ВОЗДЕЙСТВИЕ ИÐ?Ð?ОВÐ?ЦИИ ВЛИЯÐ?ИЕ 79883 ДЕМОÐ?СТРÐ?ЦИЯ IMPACTO INNOVACIÓN INFLUENCIA v2 DEMOSTRACIÓN IMPACT INNOVATION INFLUENCE DÉMONSTRATION 效益 ‫܇‬新 å½±å“? 示范 IMPACT INNOVATION INFLUENCE DEMONSTRATION インパクト イ ノベーション 影響力 デモンストレーション IMPACTO INOVAÇÃO INFLUÊNCIA DEMONSTRAÇÃO ВОЗДЕЙСТВИЕ ИÐ?Ð?ОВÐ?ЦИИ ВЛИЯÐ?ИЕ ДЕМОÐ?СТРÐ?ЦИЯ IMPACTO INNOVACIÓN INFLUENCIA DEMOSTRACIÓN IMPACT INNOVATION INFLUENCE DÉMONSTRATION 效益 RESULTS ‫܇‬新 å½±å“? 示范 INNOVATION INFLUENCE DEMONSTRATION インパクト イ ノベーション 影響力 デモンストレーション IMPACTO INOVAÇÃO INFLUÊNCIA DEMONSTRAÇÃO ВОЗДЕЙСТВИЕ ИÐ?Ð?ОВÐ?ЦИИ ВЛИЯÐ?ИЕ ДЕМОÐ?СТРÐ?ЦИЯ IMPACTO INNOVACIÓN INFLUENCIA DEMOSTRACIÓN IMPACT INNOVATION INFLUENCE DÉMONSTRATION 效益 ‫܇‬新 å½±å“? 示范 IMPACT INNOVATION INFLUENCE DEMONSTRATION インパクト イ ノベーション 影響力 デモンストレーション IMPACTO INOVAÇÃO INFLUÊNCIA DEMONSTRAÇÃO ВОЗДЕЙСТВИЕ ИÐ?Ð?ОВÐ?ЦИИ ВЛИЯÐ?ИЕ ДЕМОÐ?СТРÐ?ЦИЯ IMPACTO INNOVACIÓN INFLUENCIA DEMOSTRACIÓN IMPACT INNOVATION INFLUENCE DÉMONSTRATION 效益 ‫܇‬新 å½±å“? 示范 IMPACT INNOVATION INFLUENCE DEMONSTRATION インパクト イ ノベーション 影響力 デモンストレーション IMPACTO INOVAÇÃO INFLUÊNCIA ANNUAL REPORT 2012 DEMONSTRAÇÃO RESULTS IFC’s strong ï¬?nancial position—and record of success in good times and bad—helps our clients in the private sector create opportunity and improve lives in the poorest areas of the world. CONTENTS 1–5 DELIVERING ON OUR VISION 2 Scorecard 4 Creating Opportunity Where It’s Needed Most 6–15 OUR BUSINESS + EXPERTISE 7 Where We Work 8 Our Three Businesses 12 Our Industry Expertise 14 Standard Setting 16–51 OUR PEOPLE + PRACTICES 17 The IFC Way 18 How We Measure Development Results 26 Our Staff 28 Our Governance 30 Accountability 32 Partnerships 34 Managing Risks 36 Working Responsibly 38 The Cycle of an Investment Project 42 Independent Assurance Report 45 Stakeholder Review Panel 46 Financial Summary DELIVERING ON OUR VISION IFC STRIVES TO DELIVER WHAT CANNOT BE OBTAINED ELSEWHERE. 2 IFC Annual Report 2012 Scorecard Delivering on Our Vision We offer clients a unique combination of investment and advice designed to promote sustainable private sector development in emerging markets. We call that special edge our “additionality.â€? Using it to maximize our development impact is a cornerstone of our strategy. Our activities are guided by five strategic priorities that allow us to help where we are most needed, and where our assistance can do the most good. OUR STRATEGIC 1 2 FOCUS AREAS STRENGTHENING THE FOCUS ON FRONTIER MARKETS ADDRESSING CLIMATE CHANGE AND ENSURING IDA countries, fragile and ENVIRONMENTAL AND SOCIAL conflict situations, and frontier SUSTAINABILITY regions of middle-income Developing new business countries models and ï¬?nancing instru- ments, setting and raising standards 3 ADDRESSING CONSTRAINTS TO 4 DEVELOPING LOCAL FINANCIAL 5 BUILDING LONG-TERM CLIENT PRIVATE SECTOR GROWTH IN MARKETS RELATIONSHIPS IN EMERGING INFRASTRUCTURE, HEALTH, Building institutions, mobilizing MARKETS EDUCATION, AND THE FOOD- resources, and introducing Using the full range of our SUPPLY CHAIN innovative ï¬?nancial products products and services to guide clients’ development and assist Increasing access to basic cross-border growth services and strengthening the agribusiness value chain 3 Scorecard IFC’s Performance on Strategic Pillars Indicator Performance FY12 FY11 DEVELOPMENT RESULTS Investment Projects Rated High (DOTS score)1 68% 67% Advisory Projects Rated High2 72% 67% FOCUS AREAS FRONTIER MARKETS Number of Investment Projects in IDA Countries 283 251 Commitments in IDA Countries (millions) $5,864 $4,867 Advisory Services Expenditures in IDA Countries (millions)3 $ 122 $ 107 Commitments in Sub-Saharan Africa (millions) $2,733 $2,150 Commitments in Middle East and North Africa (millions) $2,210 $1,603 CLIENT PARTNERSHIPS Number of South-South Investment Projects 41 32 Commitments in South-South Investment Projects (millions) $1,515 $1,034 CLIMATE CHANGE Climate-Related Investments (millions)4 $1,621 $1,671 INFRASTRUCTURE, HEALTH & EDUCATION, FOOD Commitments in Infrastructure, Health & Education, and Food5 (millions) $3,642 $2,200 LOCAL FINANCIAL MARKETS Commitments in Financial Markets (millions)6 $9,375 $8,176 Commitments in Micro, Small and Medium Enterprises Sector (millions)7 $6,077 $6,020 Notes: 1 DOTS scores: Percentage of client companies with development outcomes rated high as of June 30 of the respective year, for a rolling average of 6 years of approvals (2003–2008 for FY12). 2 FY12 and FY11 ratings are based on a review of completion reports ï¬? led in calendar years 2011 and 2010, respectively. 3 FY11 and FY12 ï¬? gures refl ect improved methodology for measuring Advisory Services expenditures in IDA countries, incorporating regional projects. 4 Includes investments in energy efï¬? ciency (EE) and renewable energy (RE). 5 Commitments of IFC’s Infrastructure, Communications and Information Technologies, Subnational Finance, Health & Education, and Agribusiness departments (not the entire food supply chain). 6 Commitments of IFC’s Financial Markets excluding Funds and Private Equity. 7 Includes direct MSME borrowers, ï¬? nancial institutions with more than 50% of their business clients being MSMEs, and any other investments that speciï¬? cally target MSMEs as primary beneï¬? ciaries. 4 IFC Annual Report 2012 Creating Opportunity Where It’s Needed Most Who Beneï¬?ts? IFC and our clients make a wide range of con- tributions in developing countries. Our clients’ success can have ripple effects across an econ- omy, giving many people—including the poor— EMPLOYEES CUSTOMERS a chance to better their lives. Through our clients, we create opportunity for workers and their families, local communi- ties, suppliers, investors, and the customers who buy what they produce. Our clients generate signiï¬?cant tax revenues for national and local Our investment clients provided Our investment clients provided governments—resources available for assisting 2.5 million jobs, including nearly 23 million loans totaling the poor. They can use IFC’s ï¬?nancing and 800,000 through private-equity $201 billion to micro, small, and and investment funds, almost medium enterprises. In addition, advice to expand or upgrade their facilities, 450,000 in core infrastructure, they provided power, water, improve environmental performance, nearly 390,000 in agribusiness and gas to almost 148 million strengthen corporate governance, and improve and forestry, and almost customers and established 370,000 in manufacturing. 172 million phone connections. their management systems and adherence to • In India, IFC invested in a They also provided health ser- industry standards. private-equity fund whose portfo- vices to more than 12 million lio companies employed almost patients, and education to nearly Our advice complements our investments 12,000 people, including a 1 million students. and provides support to ï¬?rms and governments— growing number of women. • In 2011, a client in China to maximize impact. Our work with govern- provided water to 2.6 million residential customers—and ments ranges from supporting reforms to their sewage and wastewater ser- investment climates to helping design and vices to 5.5 million customers. implement public-private partnerships for • A client in Tunisia increased its portfolio of micro loans to infrastructure and other basic services. more than $45 million, and its portfolio of SME loans to about $1.8 billion. • In Sri Lanka, an IFC client provided phone service to nearly 40 percent of the country’s 18.3 million phone customers. • In Moldova, our Advisory Services supported a new radiology and diagnostic imag- ing center that will help improve health care for more than 100,000 patients a year. 5 LOCAL COMMUNITIES SUPPLIERS ENVIRONMENT GOVERNMENT Our policies, processes, and Our investment clients gener- Our projects are helping address Last year, our investment clients performance standards help our ated signiï¬?cant contracting climate change and advancing contributed almost $22 billion to clients enhance their positive opportunities for local suppliers, environmental and social government revenues. This impact on local communities including almost $40 billion sustainability. includes more than $6 billion while avoiding or mitigating worth of goods and services • Our Russia Sustainable from oil, gas, and mining; nearly negative effects. procured by our manufacturing Energy Finance Program facili- $5 billion from core infrastruc- • In 2011, a client in Azerbaijan and services clients. Our agri- tated close to $34 million in ture; and almost $3 billion from spent $7 million on community- business clients reached 3.3 mil- ï¬?nancing for nearly 71 energy- manufacturing. Half our advisory development programs. lion farmers. efï¬?ciency projects. In total, the work is directly with governments. • As a result of IFC’s capacity- • In 2011, a South African program annually reduces • An oil and gas client in Latin building advisory services for mining client purchased more energy costs for Russian enter- America paid nearly $2.2 billion local suppliers in Guinea, inter- than $640 million in goods and prises by $29.7 million. in taxes and other government national mining companies have services from local suppliers. • Through our advisory work payments. signed more than $4 million in • In India, IFC invested in a with seed companies in • A client in Iraq contributed new procurement contracts with cement company that created Bangladesh, we helped train more than $500 million in taxes local SMEs. 300 jobs and indirectly sup- more than 22,000 farmers and and other payments to the ported 7,200 jobs in its supply 600 dealers and retailers on the government. and distribution chain, in one of use of stress-tolerant seeds and • In Liberia, our advisory work the country’s poorest states. sustainable production prac- helped the government establish • In Bangladesh, an agro- tices. With our support, the the Liberia Business Registry, processing client reached more Ministry of Agriculture introduced which helped reduce the aver- than 10,000 farmers and seven new stress-tolerant seed age number of days needed to more than 45,000 MSMEs varieties for local farmers to use. start a business from 20 to six. in its supply chain. • In Sao Tome and Principe, our advisory work helped the government streamline its company-registration process into a one-stop shop, cutting the average number of days needed to start a business from 144 to 10. 6 IFC Annual Report 2012 OUR BUSINESS + EXPERTISE OUR EXPERIENCE—IN EVERY REGION OF THE WORLD, AND IN NEARLY EVERY INDUSTRY— ALLOWS US TO PROVIDE A UNIQUE SET OF ADVANTAGES TO OUR CLIENTS. 7 Where We Work As the largest global development institution focused on the private sector, IFC operates in more than 100 developing countries. We are able to apply lessons learned in one region to solve problems in another. We help local companies make better use of their own knowledge, by matching it to opportunities in other develop- ing countries. IFC Country Office Locations June 2012 8 IFC Annual Report 2012 Our Three Businesses IFC’s three businesses—Investment PRODUCT LINES Services, Advisory Services, and IFC Asset Management Company—are mutually IFC INVESTMENT SERVICES LOANS reinforcing, delivering global expertise to IFC ï¬?nances projects and companies through loans from our own account, clients in developing countries. typically for seven to 12 years. We They give us a special advantage in also make loans to intermediary banks, leasing companies, and other helping the private sector create opportu- ï¬?nancial institutions for on-lending. nity in these countries—our investments While IFC loans traditionally have and advice can be tailored to a client’s spe- been denominated in the currencies of major industrial nations, we have ciï¬?c needs, and in innovative ways that add made it a priority to structure local- value. Our ability to attract other investors currency products. IFC has provided to our projects brings additional beneï¬?ts, local-currency ï¬?nancing in more than 50 local currencies, including introducing our clients to new sources of Colombian pesos, Indonesian rupiah, capital and better ways of doing business. Kazakhstani tenge, Moroccan dir- Our investment services provide a hams, Peruvian nuevos soles, critical reminder that private investors Philippine pesos, Rwandan francs, can advance development in emerg- and Zambian kwachas. ing economies, help reduce poverty, In FY12, we made commitments and make a proï¬?t at the same time. for nearly $6.7 billion in new loans. Our broad suite of ï¬?nancial prod- ucts and services can ease poverty EQUITY and spur long-term growth by promot- ing sustainable enterprises, encour- Equity investments provide develop- aging entrepreneurship, and mental support and long-term growth mobilizing resources that wouldn’t capital that private enterprises need. otherwise be available. Our ï¬?nancing They also provide opportunities to products are tailored to meet the support corporate governance and needs of each project. We provide enhance social responsibility. growth capital, but the bulk of the We invest directly in companies’ funding comes from private sector equity, and also through private-equity owners, who also bear leadership and funds. In FY12, equity investments management responsibility. accounted for nearly $2.3 billion of In FY12, we invested about commitments we made for our $15.5 billion in about 576 projects, of own account. which nearly $6 billion went to projects IFC generally invests between 5 in IDA countries. In addition, we mobi- and 20 percent of a company’s equity. lized nearly $5 billion to support the We encourage the companies we private sector in developing countries. invest in to broaden share ownership through public listings, thereby deep- ening local capital markets. We also invest through proï¬?t-participating loans, convertible loans, and preferred shares. 