IFC performance standards: How they enforce sustainability in business

IFC Standards enforce sustainability in business

International Finance Corporation (IFC) was founded in 1956 based on the idea that the private sector, including businesses of all types, have the power to transform the economies of developing nations. 

This was certainly a bold idea at the time, but the organisation which is a part of the World Bank Group has found considerable success throughout its history. They operate under the goal of creating new markets and thus creating new opportunities for investment. 

And given their success and uniqueness (in that they focus on emerging markets, as opposed to developed markets), IFC holds significant power and therefore responsibility to encourage sustainability in business.

And the corporation does recognise this, as evidenced by its efforts to develop and implement performance standards that are to be met by all IFC clients. Their clients are comprised of private sector organizations from over 100 countries worldwide. And it works with over 2000 private sector clients that depend on IFC to source debt (loans, bonds and other fixed-income instruments).

Because of this unique positioning, IFC has the power to cause significant changes towards sustainability in all its clients.

For any business that wishes to source any form of debt through IFC, there are 8 performance standards that it has to meet. These standards ensure that the businesses that become IFC clients are also aligned with the UN SDGs and are sustainable in their activities.

IFC Standards: What are they?

IFC’s Environmental and Social Performance Standards define the responsibilities of its clients to manage their environmental and social risks.

There are 8 standards dedicated to improving the sustainability performance of all businesses that wish to become IFC clients. And if your business wishes to be one, following these standards will have some implications on the sustainability of your business.

Standard 1: Assessment and management of environmental and social risks and impacts

This standard aims at identifying and evaluating the environmental and social risks that arise as part of a project. The intention is to understand the performance of the business in environmental and social issues, identify where it is not performing well, and look for improvements to be made.

The standard calls for improved mitigation of these risks and avoiding them when possible. It requires the client businesses to conduct a process of environmental and social assessment and maintain a system that is appropriate to manage these risks throughout the life of a project.

Your business will need to become more systematic in its management of environmental and social risks if this standard is to be met.

Standard 2: Labour and Working Conditions

This standard recognizes the importance of protecting the rights of the workforce of the business.

The standard calls for ensuring fair treatment and equal opportunity for the workers. It also mandates that a business must be in compliance with any local or national human rights and employment laws. The clients are also required to promote safe and healthy working conditions for their employees.

Your business will be held to the highest standard of ensuring worker rights, safety and employment practices by adhering to this standard. This also takes your business closer to being socially sustainable.

Standard 3: Resource efficiency and pollution prevention

Businesses are required to be more mindful of their use of resources in their activities by this standard. There is recognition that natural resources are finite, and that being mindful of how they are used and how our activities impact them are necessary.

The standard calls on clients to minimize any adverse impact it has on human health and the environment by minimizing pollutions and emissions from their projects. It also promotes more sustainable use of natural resources such as water. There is also a focus on being energy efficient, with a view to being more environmentally sustainable.

This standard also requires your sustainable business to reduce emissions of greenhouse gases. 

Following this standard will go a long way toward making your business environmentally sustainable. And apart from allowing your business to become a client of IFC, this standard also helps significantly reduce your ESG issues, thereby making it more attractive to other investors as well.

Standard 4: Community, health, safety and security

This standard firmly stands to ensure the project activities of IFC clients do not cause adverse impacts on the health and safety of any affected communities. 

IFC clients are required to not only be sustainable in their own business activities, but also in how it impacts others outside of the business as well. This standard calls for the safeguarding of personnel and property to be carried out in accordance with the relevant human rights principles.

Any project that may involve the use or production of hazardous material will be under close inspection under the eyes of this standard. Your manufacturing business will require careful management of how it manages its materials that may be harmful, by this standard.

Standard 5: Land acquisition and involuntary resettlement

This standard recognizes that large scale projects requiring the significant acquisition of land may have adverse impacts on some communities.

It calls for involuntary resettlement to be avoided as much as possible in any project its clients are involved in. It firmly requires all clients to avoid unethical practices such as forced eviction. Even though in some cases involuntary resettlement is made legal by the local authorities, IFC calls on its clients to avoid it, and only do it if it is completely unavoidable.

If unavoidable, the clients are required to take action to reduce the adverse impacts that a project will have on the affected communities. 

If your business has a project that causes displacement of any community, you will have strict guidelines to follow in improving the lives of those that are displaced, as part of this standard.

Standard 6: Biodiversity conservation and sustainable management of living natural resources

This standard recognizes the need for protecting and conserving biodiversity and stops the IFC clients from doing any significant damage to natural ecosystems due to its projects.

All IFC clients are required to protect and conserve biodiversity and maintain the benefits from the ecosystem. The standard also promotes the sustainable management of any living natural resource that is affected by the projects. 

Any environmental risks in this regard are to be identified in the early stages of a project and plans to avoid any damage are to be made.

Standard 7: Indigenous peoples

This standard recognizes the vulnerability of indigenous people, as social groups distinct from mainstream groups in broader societies.

It calls on the IFC clients to ensure that the human rights and culture as well as the resource-based livelihood of indigenous people are not adversely affected by their projects. It calls for the identification of any potential impact that a project may have on these people and avoiding them.

Your business is expected to respect and preserve the culture of any indigenous people you may come across during the project. 

Standard 8: Cultural heritage

This standard demands the clients to protect cultural heritage against any adverse impacts caused by the project activities.

Your business will be required to not do any damage to the cultural heritage of the project location. Protecting cultural heritage is not expected to be a simple task, which is why the standard expects your business to make it a priority in your systematic management of environmental and social risks.

Communicating business sustainability with SUSTINARO

The IFC standards call for strong communication with any and all affected communities. 

While this is not necessarily part of the process of sustainability communication, it does require your business to have a strong understanding of sustainability issues. And if you do not have it, the next best thing is to hire the services of a business that does understand it.

SUSTINARO is about sustainability that makes sense. We simplify complex principles and turn them into action and reports on the action. And for your sustainable business, having us on board will be a great source of strength.