Ensuring Environmental and Social Sustainability of Private Sector Projects: A Comparison of Existing Aproaches
Environment and Social Development Department International Finance Corporation Washington, DC, USA
Environmental and social sustainability of private sector projects has emerged as an important consideration for investment decisions of individual and institutional investors.
Growing public awareness of the world?s environmental and social problems, such as climate change, persistent poverty and social inequality, water shortages, soil and water quality degradation, has increased collective consciousness of environmental and social aspects of economic development and private sector projects.
Many well-known examples of unsustainable and socially irresponsible business practices by international corporations led to increased attention to sustainability issues from investors and the general public. The spread of responsible consumerism among consumers in the developed countries and increased success of environmental campaigns by NGOs provided further impetus to sustainable business practices and increased attention to the sustainability of the supply chains of international household goods producers.
There is also a growing pool of research that finds that environmental and social sustainability of individual companies and the quality of corporate governance and stakeholder engagement is positively correlated with financial returns on investments. This resulted in increasing interest from the investors to pursue sustainable investment options. Various indexes and indicators of social and environmental practices had been developed in order to assess companies? business practices to inform and guide socially-responsible investors.
Several main approaches emerged for ensuring sustainable investments in the private sector from the financial institutions. This process had been led by International Financial Institutions (IFIs), such as the World Bank, International Finance Corporation, European Bank for Reconstruction and Development, Asian Development Bank. A number of requirements had been developed by these organizations for ensuring environmental and social sustainability of their client?s business practices. Similar approaches have spread beyond IFIs to the private investment organizations and banks. The so-called Equator Principles emerged as the main framework for sustainability of private banks? investments.
This presentation will explore the various frameworks for environmental and social sustainability of private sector investments and analyze their respective merits and shortcomings. Special focus will be given to social and civic engagement and community participation and their role in minimizing and mitigating the environmental and social impacts of the private sector projects.