9 TRADE FINANCE IFC INVESTED STRUCTURED FINANCE The IFC Global Trade Finance IFC uses structured and securitized Program guarantees trade-related payment obligations of approved ï¬?nancial institutions. The program extends and complements the capac- ity of banks to deliver trade ï¬?nance by $15.5 BILLION IN ABOUT products to provide cost-effective forms of ï¬?nancing that would not otherwise be readily available to clients. Products include partial credit guarantees, structured liquidity facili- providing risk mitigation on a per- 580 PROJECTS. ties, portfolio risk transfer, securitiza- transaction basis for more than 200 tions, and Islamic ï¬?nance. We use our banks across more than 80 countries. expertise in structuring—along with In FY12, trade ï¬?nance accounted THE IFC GTLP HAS our international triple-A credit rating— for about $6 billion—more than a SUPPORTED to help clients diversify funding, third of the commitments we made extend maturities, and obtain ï¬?nanc- $21 for IFC’s own account. Our Global ing in their currency of choice. Trade Liquidity Program has sup- ported $21 billion in trade in develop- CLIENT RISK-MANAGEMENT SERVICES ing countries since it was launched in 2009. IFC provides derivative products BILLION IN TRADE to our clients to allow them to hedge SINCE 2009. their interest rate, currency, or com- SYNDICATIONS modity-price exposures. IFC mediates IFC’s Syndicated Loan Program, the between clients in developing coun- oldest and largest syndicated lending IFC SYNDICATED tries and derivatives market makers in program among multilateral develop- order to provide clients with full market $2.7 ment banks, is an important tool for access to risk-management products. mobilizing capital to serve develop- ment needs. Since its establishment BLENDED FINANCE in 1957, the program has mobilized over $40 billion from more than 550 BILLION IN LOANS IFC combines concessional funds— ï¬?nancial institutions—for more than IN FY12. typically from donor partners—with our 1,000 projects in more than 110 own resources to ï¬?nance initiatives emerging markets. and achieve development impact that In FY12, IFC syndicated $2.7 bil- would otherwise be unattainable. We lion in loans. This included B-loans have applied this approach in three and parallel loans, 38 percent of areas of strategic priority: climate which went to borrowers in IDA change, agribusiness and food secu- countries and frontier regions. rity, and ï¬?nance for small and medium Borrowers in the infrastructure sector enterprises. We have blended con- received 41 percent of the total cessional funds alongside our own for volume mobilized. We expanded our more than 15 years. Since FY07, we investor base, adding 11 emerging- have deployed more than $250 mil- market banks, three development- lion of donor funds, catalyzing more ï¬?nance institutions, a western than $3 billion of IFC and private European fund, and a Middle Eastern sector ï¬?nancing. commercial bank. IFC’s syndicated- loan portfolio totaled $11.2 billion in FY12. 10 IFC Annual Report 2012 BUSINESS LINES IFC ADVISORY PUBLIC-PRIVATE PARTNERSHIPS IFC ADVISORY SERVICES ACCESS TO FINANCE SERVICES WORKS IN We help governments design and implement public-private partnerships 105 IFC helps increase the availability and in infrastructure and other basic affordability of ï¬?nancial services for public services. Our advice helps individuals and for micro, small, and governments achieve long-term eco- medium enterprises. Our priorities are nomic growth and better living stan- to help our clients provide broad- COUNTRIES WITH dards by harnessing the potential of based ï¬?nancial services and to build MORE THAN 630 the private sector to increase access the ï¬?nancial infrastructure necessary ACTIVE PROJECTS. to public services such as electricity, for sustainable growth and employ- water, health, and education while ment. At the end of FY12, we had an enhancing their quality and efï¬?ciency. active portfolio of 245 projects—val- At the end of FY12, we had an active AT THE END OF FY12, ued at $295.7 million—that promoted portfolio of 85 PPP projects in 46 access to ï¬?nance in 71 countries. In IFC HAD AN ACTIVE countries, valued at about $106 mil- FY12, our advisory program expendi- PORTFOLIO OF lion. In FY12, our advisory program 173 Private sector development requires tures totaled about $63 million, of expenditures totaled $30 million, of more than just ï¬?nance. Experience which 64 percent was in IDA coun- which 55 percent was in IDA coun- shows the powerful role advisory tries, and 16 percent was in fragile tries, and 13 percent was in fragile services can play in unlocking invest- and conflict-affected areas. and conflict-affected areas. ment and helping businesses expand and create jobs. SUSTAINABLE- INVESTMENT CLIMATE SUSTAINABLE BUSINESS To help the private sector in emerg- BUSINESS ing markets, IFC provides advice, We help governments implement PROJECTS IN We help companies adopt environ- problem solving, and training to com- reforms that improve the business 59 COUNTRIES, mental, social, and governance prac- panies, industries, and governments. environment and encourage and VALUED AT tices and technologies that create a Our experience shows that companies retain investment, thereby fostering competitive edge. We seek the broad $266 MILLION. need more than ï¬?nancial investment to competitive markets, growth, and job adoption of these practices to trans- thrive—they need a regulatory environ- creation. Our priorities are to design form markets and improve people’s ment that enables entrepreneurship, and support regulatory reforms that lives. We help advance women in 65% and advice on business best practices. support business- and trade-friendly business, strengthen small-scale Our work includes advising national environments while also helping farmers and small ï¬?rms, and engage and local governments on how to resolve legal and policy weaknesses the private sector in climate-change improve their investment climate and that inhibit investment. At the end solutions. At the end of FY12, we had strengthen basic infrastructure. We of FY12, IFC had an active portfolio of OF ADVISORY an active portfolio of 173 sustainable- also help investment clients improve 129 investment-climate projects in 60 SERVICES business projects in 59 countries, corporate governance and become countries, valued at $226.7 million. In PROGRAM valued at $265.8 million. In FY12, more sustainable. FY12, our advisory program expendi- our advisory program expenditures EXPENDITURES We operate in 105 countries, with tures totaled $57 million, of which totaled $48 million, of which 59 per- more than 630 active projects. 77 percent was in IDA countries, and WERE IN IDA cent was in IDA countries, and Funding comes from donor partners, 25 percent was in fragile and conflict- COUNTRIES. 10 percent was in fragile and conflict- IFC, and clients. In FY12, advisory affected areas. affected areas. services program expenditures totaled nearly $200 million, up about 8 percent from FY11. In all, 65 per- cent of our program was in IDA coun- tries, and 17 percent was in fragile and conflict-affected areas. 11 As of June 30, 2012, AMC had sectors in Sub-Saharan Africa, Latin THE AVERAGE IFC ASSET MANAGEMENT approximately $4.5 billion in assets America, and the Caribbean. From its under management. It manages funds INTERNAL RATE inception through the end of FY12, on behalf of a wide variety of institu- OF RETURN ON the fund made investment commit- COMPANY tional investors, including sovereign funds, pension funds, and develop- IFC’S EQUITY INVESTMENTS HAS ments totaling $361 million. ment ï¬?nance institutions. Its current EXCEEDED THE AFRICA CAPITALIZATION FUND fund portfolio is as follows: 20% The $182 million Africa Capitalization AMC FUNDS Fund was established in FY11 to invest in systemically important com- mercial banking institutions in north- IFC CAPITALIZATION FUND ern and Sub-Saharan Africa. Its A YEAR. The $3 billion IFC Capitalization Fund investors include the African consists of an equity fund of about Development Bank, European $1.3 billion and a subordinated debt Investment Bank, OPEC Fund for fund of about $1.7 billion. Launched AMC HAD International Development, Abu Dhabi $4.5 IFC Asset Management Company, a in 2009, the capitalization fund helps Fund for Development, Sumitomo wholly owned subsidiary of IFC, strengthen systemically important Mitsui Banking Corporation, and mobilizes and manages third-party banks in emerging markets, bolstering Commonwealth Development funds for investment in developing their ability to cope with ï¬?nancial and Corporation. As of the end of FY12, it and frontier markets. It was created in economic downturns. The fund is had made two investment commit- 2009 to expand the supply of long- jointly supported by a $2 billion BILLION IN ments totaling $11.5 million, in Ghana term capital to these markets, enhanc- investment from the Japan Bank for ASSETS UNDER and Malawi. ing IFC’s development goals as well International Cooperation and a MANAGEMENT AT as investing proï¬?tably for investors. $1 billion investment from IFC. From THE END OF FY12. IFC RUSSIAN BANK CAPITALIZATION FUND AMC invests alongside IFC, and its inception through the end of FY12, all AMC investments adopt IFC’s the fund made investment commit- The $275 million IFC Russian Bank Performance Standards. It raises ments totaling $1.3 billion in 11 Capitalization Fund was established funds targeted at institutional inves- commercial banks in Bahrain, in June 2012 to invest in licensed tors who are looking to increase their Honduras, Malawi, Mongolia, Oman, commercial banks, bank holding exposure to emerging markets and Papua New Guinea, Paraguay, the companies, and other bank-related who are interested in accessing IFC’s Philippines, Serbia, and Vietnam, and investment vehicles in Russia, either transaction pipeline, investment in one regional African bank. privately owned or government- approach, and track record of supe- owned and on a clear path to privati- rior returns. The average internal rate zation. The fund currently has IFC AFRICAN, LATIN AMERICAN, AND of return on IFC’s equity investments commitments from IFC, the Russian CARIBBEAN FUND over the last 20 years has exceeded Ministry of Finance, and Russia’s 20 percent a year. The $1 billion IFC ALAC Fund was Vnesheconombank. AMC helps IFC achieve one of launched in 2010 and has commit- its core development mandates— ments from IFC, the Dutch pension mobilizing additional capital resources fund manager PGGM, Korea for investment in productive private Investment Corporation, State Oil enterprise in developing countries. Fund of the Republic of Azerbaijan, It also enhances IFC’s develop- United Nations Joint Staff Pension ment impact by increasing the size Fund, the Abu Dhabi Investment and number of investments IFC Authority, and a Saudi government can transact. fund. The fund co-invests with IFC in equity investments across a range of 12 IFC Annual Report 2012 Our Industry Expertise IFC’s leadership role in sustain- We focus on small and medium enter- AGRIBUSINESS AND FORESTRY prises, microï¬?nance, trade, and climate able private sector development Agribusiness has an important role to play in change, among others. IFC is a leading inves- reflects a special advantage— poverty reduction. The agricultural sector tor in microï¬?nance. We create innovative the depth and breadth of exper- often accounts for at least half of GDP and products to help the poor and address impor- employment in many developing countries. tant development challenges. We are rebuild- tise we have acquired over For that reason, it is a strategic priority for IFC. ing our investments in housing ï¬?nance and more than 50 years of helping We help the private sector address rising are supporting the development of capital demand and escalating food prices in an markets in light of the global ï¬?nancial crisis. In emerging-market ï¬?rms succeed environmentally sustainable and socially FY12, our commitments in ï¬?nancial markets and grow. inclusive way. We also support global initia- totaled about $3.4 billion, about 22 percent of We have moved to leverage tives for sustainable production of agricultural commitments for IFC’s own account. commodities. To help clients ï¬?nance invento- our global industry knowledge ries, seeds, fertilizers, chemicals, and fuel for to tackle the biggest develop- CONSUMER AND SOCIAL SERVICES farmers, IFC offers working-capital facilities. ment challenges of the coming To facilitate trade and lower costs, we pursue Private health care and education are funda- investments in infrastructure such as ware- mental to human and economic development— years—including climate houses and cold-storage facilities. To bring health care plays a key role in improving the change, unemployment, and land into sustainable production, we work to quality of life, while education is a powerful food and water security. improve productivity by transferring technolo- instrument for reducing poverty and growing gies and making the best use of resources. human capital. IFC helps companies set benchmarks for IFC is the world’s largest multilateral responsible production, in line with industry investor in these sectors. We work to increase best practices. In FY12, our new commit- access to high-quality health and education ments in agribusiness and forestry totaled while also helping strengthen job-creating slightly more than $1 billion, accounting for sectors such as tourism, retail, and property. about 7 percent of commitments for IFC’s We help improve standards of quality and own account. efï¬?ciency, facilitate the exchange of best practices, and create jobs for skilled profes- sionals. We focus on helping client compa- FINANCIAL MARKETS nies increase their development impact. Sound ï¬?nancial markets are vital to develop- In addition to making direct investments in ment—they ensure efï¬?cient resource alloca- socially responsible companies, our role tion, create jobs, and spur economic growth. includes sharing industry knowledge and The global economic crisis underscored expertise, funding smaller companies, raising the need for IFC in ï¬?nancial markets. Small medical and education standards, and help- and medium enterprises, which account for ing clients expand services to lower-income more than half of employment worldwide, groups. In FY12, our new commitments in saw lines of credit reduced or eliminated. consumer and social services totaled about Investors shied away from capital markets. $1.4 billion, or nearly 9 percent of IFC’s We stepped in to ï¬?ll the gap. commitments for our own account. 