The Multilateral Investment Guarantee Agency (“MIGA”) a member of the World Bank Group (WBG), issued on September 09, 2022, a Non-Honoring of Financial Obligations by a State-Owned Enterprise (“NHFO-SOE”) guarantee to JPMorgan Chase Bank N.A. (JPM) covering their three-year loan to Financiera de Desarrollo Territorial S.A. (Findeter), one of Colombia’s leading national development banks. The guarantee amounted to COP877 billion (~US$200 million).
MIGA’s NHSOE instrument will be used to support Findeter’s local lending operations with a focus on climate finance infrastructure projects that will foster and support green economic recovery in Colombia and in in the key strategic social sectors of education and health that were severely impacted by the effects of the COVID-19 pandemic.
Findeter provides financing to support infrastructure projects in Colombia. MIGA has a long-standing relationship with Findeter, having supported a previous project in 2014. For this Project, the MIGA guarantee will target Findeter’s climate finance projects, such as renewable energy (solar and hydro), urban mobility and wastewater treatment projects, as well as projects in healthcare and education sectors. Whilst there could be a limited number of projects with significant adverse Environmental and Social (E&S) risks and impacts, most of the projects are considered to have limited adverse E&S risks and impacts that can be managed through mitigation measures. The overall portfolio risk is considered medium. This project has thus been categorized as FI-2 under MIGA’s Policy on Environmental and Social Sustainability (2013).
Similar to other Financial Intermediaries (FI) projects, the main E&S considerations for this project relate to Findeter’s ability to identify, assess, and manage the E&S risks and impacts associated with its lending activities (through intermediary financial institutions) and the management of labor matters. MIGA analyzed the Findeter’s portfolio for types of transactions, tenor, size, industry sectors, and exposure to MIGA’s Exclusion List. MIGA also analyzed Findeter’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 Findeter’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 31, 2021, loans to financial institutions (FIs) represented 86.9% of Findeter’s portfolio, with direct loans to public institutions representing 13.1%. The main sectors supported include transport, education, housing and urban development, health, energy development, and water and sanitation. Findeter has no exposures to activities on the MIGA Exclusion List.
Findeter has an E&S management system (ESMS) and an E&S team responsible for the implementation of the E&S risk management procedures. Although Findeter lends through intermediary FIs, for facilities supported by development finance institutions such as MIGA, the E&S risk management of the underlying projects is handled by Findeter. The ESMS includes a detailed procedure for identifying, assessing, and managing E&S risks and impacts associated with final beneficiaries’ activities. Key aspects of E&S risk management process include screening against Findenter’s Exclusion List (which is aligned with MIGA’s Exclusion List); risk identification and categorization; assessment of compliance with applicable E&S laws and regulations and screening against the Performance Standards; and monitoring of E&S performance of projects. Where required, action plans are developed to address E&S gaps and E&S covenants are also included in agreements with final beneficiaries and the intermediary FIs. The E&S performance of projects is monitored periodically, with site visits conducted if required. Findeter also has a procedure for receiving and addressing E&S complaints and queries in line with PS1.
Findeter’s emergency response procedures are in line with the requirements of PS1. In response to the COVID-19 pandemic, Findeter implemented physical-distancing and hygiene measures to minimize the risk of exposure for employees and clients.
Findeter’s labor policies and procedures are compliant with the requirements of PS2. Amongst other aspects, Findeter has labor policies and procedures that address terms of employment, recruitment, renumeration, and benefits, grievance management, training, and occupational health and safety.
Findeter will be required to report periodically to MIGA on the implementation of the ESMS and application of the Performance Standards in relation to the climate finance projects as well as healthcare and education projects.
The proceeds from the proposed MIGA-covered loan will be used by Findeter for on-lending to domestic commercial banks directed to support health, education, and climate change infrastructure projects. These projects will aim to contribute to closing the education and health infrastructure gaps in the country while helping Colombia meet its climate goals. The proposed Project also has the potential to demonstrate the financial viability of climate finance projects, encouraging the participation of domestic commercial banks in climate mitigation (and adaptation) projects. Furthermore, MIGA’s credit enhancement coverage is expected to support the diversification of Findeter’s funding sources and optimization of funding costs and tenors.
The proposed Project aligns with the WBG priorities in Colombia as detailed in the most recent Country Partnership Framework (CPF) FY2016-2021 which was updated through the Performance and Learning Review (PLR) from April 2019. The PLR envisage a deepening of WBG engagement in climate change, Maximizing Finance for Development, and gender. As such, climate change features in all three pillars of the WBG engagement strategy. In addition, by supporting investment in the health and education sectors the Project will be aligned with the objectives of improving access to and quality of education and service delivery. The 2022 Colombia Systematic Country Diagnostic (SCD) clearly identifies that for Colombia 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. At the same time, the SCD recognizes that the COVID-19 pandemic supported the shift in the main concerns of Colombians, who now see education and health as their main concerns.
The proposed Project is aligned with MIGA’s FY21-23 Strategic Business Outlook under its strategic directions of responding to the COVID-19 crisis by supporting the economic recovery. The proposed Project is also contributing to MIGA’s strategic priority 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.