IFC Urges Industry-Led Environmental and Social Standards for Private
Equity
16 July, 2004
Desmond Dodd
Tel: +852 6478 7749
Email: ddodd@ifc.org
Singapore, July 16, 2004 - The global private equity
industry should develop a common approach to environmental and social
due diligence to enhance opportunities and the performance of investments
funds in emerging markets. Speaking at the annual conference of the
Association for Sustainable and Responsible Investment in Asia, or
ASrIA, Rachel Kyte, International Finance Corporation's director for
environmental and social development, challenged private equity industry
leaders to make the cause their own. She urged standards that are
unique to and appropriate for their industry.
"The time is ripe for the private equity industry to take a leadership
role in shaping its future," Ms. Kyte said. "You should do it because
you will reduce risks by directing investments towards companies and
funds that meet sound corporate governance, environmental and social
practices. You should do it because you will be able to raise more
capital for private equity investments in emerging markets because
investors will be more confident in investing in these companies.
And you should do it because you will achieve higher returns on your
investments as these well managed companies prosper."
In her remarks, Ms. Kyte noted that corporations,
banks, and multilateral institutions have all begun recognizing that
new approaches are required to encourage more investment in emerging
markets. Increased pressure from investors to demonstrate good practices
is likely to intensify. "If you don't seize the initiative, you will
likely face a far more complex problem of standards being forced on
you," by institutional investors, for example, she said. Meanwhile
companies in emerging markets would benefit from clearer guidance
on requirements to attract capital from fund managers. "Private equity
has to find a way to voluntarily adapt the changes occurring in the
global financial sector," she said.
Ms. Kyte said private equity needs to find its own
unique approach to standards, but may be able to learn from the experience
of commercial banks with the Equator Principles. The Equator Banks'
experience demonstrates that common standards are increasingly viewed
as a means to improve business performance and investment returns.
While an identical approach might not be appropriate in the private
equity industry, an initiative to create common standards for screening
such investments might be facilitated by leaders in the private equity
industry or associations that are well placed to take the lead.
Ms. Kyte noted the specific challenges facing Asia's
economies are creating a new environment for investors and businesses.
The region, especially China, is becoming the manufacturing base for
the world. More than half of the world's population lives in China,
India and Indonesia. Asia's cities are being filled at the rate of
40 million additional inhabitants every year, making heavy social
and environmental demands on economies. "This is creating challenges
and opportunities that will only be met if private companies are up
to the tasks that await Asia in the coming decades."
IFC is world's largest fund investor in emerging
markets. IFC provides training and innovation in this industry through
the leadership of its Private Equity and Investment Funds Department.
IFC's Sustainable Financial Markets Facility has been supporting innovators
in the field such as ASrIA, mentoring private equity fund managers
and conducting research to demonstrate the business case for sustainability
in emerging markets. IFC has been working with the Emerging Markets
Private Equity Association, known as EMPEA, to build the capacity
of the association to offer training to fund managers.
The mission of IFC, the private sector arm of the
World Bank Group, is to promote sustainable private sector investment
in developing countries helping to reduce poverty and improve people's
lives. IFC finances private sector investments in the developing world,
mobilizes capital in the international financial markets, helps clients
improve social and environmental sustainability, and provides technical
assistance and advice to governments and businesses. From its founding
in 1956 through FY03, IFC has committed more than $37 billion of its
own funds and arranged $22 billion in syndications for 2,990 companies
in 140 developing countries. IFC's worldwide committed portfolio as
of FY03 was $16.8 billion for its own account and $6.6 billion held
for participants in loan syndications.
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