13 We focus on manufacturing clients that TELECOMMUNICATIONS INFRASTRUCTURE are—or can be—strong players in their local AND INFORMATION TECHNOLOGY Modern infrastructure spurs economic markets. In middle-income countries, we growth, improves living standards, and can increasingly support local second-tier com- Modern information and communication play a vital role in addressing emerging panies and cross-border investments. As technologies make it easier for the poor to development challenges, including rapid these industries represent some of the most obtain access to services and resources. urbanization and climate change. carbon-intensive sectors, we are helping They expand opportunity and make markets It is also an area in which the private sector clients develop and undertake investments and institutions more efï¬?cient. can make a signiï¬?cant contribution, providing that help reduce carbon emissions and IFC works to extend the availability of essential services to large numbers of people, energy consumption. such technologies to promote sustainable efï¬?ciently, affordably, and proï¬?tably. This is In FY12, our new commitments in the economic growth and good governance, IFC’s focus: supporting private infrastructure manufacturing sector totaled slightly more enhance social inclusion, and reduce pov- projects whose innovative, high-impact busi- than $1 billion, or nearly 7 percent of com- erty. We channel investments toward private ness models can be widely replicated. mitments for IFC’s own account. companies that build modern communica- We help increase access to power, trans- tions infrastructure and information- port, and water by ï¬?nancing infrastructure technology businesses, and develop climate- OIL, GAS, AND MINING projects and advising client governments on friendly technologies. public-private partnerships. We add value by Industries that can harness natural resources IFC increasingly helps clients move devising innovative projects and public- are vital for many of the world’s poorest coun- beyond their own national borders and into private partnerships in difï¬?cult markets. We tries. They are a key source of jobs, energy, other developing markets. In FY12, our new mitigate risk and leverage specialized ï¬?nan- government revenues, and a wide array of commitments in this sector totaled about cial structuring and other capabilities. In other beneï¬?ts for local economies. In Africa, in $247 million. FY12, our new commitments in this sector particular, large-scale sustainable investments totaled about $1.4 billion, or about 9 percent in these industries can create equally large- of commitments for IFC’s own account. scale gains in economic development. IFC’s mission in the oil, gas, and mining sector is to help developing countries realize MANUFACTURING these beneï¬?ts. We provide ï¬?nancing and The manufacturing sector plays a vital role in advice for private sector clients. We also creating opportunity and reducing poverty help governments adopt effective regulations in developing countries. IFC’s manufacturing and strengthen their capacity to manage clients tend to create or maintain more these industries across the value chain. employment than those in any other sector. We support private investment in these We have increased our activities in the industries, and we work to ensure that local sector, which includes construction materi- communities enjoy concrete beneï¬?ts. We als, energy-efï¬?cient machinery, chemicals, also help develop small local companies, and equipment for solar and wind power. engage with communities to improve proj- We invest in companies that are developing ects’ long-term development beneï¬?ts, and new products and markets, and restructur- foster transparency and governance to ing and modernizing to become internation- combat corruption. In FY12, our new com- ally competitive. mitments in the sector totaled $491 million, or about 3 percent of commitments for IFC’s own account. 14 IFC Annual Report 2012 Standard Setting their thinking on how companies—particularly page 36), which has been updated following IFC PERFORMANCE STANDARDS in the ï¬?nancial and extractive sectors—can an 18-month consultation process. Updates Rising demand for natural resources. move toward sustainable practices. became effective on January 1, 2012. More Population growth. Economic disparity. IFC’s eight Performance Standards are information is available at http://www.ifc.org Climate change. These are just some of the part of IFC’s Sustainability Framework (see /performancestandards. challenges that require a long-term, strategic response from the private sector. IFC believes that doing business sustain- OUR PERFORMANCE STANDARDS ably drives positive development outcomes while helping companies ï¬?nd opportunities for growth and innovation in a fast-changing world. Our Performance Standards deï¬?ne 1 5 our clients’ roles and responsibilities for managing their projects in a sustainable way. They help companies identify risks and potential impacts. They help them devise solutions that are good for business, good for investors, and good for the environment ASSESSMENT AND MANAGEMENT OF LAND ACQUISITION AND INVOLUNTARY and communities. This can include reducing ENVIRONMENTAL AND SOCIAL RISKS AND RESETTLEMENT costs through improved energy efï¬?ciency, IMPACTS 6 increasing revenue and market share through 2 environmentally and socially sound products and services, or forging better stakeholder relations through robust engagement. These standards help improve the lives of people in developing countries—from safer BIODIVERSITY CONSERVATION AND SUSTAINABLE working conditions to cleaner water to more LABOR AND WORKING CONDITIONS MANAGEMENT OF LIVING NATURAL RESOURCES effective community engagement. In IFC’s own portfolio, we have seen how 3 7 good environmental and social performance correlates with long-term ï¬?nancial perfor- mance. Our clients also appreciate and see the difference. In a recent survey, 93 percent of our clients said they believed that IFC’s RESOURCE EFFICIENCY AND POLLUTION INDIGENOUS PEOPLES environmental and social requirements were PREVENTION helpful to their long-term business interests. 8 Since they became effective in 2006, 4 IFC’s Performance Standards have become globally recognized as a leading benchmark for environmental and social risk manage- ment in the private sector. CULTURAL HERITAGE In addition, 15 European development- COMMUNITY HEALTH, SAFETY, AND SECURITY ï¬?nance institutions and 32 Export Credit Agencies from countries belonging to the Organisation for Economic Co-operation and Development refer to the Performance Standards in their operations. Governments such as Bangladesh, Canada, China, and Vietnam use IFC’s standards to help inform 15 SUSTAINABLE AGRICULTURE CORPORATE GOVERNANCE The Equator Principles How companies make use of land, water, Improving corporate governance—among our and other natural resources, while providing clients and across the private sector in The Equator Principles, an environmen- jobs and food to meet the needs of a grow- developing countries—is a priority for IFC. tal and social risk-management frame- ing population, can have profound impacts We provide advice on best practices for work used by 77 ï¬?nancial institutions for future generations. improving board practices, strengthening worldwide, are based on IFC’s standards. IFC works with our clients and partners shareholder rights, and enhancing risk man- to promote sustainable agriculture. We’re agement and corporate disclosure. We also helping to build a global consensus for advise regulators, stock markets, and others sustainable production, improving the stan- with an interest in improving corporate gov- dards under which a variety of commodities ernance. We are ramping up our corporate are produced, processed, and traded. governance programs in underserved areas We support agricultural commodity of the world—especially in Africa, Latin roundtables, such as the Roundtable for America, and South Asia. Sustainable Palm Oil, established in 2004. Our experience allows IFC to tailor global Through a collaboration with the Indonesia principles to the realities of the private sector Palm Oil Producers Association, Unilever, in developing countries. As a result, develop- HSBC, WWF, Oxfam, and others, the ï¬?rst ment banks and other investors working in certiï¬?ed sustainable palm oil became avail- emerging markets now look to IFC for lead- able in November 2009. Since then, more ership on corporate governance. than 5.7 million metric tons—about 11 per- We provide this in a variety of ways— cent of the global supply of palm oil—have including establishing the IFC Corporate been certiï¬?ed. Governance Methodology, a system for Our environmental and social standards evaluating corporate governance risks and help companies produce responsibly while opportunities that is recognized as the most improving their performance. For example, advanced of its kind among development we worked with TechnoServe, a nongovern- ï¬?nance institutions. This methodology is the mental organization, to help thousands of basis for a common approach to corporate Ethiopian coffee farmers raise their incomes governance now implemented by 29 devel- by increasing the quality and quantity of opment ï¬?nance institutions working in some coffee they produce. of the most challenging markets. With our help, Ethiopian coffee coopera- Through the Global Corporate tives reduced their water consumption and Governance Forum, a multi-donor trust-fund improved wastewater management. All 49 facility, and regional projects in developing cooperatives supported by TechnoServe countries, IFC also helps drive the corporate received sustainable-coffee certiï¬?cation that governance agenda among policymakers, allows them to become Starbucks suppliers. regulators, leading corporate directors’ Higher sustainability standards enabled the organizations, and the business media. We cooperatives to access new markets and also develop corporate governance tools earn premium prices for their coffee. and products to address our clients’ needs. IFC works with agricultural clients to strengthen supply chains, particularly with regard to labor, safety, and biodiversity issues. We are building a global map that will help flag country-speciï¬?c environmental and social risks for 150 commodities. OUR PEOPLE + PRACTICES IFC’S COMMITMENT TO ALLEVIATING POVERTY AND CREATING OPPORTUNITY FOR THE DEVELOPING WORLD’S MOST VULNERABLE PEOPLE IS REFLECTED IN OUR CORPORATE CULTURE. 17 Our history shows we learn from experi- • Mobilizing other sources of ï¬?nance THE IFC WAY for private enterprise development ence and take on new challenges. Our staff • Promoting open and competitive is better positioned than ever to maximize markets in developing countries IFC’s development impact. More than half • Supporting companies and other private sector partners where there is of us are based in developing countries, a gap close to the clients and communities we • Helping generate productive jobs and deliver essential services to the serve. We are also more diverse than poor and vulnerable ever—nearly two-thirds of our staff hail To achieve our purpose, IFC offers from developing countries. development-impact solutions through ï¬?rm-level interventions (direct investments, advisory services, and the IFC Asset Management Company); by promoting global collective action, by strengthening governance and standard setting; and through business-enabling-environ- ment work. A strong corporate culture is central to any organization’s ability to suc- THE WAY WE WORK ceed and adapt to new challenges. The IFC Way is a way of being, deï¬?n- • We help our clients succeed in a ing and solidifying IFC’s culture and changing world brand, and a process that engages • Good business is sustainable, and staff at all levels and in all regions to sustainability is good business inform management decision-making. • One IFC, one team, one goal It includes our vision, our core corpo- • Diversity creates value rate values, our purpose, and the way • Creating opportunity we work. requires partnership • Global knowledge, local know-how • Innovation is worth the risk OUR VISION • We learn from experience That people should have the opportu- • Work smart and have fun nity to escape poverty and improve • No frontier is too far or too difï¬?cult their lives OUR VALUES Excellence, Commitment, Integrity, Teamwork, and Diversity OUR PURPOSE To create opportunity for people to escape poverty and improve their lives by catalyzing the means for inclusive and sustainable growth, through: 18 IFC Annual Report 2012 How We Measure Development Results Measuring the results of our work is holders at an outreach event in THE IFC September last year. Based on their critical to understanding how well our recommendations, we made some strategy is working—and whether changes to the goals and indicators. IFC is reaching people and markets that DEVELOPMENT GOALS We also made modiï¬?cations to reflect what we have learned after two years most need our help. of testing. Discussions continue Our results-measurement system on how to account for other priority areas of IFC’s work—such as helps drive IFC strategy and operational investment climate—without adding decision-making. It features three mutu- undue complexity. ally reinforcing components: the IFC To address concerns that the goals could create a skewed focus on proj- Development Goals, a monitoring system ects with larger reach ï¬?gures at the to measure development results, and a The IFC Development Goals are expense of projects in smaller coun- system to evaluate the outcomes and targets for reach, access, or other tries with a more challenging business tangible development outcomes environment, we are testing an impact of our activities. Besides develop- that projects signed or committed by approach that could be used to pro- ment results, we also track IFC’s “addi- IFC are expected to deliver during vide appropriate weighting to projects tionalityâ€?