning Tools Global E-Surveys Global E-Conferences Web-Based Courses (Global/CF) Video-Conferences/Courses Training-of-trainers Curriculum development Face-to-Face

34. Djordjija Petkoski Head of Private Sector Development and Corporate Governance, World Bank Institute Concluding Remarks • Financial institutions have the potential to execute profound influence over the environmental and social responsibility of development project financing. • The Equator Principles are becoming the de facto standard of responsible financing. • Responsible investment also plays a key role. • Multi-sectoral Partnership is of critical importance.

35. THANK YOU!! Djordjija Petkoski Head of Private Sector Development and Corporate Governance, World Bank Institute dpetkoski@worldbank.org Visit our webpage: www.csrwbi.org