Financiera de Desarrollo Nacional Climate Finance Facility
This summary covers a proposed senior unsecured loan facility to be provided to Financiera de Desarrollo Nacional S.A (FDN) by Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) and other potential commercial lenders yet to be identified (together with BBVA, the Lenders).
MIGA is considering issuing a guarantee covering a loan of up to US$ 273 million from the Lenders to FDN. MIGA’s guarantee would be for up to an estimated US$ 260 million for a period of up to 11 years against the risk of Non-Honoring of Sovereign Financial Obligations by a State-Owned Enterprise (NHSOE).
MIGA’s NHSOE instrument will be used to support FDN’s local lending operations with a focus on climate finance infrastructure and road projects that will foster and support economic recovery in Colombia after the effects caused by the COVID-19 pandemic, and lay out the basis for the stabilization, protection, and reactivation of the Colombian business base.
FDN provides financing to infrastructure projects and corporate clients in Colombia. For this project, the MIGA guarantee will target FDN’s climate finance projects in sectors such as renewable energy (predominantly, solar power projects), electric mobility (including, bus and railway systems) and water, as well as road projects. Some of these projects could have significant environmental and social (E&S) risks and impacts, and as such, the portfolio is considered high risk. This project has thus been categorized as FI-1 under MIGA’s Policy on Environmental and Social Sustainability (2013).
The main E&S risks of this project relate to FDN’s ability to identify, assess, and manage the E&S risks and impacts associated with its lending activities and the management of labor matters. MIGA analyzed the FDN’s portfolio for types of transactions, tenor, size, industry sectors, and exposure to MIGA’s Exclusion List. MIGA also analyzed FDN’s E&S risk management procedures in line with the requirements of Performance Standard 1: Assessment and Management of Environmental and Social Risks and Impacts (PS1), and FDN’s labor practices in line with the requirements of Performance Standard 2: Labor and Working Conditions (PS2). The applicable E&S requirements for this project will be: (i) MIGA Exclusion List; (ii) applicable E&S laws and regulations in Colombia; and (iii) MIGA E&S Performance Standards.
As of December 2021, loans to project finance represented 85.5% of FDN’s portfolio, with corporate finance loans and capital market transactions representing 9.0% and 5.5% respectively. The main sectors being financed include infrastructure (mainly road projects), financial intermediaries, and transport services. FDN has no exposures to activities on the MIGA Exclusion List.
FDN has an E&S policy which stipulates the E&S management system (ESMS) and the responsibilities of the E&S team. The ESMS includes a detailed procedure for identifying, assessing, and managing E&S risks and impacts associated with clients’ activities. Core elements of the process include screening against FDN’s exclusion list, categorization, assessment of compliance with applicable E&S laws and regulations and screening against the Performance Standards. Where required, corrective action plans are developed to address E&S gaps and E&S covenants are also included in contractual agreements with clients. The E&S performance of projects is monitored periodically and site visits to high-risk projects are typically conducted once a year. The E&S team is responsible for the overall implementation of the ESMS throughout FDN’s portfolio and external communication. Additional support is provided by external consultants during due diligence and monitoring. To strengthen the E&S risk management process, FDN will be required to revise its internal E&S questionnaire to include all elements of the MIGA Performance Standards.
FDN’s emergency response procedures are in line with the requirements of PS1. In response to the COVID-19 pandemic, FDN has developed a COVID protocol and implemented physical distancing and hygiene measures to minimize and manage the risk of exposure for its employees and clients.
FDN’s labor policies and procedures are compliant with the requirements of PS2. Amongst other aspects, FDN has labor policies and procedures that address terms of employment, recruitment, renumeration, and benefits, grievance management, training, and occupational health and safety.
FDN will be required to report periodically to MIGA on the implementation of the ESMS and application of the Performance Standards.
The Project is expected to bring climate benefits into Colombia as the proceeds of the MIGA-guaranteed loan will be used to support climate finance projects in the infrastructure sector. The Project also has potential demonstration effects relating to the viability of green investment in Colombia, and potential signaling effects by supporting investors’ sentiment and perceptions that Colombia remains an investible country. Furthermore, building on previous engagement with FDN, MIGA’s credit enhancement coverage is expected to support the diversification of FDN’s funding sources and optimization of funding costs while contributing to the country’s climate goals.
The proposed Project is consistent with the most recent World Bank Group (WBG) Country Partnership Framework (CPF) FY2016-2021 for Colombia, which was updated through the Performance and Learning Review (PLR) of April 2019. The adjustments to the CPF envisage a deepening of WBG engagement in climate change, Maximizing Finance for Development (MFD), and gender. As such, climate change features in all three pillars of the updated CPF. In addition, the new Colombia Systematic Country Diagnostic (SCD) clearly identifies that for the country to meet its commitments for greenhouse gas emissions, the country needs, among other actions, to accelerate the transition to decarbonize the energy sector, to which the Project is aligned.
The Project is aligned with MIGA’s FY21-23 Strategic Business Outlook under its strategic directions of responding to the COVID-19 crisis by supporting a green recovery in Colombia. Furthermore, the Project is contributing to MIGA’s strategic direction of demonstrating leadership on global issues such as climate change, as well as with the strategic direction of continuing to serve all client countries and complement market creation.