—the distinctive advantages and their lifetime. in smaller and poorer countries. Some of these goals are still in the Moreover, to capture the extent to beneï¬?ts of our involvement in a project. testing phase. But they are increas- which IFC can claim credit for incre- This deliberate and systematic ingly being used as a strategic man- mental changes in the reach of a agement tool. In formulating their client company, contribution rules are approach allows us to track progress of our FY13–15 strategies this year, for being monitored in department score- projects throughout their life cycle and example, most IFC departments didn’t cards, in conjunction with the piloting incorporate lessons learned into our oper- just set targets for investment com- of the IFC Development Goals. These mitments and advisory work. They rules are based in part on the relative ations so we can improve future goal- also discussed IDG targets. magnitude of our investments and setting and project design. It is integral to The goals have also proved useful their speciï¬?c type—whether they are IFC’s efforts to become more results- in encouraging our staff to work debt or equity, for example. across departments and advisory IFC moved two goals from testing focused and to increase transparency and business lines, adopting cross-cutting to full implementation in FY13—the accountability to stakeholders. and programmatic approaches to IDGs for health and education and for enhance our development impact. ï¬?nancial services. In addition, we are The IFC Development Goals are developing speciï¬?c targets for the GOALS not intended to cover every project. Yet we agree that the goals need to cover IDG on economic growth. Other IDGs are expected to go live in FY14. a signiï¬?cant share of IFC’s business to be useful as a strategic management tool. We aim for the goals to cover most of our activities. We will use our EVALUATION MONITORING monitoring and evaluation systems to verify whether results promised by the IDGs materialize over time. We received positive feedback about the goals from external stake- 19 For Advisory Services, DOTS covers all MONITORING AND TRACKING The IFC Development Goals projects that are active, completed, or on hold, dating back to FY06. The FY12 ratings are deï¬?ned as a review of 166 completion RESULTS 1: Agribusiness Increase or improve sustainable-farming reports ï¬?led in 2011, of which 133 could be opportunities assessed. The rolling average is based on a review of 529 completion reports ï¬?led in 2: Health and Education calendar years 2009 through 2011, of which Improve health and education services 414 were assessed. Projects that could not 3: Financial Services be assessed for development effectiveness Increase access to ï¬?nancial services for were non-client-facing—or their outcome and individuals, microenterprises, and impact results had not been achieved by the SME clients review date. 4: Infrastructure We use our Development Outcome Tracking Increase or improve infrastructure EVALUATING RESULTS System to monitor the development results services of IFC’s investment and advisory services. 5: Economic Growth Among international ï¬?nancial institutions Increase the value added by IFC clients focused on private sector development, to their respective country’s economy DOTS is the leading system for measuring development results. 6: Climate Change For Investment Services, DOTS covers— Reduce greenhouse-gas emissions after certain exclusions—1,535 companies under supervision. This report focuses on 668 out of about 720 investments approved between 2003 and 2008, which are mature enough to be rated and recent enough to be relevant. The FY12 ratings reflect our clients’ 2011 data and performance. Every year, the Systematic evaluation is essential for group of investments we report on shifts by enhancing the development impact of our one year. The report also addresses the investment and advisory services by feeding current reach of all active investments in lessons learned back into projects and IFC’s portfolio. Reach indicators measure strategy. By revealing the factors for success the number of people reached by IFC clients or failure, evaluations can help us under- or the dollar beneï¬?t to particular stakehold- stand what we need to do more of—and less ers, regardless of IFC’s investment size. of—to achieve our mission. DOTS does not typically track certain In the past, our evaluations focused on projects, including projects that are expan- advisory projects. IFC is implementing a new sions of existing ones, split projects, and evaluation strategy that encompasses both certain ï¬?nancial products such as investment and advisory projects, in a way rights issues. that aims to maximize opportunities for IFC was the ï¬?rst multilateral development learning. The new strategy has four primary bank to report on development results for its objectives: (1) credibly articulate IFC’s entire portfolio, and have them assured by an development impact; (2) learn how to external ï¬?rm. With the rollout of a DOTS maximize the effectiveness of IFC interven- framework for the Global Trade Finance tions; (3) provide useful business intelligence Program this year, we are the ï¬?rst institution to clients and partners; and (4) exchange to start measuring the development results knowledge with external actors. of trade ï¬?nance not only at the program level In particular, the new strategy will focus but also at the project level. attention on the poverty-reduction effects of our 20 IFC Annual Report 2012 work that typically cannot be captured INVESTMENT RESULTS How IFC Monitors Results by monitoring and tracking alone. IFC has been conducting formal DOTS allows for real-time tracking of development self-evaluations across its operations results throughout the project cycle. At the outset of a since 2005, and our investment in project, IFC staff members identify appropriate indica- evaluation has been growing steadily tors with baselines and targets. They track progress ever since. Evaluations are under- throughout supervision, which allows for real-time taken at project, programmatic, and/ feedback into operations, until project closure. or thematic levels, as well as at the This report provides the DOTS score—the percent- level of donor-funded facilities, coun- age of projects that have achieved a high rating (in the tries, and regions. top half of the rating scale)—for IFC overall and by Most evaluations are led by exter- region, industry, and business line. nal evaluation experts, supervised by For Investment Services, the overall DOTS score is IFC evaluation specialists, and draw a synthesis of four performance areas (ï¬?nancial, eco- on best-practice approaches. Development results for IFC invest- nomic, environmental and social performance, and Evaluations are planned and imple- ment operations remained essentially broader private sector development impacts) that are mented in partnership with staff stable in FY12, after a decline in the informed by standardized industry-speciï¬?c indicators, across IFC, and integrated into proj- previous year that had been driven comparing actual results against expectations. To ect and program design early in the mainly by effects of the global and obtain a high rating, a project must make a positive lifecycle whenever possible. European ï¬?nancial crisis and events in contribution to the host country’s development. The new evaluation strategy com- the Middle East and North Africa. The For Advisory Services, the overall DOTS score or plements the work of the Independent overall development outcome score— development-effectiveness rating is a synthesis of the Evaluation Group (see page 30)— 68 percent—continued to exceed overall strategic relevance, efficiency, and effectiveness which reports directly to IFC’s Board of IFC’s long-term target of 65 percent. (as measured by project outputs, outcomes, and Directors and is charged with providing Underlying regional and sector impacts). At project completion, intended results are its own assessments and lessons of ratings also remained nearly stable. compared with achieved results. Some results— experience. IEG’s evaluations incorpo- Success rates in IDA countries rose medium-term outcomes and longer-term impacts— rate ï¬?ndings from IFC’s own monitoring to 65 percent, up from 59 percent may be unknown at project completion but can be and evaluations. IFC’s evaluation staff last year, driven primarily by stronger examined post-completion. works closely with IEG to discuss work performance of IDA projects in programs, share knowledge, and align Central Asia and the Middle East and efforts whenever possible. North Africa. IDA countries represent a challenging business environment, so IFC often makes investments in combination with advisory services. Analysis has shown that the com- bination increases the chances of achieving good development results. Although overall regional changes were marginal, underlying trends varied. Development results in ï¬?nan- cial markets across Sub-Saharan Africa and South Asia improved. In the former, this was driven by a more strategic programmatic approach in the sector. In both regions, ratings of manufacturing declined. South Asia’s manufacturing sector was affected by 21 the economic slowdown in India, Sectoral ratings remained virtually which hurt clients’ bottom lines. stable. The most signiï¬?cant changes Expanding Our Insights into In Europe and Central Asia, ratings were in the scores for the telecommu- Job Creation of projects in Central Asia improved nications, media, and technology sec- signiï¬?cantly—by 29 percentage tor and the oil, gas, and mining sector, IFC is conducting a study to better understand how the points, which also drove up IDA which declined. Success rates for private sector creates jobs. The ï¬?ndings will be used to results. This was driven mainly by telecommunications, media, and influence our own strategy for private sector develop- greater strategic focus. Ratings in the technology projects declined by eight ment. They will also inform the World Bank Group’s Middle East and North Africa also percentage points to 56 percent. 2013 World Development Report on Jobs. stabilized, primarily because of posi- Success rates for oil, gas, and mining We know some things about job creation, but we tive performance in manufacturing, projects dropped by 14 percentage still don’t know enough about what works best in what services, and ï¬?nancial markets. points to 69 percent. circumstances. For example, what types of activities— Political and economic uncertainty in Within the telecommunications, direct investments, efforts to strengthen supply chains, the region, however, continues to media, and technology sector, perfor- improving access to ï¬?nance, infrastructure, or the adversely affect clients’ ï¬?nancial mance declined most in East Asia and investment climate—are most likely to have the largest performance, especially in Egypt the Paciï¬?c and in South Asia, reflect- effects on job creation? How do these different activi- and Tunisia. ing the riskier nature of the venture- ties affect different societal groups, including women, Ratings of projects in East Asia capital-type information-technology young people, and the poor? and the Paciï¬?c improved because of investments. In oil, gas, and mining, The results will be available in December 2012. better performance of new projects in poor success rates of new projects— Here are some preliminary ï¬?ndings: ï¬?nancial markets in the Philippines, and successful projects leaving the and stronger performance of existing rating cohort—in Sub-Saharan Africa Companies face four main obstacles to job projects across manufacturing, agri- and Latin America drove down creation: business, and services in China. the performance. In Latin America and the Caribbean, Clients in these sectors, however, • Access to ï¬?nance—particularly for micro, small, and development results in Mexico continued to expand their reach. IFC medium enterprises. improved as the U.S. economy recov- clients in oil, gas, and mining provided • Access to infrastructure—particularly, reliable ered. However, some early-stage about 22 million gas connections— power in lower-income countries. projects in extractive industries and almost a 30 percent increase over the • Investment climate—complicated and costly laws in ï¬?nancial services exhibited some previous year. These clients gener- and regulations can impede business creation project-speciï¬?c challenges, resulting in ated $6 billion in tax revenues, more and expansion. a slight overall decline in performance. than clients in other sectors, and • Education and skills—a lack of adequately trained Clients continued to achieve sig- provided over 100,000 jobs. workers can impede hiring. niï¬?cant development impact through Indirect job creation could be their reach. In Sub-Saharan Africa, the much higher. Several studies con- The indirect impact of IFC’s client companies number of farmers reached increased ducted by IFC showed that indirect can be signiï¬?cant, but difficult to measure: by almost 50 percent in calendar year jobs—in the supply chain or distribu- 2011—to 380,000, or 20 percent of tion network—are often a multiple of IFC’s clients directly provided 2.5 million jobs in 2011. IFC’s total. In Europe and Central Asia, the direct jobs provided. A study of an • Yet the indirect effects of their work can be large— the number of loans to micro, small, IFC client in Ghana showed that for for example, every job provided by an IFC gold-mining and medium enterprises rose to over every mining job provided by the client in Ghana supported jobs for 28 others in the 2.6 million from 1.1 million. In Asia, client, 28 jobs were supported wider economy. such loans increased to 11 million throughout the economy. • These indirect beneï¬?ts vary by country and from 3.4 million. In Latin America and Success rates rose for projects in industry. the Caribbean, 13 million customers ï¬?nancial markets and funds because More information about the study is available at: obtained water connections, a 37 per- of better performance of existing www.ifc.org/jobcreation. cent increase over the previous year. In projects in the rated portfolio. This the Middle East and North Africa, our might reflect the effects of stronger clients provided 17 million phone con- nections—20 percent of the IFC total. 22 IFC Annual Report 2012 banking supervision—at least in increased to nearly 20 million from manufacturing, agribusiness and Europe—in the face of the crisis. 