Sustainability-Linked Finance
Photo by IFC
Sustainable finance is a powerful tool for raising capital in support of private sector sustainability initiatives in emerging markets. It has proven effective in helping companies achieve climate and—more recently—social goals. In addition to the well-known use-of-proceeds instruments, such as green, social, or sustainable bonds, use of a target-driven instrument—sustainability-linked finance (SLF).
SLF can focus a company’s sustainability efforts while signaling its commitments to achieving robust sustainability goals. In turn, this can help bolster a company’s sustainability credentials, creating a positive impact on reputation, in addition to financial advantages.
While initial deployment of SLF focused on environmental targets and metrics, this focus has started to broaden, as corporations, investors, and other stakeholders have become more attentive to the wider range of environmental, social, and governance (ESG) considerations. Use of more diverse key performance indicators (KPIs), including social KPIs, is gaining traction.
Global Gender by The Numbers
$800 Billion
Income lost by women in 2020. Mostly from pandemic-impacted informal sector jobs
22%
Of the conventional energy workforce is female
10%
Of board seats in the Top 500 mining companies are held by women
76%
Of all care work is performed by women while in income-earning work & navigating safety concerns
60%
Of women have reported sexual harassment in public transport & streets around the world
35%
Of women have experienced either physical or sexual violence by an intimate partner or non-partner
IFC’s offer
IFC brings to the table unrivaled SLF expertise. We leverage our in-house knowledge on climate and social issues, access to blended finance and local currencies, and funding for pre-investment work. This experience allows IFC to provide a holistic offering for sustainable finance products. IFC’s integrated approach—encompassing strategy, financing, and implementation—is unique in the market, providing clients with support and guidance.
We help infrastructure companies optimize the use of SLF, with services designed to help clients identify core, material, and relevant social KPIs; develop sustainability-linked financing frameworks (SLFF) to set ambitious targets; and implement strategies and actions to achieve these targets.
At the strategic level, we help companies develop their sustainability strategy:
- Build capacity in corporate sustainability planning, analysis, measurement, and reporting.
- Help clients strengthen social aspects of their sustainability strategies:
- Identifying core aspects
- Guiding the adoption of methodologically sound KPIs
- Establishing baselines
- Defining targets
- Support the development of strategies on decarbonization, climate community resilience, gender inclusion, access to services, and other issues.
At the transaction level, we assist clients in completing SLF financings:
- Work with IFC’s Sustainable Finance core team to support clients opting for SLF, particularly when social aspects are to be considered:
- Identifying relevant and material indicators
- Specifying clear methodologies for the KPIs, analysis of past performance, and definition of baselines
- Setting clear sustainability performance targets and reviewing roadmaps to achieve them
- Develop sustainability-linked financing frameworks (SLFF)
- Help clients in the process of obtaining a second-party opinion
In Action
Anglo American | South Africa
IFC’s $100 million sustainability-linked loan (SLL) to Anglo American, a leading global mining company, is helping advance the company’s global sustainability strategy and goals, as articulated in its Sustainable Mining Plan.
The SLL focuses exclusively on social KPIs and targets, which emphasize delivering benefits for communities in the vicinity of the company’s mining and processing operations in South Africa. They include ensuring that schools in host communities perform within the top 30 percent of state schools nationally, and that by 2025, three offsite jobs will be supported for every on-site job.
In addition to providing financing, IFC served as sustainability coordinator for the transaction, which involved translating ambitious education and livelihood KPIs into sustainability performance targets (SPTs) and helping the company develop a SLFF.
Neoenergia Elektro | Brazil
IFC committed a BRL 800 million (equivalent to $155 million) green and sustainability-linked loan to Neoenergia Elektro, in support of its power distribution operations. The loan’s pricing is linked to climate and gender targets. The climate target is focused on network digitalization, while the gender target is to increase the number of female electricians in Neoenergia’s workforce.
As sustainability coordinator, IFC helped define innovative objectives on digitalization, climate, and gender and updated the company’s SLFF. To ensure the robustness of the indicators and targets, IFC also coordinated and sponsored a second-party opinion of the SLFF.
Photo by Nyani Quarmyne
Related Content
Knowledge & Learning
- LinkedIn article: Transformative Finance: Key to Accelerating Equality
- Publication: Social KPIs Matter: Setting Robust Indicators for Sustainability-Linked Finance
- Blog: 6 Reasons Why Social Metrics Matter in Sustainability-Linked Finance
- Blog: Sustainable finance’s next big act will tie social targets to returns
- Blog: A Sustainable Future for Infrastructure Finance
- Brochure: Sustainability-linked Finance
- Publication: Sustainability-Linked Finance—Mobilizing Capital for Sustainability in Emerging Markets
Videos
- Event replay: Launch of Discussion Paper ‘Social KPIs Matter: Setting Meaningful Indicators for Sustainability-Linked Finance‘
- IFC Virtual Sustainability Exchange video: Driving Local Development Through Sustainability-Linked Financing
- Short video: Building Sustainable Finance Into Business Strategy and Operations | IFC Virtual Sustainability Exchange
- Short video: Tackling Climate Change With Sustainable Finance | IFC Virtual Sustainability Exchange
IFC News & Stories Provides Examples of SLF Cases
- Blog: A Courageous Step Toward Gender Equality
- Press release: IFC’s New Green and Sustainability-linked Loan to Neoenergia Elektro
- Press release: IFC Makes First Investment in Lithium, Supports the Development of Sal de Vida in Argentina
- Press release: IFC and AGUNSA Agree on the First Loan with Environmental and Gender Targets in the Chilean Logistics Industry
- Blog: Bridging the Gap: Scaling Up Sustainable Financing for Infrastructure in Asia
- Press release: IFC’s Blue Loan to SABESP to Improve Access to Water and Sanitation, Driving Inclusive Growth in Brazil