8 million. services sectors directly provided The improved performance of Projects in agribusiness and for- over 1 million jobs, approximately banks nearly doubled the number estry improved in most regions. The 30 percent of which went to women. of SME loans that our clients rating for the manufacturing sector Clients also expanded their reach to provided—to 3.3 million. The num- rose, mainly because of projects in 12 million patients this year, an ber of microfinance loans provided East Asia. In terms of reach, the increase of almost 70 percent. DOTS PERFORMANCE CATEGORIES: INVESTMENT SERVICES Examples of Speciï¬?c Indicators Assessed Performance Category General Indicators and Benchmarks against Targets Financial Performance Returns to ï¬?nanciers, e.g., ï¬?nancial returns at Return on invested capital, return on equity, project or above weighted-average cost of capital implemented on time and on budget Economic Performance Returns to society, e.g., economic returns at Economic return on invested capital, number of or above 10 percent or the weighted-average connections to basic services, loans to small cost of capital enterprises, people employed, tax payments Environmental and Social Performance Project meets IFC’s Performance Standards Environmental and social management systems, effluent or emission levels, community development programs Private Sector Development Impact Project contributes to improvement for the Demonstration effects (other ï¬?rms replicating a private sector beyond the project company new approach, product, or service), linkages to other private companies, corporate governance improvements DOTS PERFORMANCE CATEGORIES: ADVISORY SERVICES Examples of Speciï¬?c Indicators Assessed Performance Category General Indicators and Benchmarks against Targets Strategic Relevance Potential impact on local, regional, Alignment with country strategy national economy Efï¬?ciency Returns on investment in advisory operations Cost-beneï¬?t ratios, project implemented on time and budget Effectiveness Outputs, outcomes, and impacts. Project Improvements in operations, investments enabled, contributes to improvement for the client, the increase in revenues for beneï¬?ciaries, cost savings beneï¬?ciaries, and the broader private sector from policy reforms 23 job creation. These projects, many ADVISORY SERVICES undertaken in collaboration with other Addressing the Global Food Crisis through parts of the World Bank Group, Advisory Services supported 56 reforms in 33 countries RESULTS in 2011 (33 in 20 IDA countries; 15 in nine fragile and conflict-affected Advisory services are an important part of IFC’s response to the global food crisis. IFC is harnessing the situations). contributions of all four of our advisory business lines Our Access to Finance business for greater impact. We support the agribusiness and line helps to increase the availability food processing sectors along the full value chain, both and affordability of ï¬?nancial services directly to companies and governments and indirectly for individuals and micro, small, and through intermediaries (for example, traders or ï¬?nan- medium enterprises by working with cial institutions). Highlights for 2011 include: ï¬?nancial intermediaries to design and • Our Investment Climate business line supported test new business models, and regulatory reform in Armenia that eliminated Soviet- Development effectiveness ratings strengthening their risk-management era standards that restricted ï¬?rms from adopting global for IFC Advisory Services increased systems. In partnership with IFC food-safety standards throughout their production for the third consecutive year in FY12. Investment Services, IFC Advisory processes. These improvements increase the competi- Seventy-two percent of advisory Services worked with 88 ï¬?nancial tiveness of locally produced agricultural goods and projects that closed during the year intermediary clients that provided boost internal food security. Similar reforms were and that could be assessed for devel- over 7.6 million microï¬?nance and supported in Moldova and Ukraine. This business line opment effectiveness were rated SME loans (63 percent in IDA coun- is developing an Africa Agribusiness Strategy and will high. This represents an increase of tries, up from 57 percent last year), be rolling out similar strategic exercises in ï¬?ve percentage points over the rolling totaling $31.9 billion. Joint Investment other regions. average of our performance from and Advisory Services activities also • Our Access to Finance business line helped develop and FY10 through FY12. supported eight clients that provided launch nine standard agri-insurance products into the Ratings were better in every busi- 40,000 housing ï¬?nance loans, total- Ukrainian market, enhancing farmers’ access to ï¬?nance by ness line, and signiï¬?cant improve- ing $1.4 billion. fulï¬?lling collateral requirements for working-capital loans: ments were made in a number of Our Public-Private Partnerships more than 2,500 agri-insurance contracts were issued with regions—Europe and Central Asia, business line helps client govern- a notional value of almost $800 million. Sub-Saharan Africa, and South Asia. ments design and implement PPP • Our Public-Private Partnerships business line The Middle East and North Africa transactions in infrastructure and helped the Indian state of Punjab design and launch a region experienced lower ratings, other basic services. In 2011, we PPP to allow a private ï¬?rm to build, own, and operate a largely attributable to the political helped clients sign ï¬?ve contracts with 50,000-metric-ton storage facility for wheat to feed turmoil and economic crisis. Ratings private operators (60 percent of them people living below the poverty line. As a result of these also improved for operations in IDA in IDA countries), which are expected improved storage facilities, 500,000 of India’s poorest and fragile and conflict-affected to improve access to infrastructure are expected to receive better nutrition each year. The situations—climbing to 74 percent and health services for over 16 million success of this project is expected to lead to its replica- and 77 percent from 68 percent and people, in addition to mobilizing tion on a wider scale, both within India and beyond. 73 percent, respectively, over the nearly $5 billion in private investment. • Our Sustainable Business Advisory business line three-year rolling average. Our Sustainable Business worked with a sugar mill in North India to strengthen Behind these ratings lie record Advisory business line works with the client supply chain through intensive training and numbers of people beneï¬?ting from companies to adopt environmental, capacity-building of the company’s extension workers the kinds of market transformations social, and governance practices and and farmers. More than 2,000 farmers were trained on we help to catalyze and accelerate. technologies that create a competi- new agronomy practices. On average, yields increased Our Investment Climate business line tive edge. In 2011, we provided by more than 70 percent in the second year from base- assists client governments in imple- capacity-building to over 245,000 line levels. The company is now scaling up to reach menting reforms that improve the people (77 percent of them in IDA more farmers, and IFC is engaging with other sugar business environment and encourage countries), including farmers, entre- companies on productivity, water efficiency, and and retain investment, thereby foster- preneurs, and SMEs management. other activities. ing competitive markets, growth, and 24 IFC Annual Report 2012 THE IFC DEVELOPMENT GOALS DEVELOPMENT REACH BY IFC’S INVESTMENT CLIENTS FY12 Percent of New FY12 IDG Target Portfolio Portfolio Business Goal IDG Target Commitments Achieved CY10 CY11 FY12 Increase or improve Beneï¬?t 1.03 million 283% Investments sustainable-farming 365,000 people Employment (millions of jobs)1 2.4 2.5 0.2 opportunities people Microï¬?nance loans2 Improve health and Beneï¬?t 9.32 million 555% Number (million) 8.0 19.7 10.5 education services 1.68 million people people Amount ($ billions) 12.62 19.84 10.63 Increase access to ï¬?nancial Beneï¬?t 32.84 million 207% SME loans2 services for individuals 15.85 million people Number (million) 1.7 3.3 0.9 and microï¬?nance clients people Amount ($ billions) 127.82 181.25 29.60 Increase access to ï¬?nancial Beneï¬?t 1.54 million 132% Customers reached with services services for SME clients 1.17 million people Power generation (millions) 41.9 41.9 4.7 people Power distribution (millions)3 49.4 49.2 0.9 Increase or improve Beneï¬?t 32.81 million 170% Water distribution (millions) 20.1 34.3 6.4 infrastructure services 19.25 million people people Gas distribution (millions)4 17.2 22.4 NA Phone connections (millions) 179.7 172.2 1.4 Reduce greenhouse- Reduce by 1.79 million 105% gas emissions 1.70 million metric metric tons Patients reached (millions) 7.5 12.2 11.1 tons of CO2 Students reached (millions) 1.0 0.9 1.2 equivalent per year Farmers reached (millions) 2.5 3.3 1.1 Note: Data on “IDG Commitmentsâ€? in this table reflect both investment and advisory operations and are subject to Payments to suppliers and governments speciï¬?c rules that prorate IFC’s contribution to our clients’ achievements (see page 18). The IDG on greenhouse emissions was piloted in the South Asia and Eastern Europe and Central Asia regions, so data here refers Domestic purchases of goods and to these two regions only. services ($ billions) 39.51 49.84 4.18 Contribution to government revenues or savings ($ billions) 20.28 21.73 5.71 CY10 and CY11 portfolio data are not strictly comparable, because they are based on a changed portfolio of IFC clients. The values for FY12 new business are incremental, that is, target minus baseline. Unlike the IDG ï¬? gures, they do not apply contribution rules. 1 Portfolio ï¬? gures for employment include jobs provided by Funds, while New Business ï¬? gures include jobs that are expected to be added by Funds. 2 In many cases, results refl ect also contributions from IFC Advisory Services. Portfolio reach ï¬? gures represent SME and microï¬? nance outstanding loan portfolio of IFC clients as of end of CY10 and CY11, for MSME- oriented ï¬? nancial institutions/projects. 222 and 268 clients were required to report their end-of-year SME and microï¬? nance portfolios in CY10 and CY11, respectively. 195 and 252 clients did so for CY10 and CY11, respectively. The missing data were extrapolated. 3 In FY12, IFC adjusted its methodology to better estimate the numbers of residential individuals reached in these sectors. 4 One client in East Asia and the Paciï¬? c contributed 20.4 million of Gas Distribution customers in CY11. 25 INVESTMENT SERVICES DOTS SCORE BY ADVISORY SERVICES DOTS SCORE BY BUSINESS LINE % Rated High PERFORMANCE AREA, FY12 % Rated High Overall Advisory Services 67% Development Outcome 68% 72% 72% Access to Finance 68% Financial Performance 51% 78% 60% Investment Climate 70% Economic Performance 60% 71% 66% Public-Private Partnerships 52% Environment & Social Performance 69% 53% 70% Sustainable Business 69% Private Sector Development Impact 76% 74% 79% FY2010 to FY2012 FY2012 Unweighted Weighted ADVISORY SERVICES DOTS SCORE BY REGION % Rated High INVESTMENT SERVICES DOTS SCORE BY INDUSTRY, FY11 VS. FY12 % Rated High Overall Advisory Services 67% 72% IFC Total 67% East Asia and the Paciï¬?c 65% 68% 64% Infrastructure 77% Europe and Central Asia 77% 76% 100% Funds 68% Latin America and the Caribbean 79% 73% 75% Agribusiness & Forestry 70% Middle East and North Africa 48% 72% 30% Financial Markets 66% South Asia 77% 70% 85% Oil, Gas & Mining 83% Sub-Saharan Africa 65% 69% 78% FY2010 to FY2012 FY2012 Manufacturing 59% 63% Consumer & Social Services 59% 57% Telecommunications & 64% Information Technology 56% 2011 2012 INVESTMENT SERVICES DOTS SCORE BY REGION, FY11 VS. FY12 % Rated High IFC Total 67% 68% East Asia and the Paciï¬?c 76% 80% South Asia 72% 73% Latin America and the Caribbean 74% 72% Sub-Saharan Africa 63% 64% Europe and Central Asia 60% 61% Middle East and North Africa 56% 60% 2011 2012 26 IFC Annual Report 2012 Our Staff IFC’s employees are diverse. They are our WHERE WE WORK most important asset. Representing more WE WORK IN Location FY04 FY12 104 than 140 countries, our staff brings inno- Washington, D.C. 1,291 (57%) 1,670 (44%) vative solutions and global best practices Field Ofï¬?ces 963 (43%) 2,093 (56%) to local clients. Total IFC Staff 2,254 3,763 We work in 104 offices in 95 coun- OFFICES IN 95 COUNTRIES. tries. More than half of us—56 percent— NATIONAL ORIGINS—ALL FULL-TIME STAFF are based in ï¬?eld offices, an increasing National Origins FY04 FY12 65% percentage that reflects our commitment Developed Countries 963 (43%) 1,327 (35%) to decentralization. Most IFC staff also Developing Countries 1,291 (57%) 2,436 (65%) hail from developing countries, 65 percent Total 2,254 3,763 in all, a diversity that enriches our per- OF IFC STAFF HAIL FROM spective and underscores our focus on DEVELOPING COUNTRIES. NATIONAL ORIGINS—ALL STAFF AT OFFICER areas where private sector development LEVEL AND HIGHER can have the biggest impact. 56% National Origins FY04 FY12 Developed Countries 647 (53%) 1,040 (43%) Developing Countries 584 (47%) 1,381 (57%) Total 1,231 2,421 ARE BASED IN FIELD OFFICES. GENDER—ALL FULL-TIME STAFF Gender FY04 FY12 Male Staff 1,121 (50%) 1,781 (47%) Female Staff 1,133 (50%) 1,982 (53%) Total 2,254 3,763 GENDER—ALL STAFF AT OFFICER LEVEL AND HIGHER Gender FY04 FY12 Male Staff 844 (69%) 1,426 (59%) Female Staff 387 (31%) 995 (41%) Total 1,231 2,421 27 Vanbreda, an international health care pro- COMPENSATION VARIABLE PAY PROGRAMS vider. Medical insurance costs are IFC’s compensation guidelines are part of IFC’s variable pay programs consist of shared—75 percent is paid by IFC and the World Bank Group’s framework. The several components, including recognition, 25 percent by the insured. international competitiveness of compensa- annual, and long-term performance awards IFC’s pension is part of the World Bank tion is essential to our capacity to attract and that support IFC’s high-performance culture. Group plan, based on two beneï¬?t compo- retain a highly qualiï¬?ed, diverse staff. The These awards are designed to encourage nents: ï¬?rst, years of service, salary, and salary structure of the World Bank Group for teamwork, reward top performance, and retirement age; second, a cash savings plan, staff recruited in Washington, D.C., is deter- support IFC’s strategic priorities. which includes a mandatory contribution of mined with reference to the U.S. market, 5 percent of salary, to which IFC adds which historically has been globally competi- 10 percent annually. Legacy pension ben- BENEFITS PROGRAMS tive. Salaries for staff hired in countries eï¬?ts from earlier World Bank Group pension outside the United States are based on local IFC provides a competitive package of plans include termination grants and addi- competitiveness, determined by independent beneï¬?ts, including medical insurance and a tional cash payouts. local market surveys. Based on the World retirement plan. Washington-based employ- Bank Group’s status as a multilateral organi- ees are covered by Aetna, contracted zation, staff salaries are determined on a through an open procurement process. net-of-tax basis. Other staff members are covered by STAFF SALARY STRUCTURE (WASHINGTON, D.C.) During the period July 1, 2011 to June 30, 2012, the salary structure (net of tax) and average net salaries/beneï¬?ts for World Bank Group staff were as follows: Staff at Average Market Grade Salary/ Average Grades Representative Job Titles Minimum ($) Reference ($) Maximum ($) Level (%) Grade ($) Beneï¬?ts ($)a GA Ofï¬?ce Assistant 25,100 32,600 42,400 0.0 43,090 24,152 GB Team Assistant, Information Technician 31,700 41,200 57,700 0.6 42,136 23,617 GC Program Assistant, Information Assistant 39,100 50,900 71,300 9.5 53,698 30,098 GD Senior Program Assistant, Information Specialist, Budget Assistant 46,200 60,100 84,200 7.9 67,671 37,929 GE Analyst 62,100 80,700 113,000 9.8 76,179 42,698 GF Professional 82,500 107,300 150,200 19.6 98,249 55,069 GG Senior Professional 111,300 144,700 202,500 31.6 135,238 75,801 GH Manager, Lead Professional 151,700 197,200 245,900 17.7 187,019 104,824 GI Director, Senior Advisor 202,200 264,500 303,300 2.8 244,806 137,214 GJ Vice President 271,800 304,500 340,900 0.4 302,422 169,508 GK Managing Director, Executive Vice President 298,600 338,600 372,400 0.1 292,656 177,705 Note: Because World Bank Group (WBG) staff, other than U.S. citizens, usually are not required to pay income taxes on their WBG compensation, the salaries are set on a net-of-tax basis, which is generally equivalent to the after-tax take-home pay of the employees of the comparator organizations and ï¬? rms from which WBG salaries are derived. Only a relatively small minority of staff will reach the upper third of the salary range. a. Includes medical, life, and disability insurance; accrued termination beneï¬? ts; and other nonsalary beneï¬? ts. 28 IFC Annual Report 2012 Our Governance Our Place in the World Bank Group In working toward a world free of pov- EXECUTIVE COMPENSATION erty, we collaborate closely with other The World Bank Group is a vital source of members of the Bank Group, including: The salary of the President of the • The International Bank for World Bank Group is determined by ï¬?nancial and technical assistance to devel- Reconstruction and Development, the Board of Directors. The salary oping countries. Established in 1944, its which lends to governments of structure for IFC’s Executive Vice middle-income and creditworthy President and CEO is determined by mission is to ï¬?ght poverty with passion low-income countries. positioning a midpoint between the and professionalism, for lasting results. • The International Development salary structure of staff at the highest IFC is one of ï¬?ve members of the Association, which provides interest- level, as determined annually by inde- free loans—called credits—to govern- pendent U.S. compensation market Bank Group, though it is a separate legal ments of the poorest countries. surveys, and the salary of the World entity with separate Articles of Agreement, • The Multilateral Investment Bank Group President. The compen- share capital, ï¬?nancial structure, manage- Guarantee Agency, which provides sation of our executive leadership is guarantees against losses caused by transparent. IFC’s Executive Vice ment, and staff. Membership in IFC is noncommercial risks to investors in President and CEO, Lars Thunell, open only to member countries of the developing countries. received a salary of $365,948, net of World Bank. As of June 30, 2012, IFC’s • The International Centre for taxes. There are no executive incentive Settlement of Investment Disputes, compensation packages. paid-in capital of about $2.4 billion was which provides international facilities held by 184 member countries. These for conciliation and arbitration of investment disputes. countries guide IFC’s programs and activities. OUR BOARD IFC works with the private sector to Each of our member countries create opportunity where it’s needed most. appoints one governor and one alter- Since our founding in 1956, we have com- nate. Corporate powers are vested in mitted more than $126 billion of our own the Board of Governors, which del- egates most powers to a board of 25 funds for private sector investments in directors. Voting power on issues developing countries, and we have mobi- brought before them is weighted lized billions more from others. according to the share capital each director represents. The directors meet regularly at World Bank Group headquarters in Washington, D.C., where they review and decide on investments and pro- vide overall strategic guidance to IFC management. The President of the World Bank Group is also President of IFC. 29 Standing from Left to Right: Rogerio Studart, Brazil; Ingrid Hoven, Germany; Agapito Mendes Dias, Sao Tome and Principe; Merza Hasan, Kuwait; Piero Cipollone, Italy; Jorg Frieden, Switzerland; Vadim Grishin, Russia; Marie-Lucie Morin, Canada; Shaolin Yang, China; Marta Garcia Jauregui, Spain; Hekinus Manao, Indonesia; Sid Ahmed Dib (Alt), Algeria; Rudolf Treffers, Netherlands; Konstantin Huber, Austria; In-Kang Cho (Alt), South Korea; Hassan Ahmed Taha, Sudan; Mukesh N. Prasad, India. Seated from Left to Right: Ian Solomon, United States; Felix Camarasa, Argentina; Ambroise Fayolle, France; Susanna Moorehead, United Kingdom; Abdulrahman Almofadhi, Saudi Arabia; Anna Brandt, Sweden; Renosi Mokate, South Africa; Nobumitsu Hayashi, Japan. Photo: Frank Vincent/WB Photolab EXECUTIVE DIRECTORS (ALTERNATE) OUR MEMBER COUNTRIES—STRONG SHAREHOLDER SUPPORT Capital Stock by Country Abdulrahman M. Almofadhi Ibrahim Alturki Anna Brandt Jens Haarlov Grand Total 100.00% Felix Alberto Camarasa Varinia Cecilia Daza Foronda United States 24.01% Piero Cipollone Nuno Mota Pinto Japan 5.95% Agapito Mendes Dias Mohamed Siekieh Kayad Germany 5.43% Ambroise Fayolle Anne Touret-Blondy France 5.10% Jorg Frieden Wieslaw Leonard Szczuka United Kingdom 5.10% Marta Garcia-Jauregui Juan Jose Bravo Moises Canada 3.43% Vadim Grishin Eugene Miagkov India 3.43% Merza H. Hasan Ayman Alkaffas Italy 3.43% Nobumitsu Hayashi Yasuo Takamura Russian Federation 3.43% Ingrid G. Hoven Wilhelm Michael Rissmann Netherlands 2.37% Konstantin F. Huber Gino Alzeta 174 Other Countries 38.32% Hekinus Manao Dyg Sadiah Binti Abg Bohan Renosi Mokate Muhtar Mansur Susanna Moorehead Stewart James Marie-Lucie Morin Kelvin Dalrymple Mukesh N. Prasad Kazi M. Aminul Islam Ian H. Solomon Sara Aviel Rogerio Studart Vishnu Dhanpaul Hassan Ahmed Taha Denny Kalyalya Javed Talat Sid Ahmed Dib Rudolf Treffers Stefan Nanu John Henry Whitehead In-Kang Cho Shaolin Yang Bin Han 30 IFC Annual Report 2012 Accountability In its FY12 report Results and notes on extractive industries in IFC- INDEPENDENT EVALUATION GROUP Performance of the World Bank IN FY12, IEG supported projects and lessons The Independent Evaluation Group Group, IEG commented on IFC’s VALIDATED IFC regarding South-South investments. generates lessons from evaluations to unique capabilities and constraints in EVALUATION In addition, IEG made several presen- contribute to IFC’s learning agenda. addressing the needs of the private tations to European development RATINGS FOR Independent of IFC management and sector via the World Bank Group’s institutions, focusing on private invest- 45% reporting directly to IFC’s Board of Country Assistance Strategy frame- ment. Consistent with corporate trans- Directors, IEG aims to strengthen work. In the second phase of IEG’s parency procedures, IEG’s reports are IFC’s operational performance and evaluation of the Bank Group’s publicly disclosed on its website: inform strategy and future directions. response to the global economic http://ieg.worldbankgroup.org. IEG’s evaluation system is designed crisis, IEG concluded that IFC main- to accommodate a wide variety of tained broadly constant levels of OF ELIGIBLE INVESTMENT OFFICE OF THE COMPLIANCE investment operations and technical investment and response initiatives. It ADVISOR/OMBUDSMAN assistance and advisory services found that IFC somewhat overesti- PROJECTS AND operations. IEG continuously assesses mated the potential adverse effects of The Ofï¬?ce of the Compliance Advisor/ and improves the quality of IFC’s the crisis and recommended that IFC Ombudsman is the independent 78% evaluation policies, practices, and review its stress-test methodology to recourse mechanism for IFC and the instruments to ensure that they remain optimize its strategy for future crises. Multilateral Investment Guarantee relevant to evolving corporate and Another major evaluation this year Agency. Reporting directly to the stakeholder success standards covered youth employment. IFC World Bank Group President, CAO and learning needs. It independently focuses on job creation regardless of responds to complaints from people validates IFC’s self-evaluation ratings. beneï¬?ciary age, so IEG recom- OF ELIGIBLE affected by IFC and MIGA projects In FY12, IEG validated 45 percent mended that in countries where youth ADVISORY with the goal of enhancing social and of eligible IFC investment projects, employment has been identiï¬?ed as an PROJECTS. environmental outcomes and foster- and 78 percent of eligible advisory issue, IFC and the Bank Group ing greater public accountability of projects. IEG communicates these should adopt a comprehensive youth IFC and MIGA. ï¬?nal ratings to IFC staff and aggre- strategy and categorize its data by CAO fulï¬?lls three complementary gates them in its annual evaluation of age, so that the effects on youth roles—it provides dispute resolution World Bank Group results and perfor- speciï¬?cally can be seen. between affected communities and mance, which includes a sample of IEG prepared several notes that IFC clients, it ensures IFC’s compli- IFC investment and advisory projects. summarize its ï¬?ndings. These included ance with relevant environmental and 31 social standards, and it delivers inde- are aligned with IFC’s values of being pendent advice to the President and SINCE 1999, socially and environmentally sound. IFC senior management. In doing so, it CAO HAS CAO appraised 10 IFC projects enables people’s concerns about IFC ADDRESSED this year to assess whether an audit activities to be addressed quickly and of IFC’s performance is merited. Of 103 effectively, and provides public assur- these, one—an electricity privatization ance that systemic weaknesses in IFC project in Kosovo—is being audited by projects are identiï¬?ed and addressed. CAO. CAO is monitoring IFC’s Since CAO was established in response to two audits in the agribusi- 1999, the ofï¬?ce has addressed 103 ness sector. complaints related to 68 IFC projects COMPLAINTS In its dispute resolution work, CAO in 35 countries. This year, CAO han- RELATED settled a complaint from landowners dled more complaints and requests TO 68 IFC in Georgia affected by the BTC for audits than in any previous year— PROJECTS IN Pipeline in less than six months, 33 cases in all. The increase is attrib- 35 COUNTRIES. closed a case in Turkey regarding utable in part to CAO’s improved labor relations in the manufacturing accessibility and stronger outcomes industry, and is monitoring implemen- delivered in recent years. tation of agreements related to one oil CAO is nearing completion of its palm case in Indonesia. CAO is also compliance investigation of 188 IFC facilitating 10 collaborative dispute ï¬?nancial sector investments involving resolution processes in Cambodia, 63 clients—out of a sample of 844 Cameroon, Indonesia, Nicaragua, made between 2006 and 2011. This Papua New Guinea, and Uganda. work aims to provide assurance about More information is available at IFC’s social and environmental perfor- www.cao-ombudsman.org. mance when investing through third- party entities. CAO’s report, expected in the ï¬?rst quarter of FY13, will assess whether the business activities IFC supports through the ï¬?nancial sector 32 IFC Annual Report 2012 Partnerships Donor governments, foundations, energy, and climate change. IFC FORMING PRODUCTIVE PARTNERSHIPS and other multilateral organizations DONOR works closely with both Austria’s IFC works with governments, found- committed more than $300 million to PARTNERS Federal Ministry of Finance and the ations, and other multilateral organiza- IFC Advisory Services in FY12. New COMMITTED Development Bank of Austria, or OeEB. tions to foster innovative partnerships donors included The MasterCard • Japan’s Ministry of Finance com- MORE THAN to reduce poverty and improve peo- Foundation and Germany’s Federal mitted funding for IFC’s Inclusive $300 ple’s lives. In a time of economic Ministry for Economic Cooperation Business Models group and contin- turbulence, budget constraints, and and Development, or BMZ. ues to fund operations in East Asia emerging development challenges, During FY12, our partners commit- and the Paciï¬?c. This will enable IFC to that work is more important than ever. ted a further $460 million for donor- ï¬?nd new ways to reach people at the Our partners increasingly look to us funded investments. These funds base of the economic pyramid. for thought leadership, convening helped ï¬?nance several IFC special MILLION • Canada’s Department of Finance, power, and clear evidence of develop- initiatives, including the Global TO ADVISORY the Netherlands’ Ministry of Foreign ment impact. We deliver that in all Agriculture and Food Security Program. SERVICES Affairs, and the U.S. Agency for aspects of our work. In FY12, IFC and Here are a few highlights of our IN FY12 AND AN International Development supported our donor partners worked together FY12 work with donor partners: ADDITIONAL IFC’s work in the Global Agriculture to address the world’s most urgent • The United Kingdom’s Department $460 MILLION and Food Security Program, while development challenges, including for International Development, or FOR DONOR- DFID supported the Global Small food security, small and medium DFID, contributed more than $210 mil- and Medium Enterprise Facility. FUNDED enterprises, infrastructure, fragile and lion to IFC’s three businesses. The This work illustrates some of the conflict-affected states, climate funds supported our advisory work in INVESTMENTS. multi-donor initiatives that IFC is change, gender, and inclusive business. the areas of investment climate and leading to address global develop- We conduct regular bilateral con- access to ï¬?nance. They also sup- ment challenges. sultations with our donor partners, ported IFC investments in small and • Korea’s Ministry of Strategy and and host other events to maximize our medium enterprises, and climate- Finance contributed funding to support cooperation with speciï¬?c partners related investments of the IFC Asset operations of the Global SME Finance and the donor partner community. Management Company. Forum—a collaborative knowledge- These events include the annual IFC • Switzerland’s State Secretariat for sharing platform housed at IFC. The Donor Breakfast in the fall and the Economic Affairs was a leading agreement between Korea and IFC annual World Bank Group Donor contributor to IFC Advisory Services reflects the growing relationship Forum in the spring. in FY12, providing more than $57 mil- between the Korean government and Our donor partners work seam- lion. Switzerland’s contributions the World Bank Group. Korea, a former lessly with us across our three busi- mostly supported IFC’s work on IDA country and IFC recipient, became nesses. Our collaborative approach investment climate, access to ï¬?nance, an ofï¬?cial donor to IFC and has taken a emphasizes the power of long-term and climate change. leading role in the G-20 process since partnerships, maintains a focus on • The Netherlands’ Ministry of the Seoul Summit in 2010. results measurement and efï¬?ciency, Foreign Affairs and IFC renewed a • The MasterCard Foundation and provides appropriate visibility for commitment to work together on committed $37.5 million to Advisory donor partners. shared priority areas, including fragile Services to fund the Partnership for and conflict-affected areas, climate Financial Inclusion in Sub-Saharan change, inclusive business, and food Africa. This partnership aims to deliver WORKING WITH DONOR PARTNERS security. For nearly 10 years, the ï¬?nancial services to more than 5 mil- IFC has had a long and productive Netherlands and IFC have collabo- lion people without bank accounts, by association with donor partners, rated successfully within the helping new microï¬?nance institutions particularly in Advisory Services. Netherlands-IFC Partnership Program. grow, by using mobile technology, and Increasingly these partners are • Austria and IFC renewed their by broadening the knowledge base of also pursuing private sector invest- commitment to enhance collaboration what works in ï¬?nancial inclusion. ment opportunities to make public in Eastern Europe and Central Asia, • The Bill & Melinda Gates money go further—through donor- with a special focus on investment Foundation and IFC are developing funded investments. climate, access to ï¬?nance, renewable an innovative payments system in 33 Bihar, one of India’s poorest and most popu- Institutional and For these reasons, IFC has teamed up lous states. The system will enable individu- Private Donors FY11 FY12 with an array of multilateral and bilateral als to receive government payments for BNDESPAR 3.00 private sector development institutions, health programs, using accounts held with CTF 0.80 pooling resources to expand our reach and banks or other payment service providers. Disney Worldwide maximize our impact. By collaborating, we The Gates Foundation provided IFC with Services, Inc. 0.05 can share knowledge and design more European Commission 10.32 8.90 initial funding and then scaled up the proto- efï¬?cient programs. Our partners, in turn, Gates Foundation 0.33 2.57 type system by investing an additional beneï¬?t from IFC’s leadership position. GEF 2.99 $2.6 million. Inter-American Collaboration has been critical in our This year, IFC performed well in multilat- Development Bank 1.00 response to global economic turbulence, eral aid assessments conducted by Australia, Islamic Development Bank 3.00 allowing us to swiftly launch new initiatives to the Netherlands, and the United Kingdom. Kauffman Foundation 0.37 0.05 boost trade ï¬?nance, recapitalize banks, and These partners assess the performance and MasterCard Foundation 37.45 spur infrastructure investment. Recently, we development impact of multilateral organiza- TMEA 9.42 joined forces with 30 development institu- tions to inform future funding decisions. UN Agencies 0.05 0.25 tions to produce a study—International Total 26.47 54.08 Finance and Development through the Private Sector—that makes the case for FINANCIAL COMMITMENTS TO DONOR FINANCIAL COMMITMENTS TO closer cooperation between the public and IFC ADVISORY SERVICES IFC ADVISORY SERVICES private sectors. (US$ Millions Equivalent) (US$ Millions Equivalent) In collaboration with several development [Unaudited ï¬?gures] institutions, we developed a Global SME Summary FY11 FY12 Finance Initiative to help expand the availabil- Governments FY11 FY12 Governments 171.42 247.28 ity of ï¬?nancing for small and medium enter- Australia 8.02 1.57 Institutional/ prises—a priority for the Group of 20 leading Austria 22.98 25.55 Multilateral Partners 31.64 10.95 industrial and developing economies. In the Canada 33.27 5.63 Private Partners/ Denmark 4.47 0.96 Foundations 0.70 43.13 Middle East and North Africa, we are work- Finland 2.27 0.13 Total 203.76 301.36 ing with several development institutions— France 0.20 0.03 including the Islamic Development Bank, the Germany 0.00 0.60 European Investment Bank, and the German Ireland 1.10 1.51 development institution KfW—to address WORKING WITH OTHER Italy 10.00 0.00 some of the region’s biggest challenges. Japan 8.95 9.48 DEVELOPMENT INSTITUTIONS Through the Master Cooperation Korea 2.00 1.00 Development institutions play a critical role Agreement, we have expanded our formal Luxembourg 2.25 0.00 in spurring the private sector to help co-ï¬?nancing arrangements with as many as Netherlands 25.62 42.37 improve lives and reduce poverty. 15 development ï¬?nance institutions. The Norway 6.08 4.85 South Africa 0.78 0.00 They have a track record of success in agreement, which details how such institu- Spain 2.68 0.00 difï¬?cult environments. They provide capital tions work together to co-ï¬?nance projects Sweden 10.59 12.38 when private markets become risk-averse. led by IFC, supplements commercial ï¬?nance Switzerland 7.15 57.15 They provide advice that strengthens made scarce by the crisis. We have also United Kingdom 16.20 69.94 markets and makes private sector develop- helped establish the Corporate Governance United States 6.83 14.14 ment inclusive and sustainable. In times of Development Framework, a common set of Total 171.42 247.28 crisis and uncertainty, when private capital guidelines that have been implemented by retreats, their work is indispensable. 29 development ï¬?nance institutions. Over the last decade, institutions such Collaboration among development banks as IFC have quadrupled their ï¬?nancing of is particularly important in new areas such the private sector in developing countries— as climate ï¬?nance. We are working with to more than $40 billion. Every dollar a wide range of banks on harmonizing our invested by these institutions unlocks $12 approach to greenhouse-gas accounting of investment from others. and the deï¬?nition of climate-related invest- ments as a category. 34 IFC Annual Report 2012 Managing Risks When ï¬?nancial difï¬?culties arise, PORTFOLIO MANAGEMENT LIQUIDITY MANAGEMENT IFC’S DEBT-TO- IFC management determines speciï¬?c Portfolio management plays a key role EQUITY RATIO reserves against loan losses on the Liquid assets on IFC’s balance in ensuring that IFC investments WAS basis of portfolio reviews and recom- sheet totaled nearly $29.7 billion as result in successful and sustainable mendations by portfolio management of June 30, 2012, compared with 2.7:1 private sector enterprises. units and in accordance with policies $24.5 billion a year earlier. Most liquid Before making any investment, IFC and methods approved by IFC’s assets are held in U.S. dollars. The carries out broad due diligence, external auditors. For projects with exposure arising from assets denomi- including integrity due diligence, to severe problems, the Special nated in currencies other than U.S. ensure that the project meets all IFC Operations Department determines dollars are hedged into U.S. dollars to standards in a number of areas— AT THE END the appropriate remedial actions. It manage currency risk. The level of including social and environmental OF FY12, seeks to negotiate agreements with these assets is determined with a standards, anticorruption, corporate WELL WITHIN all creditors and shareholders to view to ensure sufï¬?cient resources to governance, and tax transparency. THE LIMIT share the burden of restructuring so meet commitments even during times IFC also applies heightened scrutiny PRESCRIBED BY problems can be worked out while the of market stress. of projects involving offshore ï¬?nancial OUR FINANCIAL project continues to operate. centers. Such broad due diligence POLICIES. has long been standard for IFC FY12 BORROWING IN TREASURY SERVICES INTERNATIONAL MARKETS projects. IFC monitors compliance with IFC funds lending by issuing bonds in Amount investment agreements, visits sites to international capital markets. We are (USD Currency equivalent) Percent check on project status, and helps often the ï¬?rst multilateral institution to U.S. dollar 7,795,454,541 68.1% identify solutions to address potential issue bonds in the local currencies of Australian dollar 2,089,827,167 18.2% problem projects. We also track the emerging markets. Most of IFC’s Japanese yen 376,547,000 3.3% development outcomes of projects lending is denominated in U.S. dol- Turkish lira 334,829,244 2.9% with respect to environmental and lars, but we borrow in a variety of Norwegian krona 290,788,182 2.5% social performance. These supervi- currencies to diversify access to New Zealand dollar 266,000,000 2.3% sion processes are performed by funding, reduce borrowing costs, and portfolio units largely based in ï¬?eld help develop local capital markets. ofï¬?ces. IFC management oversees IFC’s borrowings have continued to CAPITAL ADEQUACY AND supervision by reviewing the entire keep pace with our lending. New FINANCIAL CAPACITY investment portfolio on a quarterly borrowings in the international basis. The portfolio management markets totaled the equivalent of We assess our capital adequacy by process is supported by a credit-risk more than $11.5 billion in FY12. measuring our growth needs and the rating system. Banks participating in risk proï¬?le of current and projected IFC loans are kept regularly informed investments against the established of project developments. IFC consults minimum capital adequacy for these or seeks their consent as appropriate. needs. The minimum capital require- 35 ment is determined using IFC’s risk- business, accommodate medium-term information-gathering and analytical based economic capital approach, growth opportunities and strategic capabilities, inquiring into the back- which differentiates the capital plans, and provide a buffer to with- ground of potential partners and their required for assets based on statisti- stand shocks or crises in some client stakeholders—including sponsors, cal measures of risk. countries or more general global management, and owners. Under our economic capital frame- market downturns, while retaining the Our anticorruption stance is incor- work, IFC must maintain a minimum capacity to preserve our triple-A rating porated into the legal framework level of total available resources and play a countercyclical role. governing our investments. Under the (including paid-in capital, retained World Bank Group sanctions pro- earnings net of designations, certain cess, persons or entities found to IFC AND CORPORATE INTEGRITY unrealized gains, and total loan loss have engaged in corrupt, fraudulent, reserves) equal to total potential Promoting corporate integrity is an coercive, collusive, or obstructive losses for all on- and off-balance- important element of IFC’s effort to practices in an IFC project can have sheet exposures estimated at levels promote sustainable private sector their names published on a public IFC believes to be consistent with development. Strong corporate integ- website, and may be debarred from maintaining a triple-A rating. rity and good governance by our World Bank Group ï¬?nancing. Our method of calculating capital clients can lead to long-term proï¬?t- The World Bank Group’s investi- adequacy is in line with industry best ability of investments, which in turn gative unit, the Integrity Vice practices and is conï¬?gured to provide can increase IFC’s opportunities for a Presidency, is responsible for investi- adequate capital backing for a triple-A favorable exit of our equity invest- gating allegations of fraud and corrup- rating. ments. Working to ensure the corpo- tion in IFC projects. The Vice IFC’s capital adequacy thresholds rate integrity of all of the activities our Presidency’s annual report can be are more demanding than a triple-A Investment and Advisory Services found on the World Bank’s website. rating requires. Yet we have histori- support also helps us manage ï¬?nan- IFC participates in the cross- cally exceeded our minimum capital cial and reputational risks. debarment agreement between the requirements by a wide margin. Corruption undermines public trust World Bank Group and other leading As of the end of FY12, the total in open markets and the rule of law, multilateral banks. Under the agree- resources required were $1.5 billion, and adds to the cost of doing busi- ment, entities sanctioned by one while total resources available were ness in most developing nations. IFC’s participating development bank may $19.2 billion. IFC’s debt-to-equity ratio initiatives to enhance openness and be cross-debarred by the others for was 2.7:1, well within the limit of 4:1 competition, and to promote stronger the same misconduct. The accord prescribed by our ï¬?nancial policies. corporate governance and integrity helps ensure a level playing ï¬?eld for IFC’s paid-in capital, retained systems, have proven to be effective all ï¬?rms competing for multilateral earnings net of designations and tools in combating corruption. development bank projects. certain unrealized gains, and total IFC’s due-diligence processes and loan-loss reserves constitute our total procedures are the ï¬?rst line of resources available. This ï¬?nancial defense against corruption in our capacity serves to support existing projects. We continue to improve our 36 IFC Annual Report 2012 Working Responsibly IFC’S APPROACH TO SUSTAINABILITY IFC’s Sustainability Framework Sustainability has been a key pillar of IFC’s strategy for more than a decade. It brings real value to our clients by helping them manage risks, be more efï¬?cient, and remain Responsibilities Implementation Tools competitive in global and regional markets. In our investments, operations, and advi- Sustainability Access to Environmental and Social Review sory services across the globe, we consider Policy Information Procedures four dimensions of sustainability—ï¬?nancial, Policy economic, environmental, and social. The ï¬?nancial sustainability of IFC and our IFC clients ensures that together we can make a long-term contribution to development. The economic sustainability of the projects and companies IFC ï¬?nances means they are contributing to host economies. Environmental sustainability in our clients’ operations and supply chains helps protect and conserve natural resources, mitigate Eight Performance Standards Guidance Notes environmental degradation, and address the Environmental, Health, and global challenge of climate change. Social Safety Guidelines sustainability is supported through improved living and working standards, concern for the Good Practice Materials Client welfare of communities, consultation with indigenous peoples, and respect for key issues relevant to business and human rights. IFC is committed to ensuring that the beneï¬?ts of economic development are shared with those who are poor or vulnerable, and that development takes place in a sustainable manner. We also see sustainability as an opportunity to transform markets, drive inno- vation, and add value to our clients by helping them improve their business performance. IFC’S SUSTAINABILITY FRAMEWORK IFC’s Sustainability Framework reflects our long-standing commitment to sustainable development. It helps protect people and the environment, broadens our development impact, and promotes accountability. The framework is made up of the Policy on Environmental and Social Sustainability, which deï¬?nes our responsibility in supporting project performance in partnership with clients; the Performance Standards (see page 14), which deï¬?ne clients’ responsibilities for 37 managing environmental and social risks; and project meets IFC’s Performance IFC INVESTMENT PROJECT CATEGORIES the Access to Information Policy, which articu- Standards (see page 14). lates IFC’s commitment to transparency. Where there are gaps, we and the client A: Business activities with potential signiï¬?cant adverse environmental or Following an 18-month global consulta- agree on an Environmental and Social Action social risks and/or impacts that are tion process, IFC updated the framework. Plan to ensure the standards are met over diverse, irreversible, or unprecedented. Revisions, which went into effect on time. In accordance with IFC’s Sustainability B: Business activities with potential limited January 1, 2012, to reflect the evolution in Framework, we rate direct investments that adverse environmental or social risks good practice concerning environmental have some degree of risk, as reflected by and/or impacts that are few in number, generally site-speciï¬?c, largely reversible, and social risk management that should be their environmental and social categorization, and readily addressed through addressed at the company level, as well as as A, B, or C. Projects involving ï¬?nancial mitigation measures. developments in IFC’s changing business intermediaries are rated FI-1, FI-2, or FI-3, C: Business activities with minimal or no model. They strengthen IFC’s commitment to depending on the level of risk within the adverse environmental or social risks critical issues such as climate change, gen- portfolios of these ï¬?nancial institutions. and/or impacts. der, business and human rights, and client For projects with moderate to signiï¬?cant FI: Business activities involving investments in FIs or through delivery mechanisms capacity-building. Environmental and social risk, an environmental and social risk rating is involving ï¬?nancial intermediation. This categorization has been amended to more given and updated, usually once a year, by category is further divided into: effectively align with the World Bank and our environmental and social specialists, and FI-1: when an FI’s existing or proposed other development ï¬?nancial institutions and is based on reports provided by clients and portfolio includes, or is expected to to better capture the wide range of risks in site visits. We conduct site visits after IFC include, substantial ï¬?nancial exposure to business activities with potential ï¬?nancial intermediary operations. ï¬?nancing is committed and disbursed. This signiï¬?cant adverse environmental or Based on our experience, we have also risk rating is an essential source of informa- social risks or impacts that are diverse, provided better guidance to our clients on tion for IFC management. It also enables our irreversible, or unprecedented. the application of the Performance specialists to better prioritize their efforts FI-2: when an FI’s existing or proposed Standards to different types of projects and during supervision. The frequency of visits portfolio is composed of, or is expected to be composed of, business activities business activities. The new Access to depends on an investment’s environmental that have potential limited adverse Information Policy (see page 41) represents and social risk rating and its performance environmental or social risks or impacts a major shift from the 2006 Policy on against the agreed environmental and social that are few in number, generally site- Disclosure of Information and aligns IFC action plan. speciï¬?c, largely reversible, and readily addressed through mitigation measures; with the World Bank’s Access to Information To strengthen IFC’s environmental and or includes a very limited number Policy. More information is available at social risk management, we focus on reduc- of business activities with potential http://www.ifc.org/sustainability. ing the environmental and social knowledge signiï¬?cant adverse environmental or gap in IFC’s portfolio by increasing our social risks or impacts that are diverse, supervision of clients. The gap refers to the irreversible, or unprecedented. ENVIRONMENTAL AND SOCIAL RISK MANAGEMENT FI-3: when an FI’s existing or proposed percentage of companies in IFC’s portfolio portfolio includes ï¬?nancial exposure to As part of our commitment to sustainability, for which we have not received updated business activities that predominantly IFC works with clients to avoid, minimize, or information on environmental and social have minimal or no adverse compensate for the environmental and social performance within the past two years. The environmental or social impacts. risks and effects of their projects. We moni- knowledge gap for FY12 was 5.6 percent— tor clients’ environmental and social perfor- lower than the 6 percent target. mance throughout the life of IFC’s investment and help identify opportunities to improve it. When a project is proposed for ï¬?nanc- ing, IFC conducts a social and environmen- tal review as part of its overall due diligence. It takes into account the client’s assessment of the project’s impact as well as its commitment and capacity to manage it. The review also assesses whether the 38 IFC Annual Report 2012 The Cycle of an IFC Investment Project The following cycle shows the stages a business idea goes through to become an IFC-ï¬?nanced project. 1 BUSINESS DEVELOPMENT 2 EARLY REVIEW 3 APPRAISAL (DUE DILIGENCE) Guided by IFC’s strategic goals, our The investment ofï¬?cer prepares a The investment team assesses the full investment ofï¬?cers and business devel- description of the project, IFC’s role, the business potential, risks, and opportuni- opment ofï¬?cers identify suitable proj- anticipated contribution to development ties associated with the investment ects. The initial conversation with the and beneï¬?ts to stakeholders, and any through discussions with the client and client is critical in helping us understand potential deal-breakers. Lessons from visits to the project site. The following its needs and determining whether there previous projects are considered and, in questions are asked: Is the investment is a role for IFC. some cases, a pre-appraisal visit is ï¬?nancially and economically sound? Can conducted to identify any issues in it comply with IFC’s Performance advance. IFC senior management Standards on Environmental and Social then decides whether to authorize Sustainability? Have lessons from prior project appraisal. investments been taken into account? Have the necessary disclosure and con- sultation requirements been met? How can IFC help the client further improve the sustainability of the project or enterprise? 7 BOARD REVIEW AND APPROVAL 8 COMMITMENT 9 DISBURSEMENT OF FUNDS The project is submitted to IFC’s Board IFC and the company sign the legal Funds are often paid out in stages or of Directors for consideration and agreement for the investment. This upon completion of certain steps docu- approval through regular or streamlined includes the client’s agreement to com- mented in the legal agreement. procedures. “Streamlined’’ means that ply with the requirements of IFC’s the members of the Board review the Sustainability Framework, to immediately documents but don’t meet to discuss report any serious accident or fatality, the project. This option is available to and to provide regular monitoring low-risk projects. Certain small projects reports. The legal agreement also for- can be approved by IFC management malizes the client’s Environmental and under delegated authority. The due- Social Action Plan. diligence process and public disclosure remain the same in all cases. The Board demands that each investment have economic, ï¬?nancial, and development value and reflect IFC’s commitment to sustainability. 39 4 INVESTMENT REVIEW 5 NEGOTIATIONS 6 PUBLIC DISCLOSURE The project team makes its recommen- The project team starts to negotiate the Upon completion of due diligence on dations to IFC departmental manage- terms and conditions of IFC’s participa- environmental and social matters, review ment, which decides whether to approve tion in the project. These include condi- summaries and action plans are issued. the project. This is a key stage in the tions of disbursement, performance and These documents describe key ï¬?ndings investment cycle. The project team and monitoring requirements, agreement of and list actions to be taken by the client departmental management must be action plans, and resolution of any to close any signiï¬?cant compliance gap. conï¬?dent that the client is able and outstanding issues. The documents, as well as a Summary willing to meet IFC standards and work of Investment Information, are posted on with us to improve the sustainability of IFC’s website before being submitted their enterprise. to the Board for review. The length of the disclosure period is determined by the category of the project. 10 PROJECT SUPERVISION AND DEVELOPMENT 11 EVALUATION 12 CLOSING OUTCOME TRACKING To help improve our operational perfor- We close our books on the project when We monitor our investments to ensure mance, annual evaluations are con- the investment is repaid in full or when compliance with the conditions in the ducted based on a random sample of we exit by selling our equity stake. In loan agreement. The company submits projects that have reached early operat- some cases, we may decide to write off regular reports on ï¬?nancial, social, and ing maturity. the debt. Our goal is to help the client environmental performance, as well as develop practices and management information on factors that might materi- systems that support a project’s sustain- ally affect the enterprise. Project site ability and that will continue long after visits are scheduled to verify that envi- our involvement has ended. ronmental and social requirements are met. Ongoing dialogue allows IFC to help clients solve issues and identify new opportunities. We also track the project’s contribution to development against key indicators identiï¬?ed at the start of the investment cycle. 40 IFC Annual Report 2012 594,559 pounds of waste was pro- OUR FOOTPRINT COMMITMENT What We Don’t Invest In cessed at a local waste-to-energy At IFC, we operate our business in a facility, helping provide power to IFC does not ï¬?nance projects with substantial activity way that aligns with what we ask of our local communities. in one or more of the following areas: clients on environmental and social More than half of IFC’s global • Production or trade in any product or activity sustainability. We strive to reduce the carbon footprint is from air travel. Our deemed illegal under host-country laws or regulations environmental impact of our day-to-day new telepresence centers helped staff or international conventions and agreements, or sub- activities while striving to beneï¬?t com- reduce air travel, helping our sustain- ject to international bans, such as pharmaceuticals, munities wherever we have ofï¬?ces. ability objectives. More than 4,400 pesticides/herbicides, ozone-depleting substances, That is our footprint commitment. video conferences were held this year, polychlorinated biphenyls, wildlife, or products regu- Using natural resources efï¬?ciently up 20 percent from FY11. These tools lated under the Convention on International Trade in is an important part of that commit- allow us to carry out the vital functions Endangered Species of Wild Fauna and Flora. ment. Electricity use in IFC’s head- of our business while avoiding the • Production or trade in weapons and munitions. quarters in Washington, D.C., environmental impact of travel. • Production or trade in tobacco. accounts for about 20 percent of the IFC is committed to being a leader • Gambling, casinos, and equivalent enterprises. carbon emissions generated by IFC’s in corporate sustainability and to • Production or trade in radioactive materials. This internal operations worldwide. By inspiring other companies to reduce does not apply to the purchase of medical equipment, setting targets, we have steadily their environmental footprint. In FY11, quality control (measurement) equipment, and any reduced our electricity consumption carbon emissions from IFC’s global equipment for which IFC considers the radioactive per workstation over the years, lower- internal business operations totaled source to be negligible and/or adequately shielded. ing it to 5,646 kilowatt hours per 44,650 metric tons of carbon dioxide • Production or trade in unbonded asbestos ï¬?bers. workstation. That reflects a 20 per- equivalent. IFC has collected and This does not apply to purchase and use of bonded cent decline since 2008—and it reported data on our global carbon asbestos cement sheeting in which the asbestos content means we achieved our target three footprint since FY07. is less than 20 percent. years ahead of schedule. IFC continues to be carbon-neutral • Drift net ï¬?shing using nets in excess of 2.5 kilome- We are also working to reduce for our global corporate operations. ters in length. waste generated by our business To offset our carbon footprint, IFC For more information about the IFC Exclusion List, operations. In FY12, none of our purchased carbon credits from a or to learn more about the treatment of ï¬?nancial headquarters’ waste went to landï¬?lls. 10-megawatt biomass project in India intermediaries, microï¬?nance institutions, and trade Instead, 306,930 pounds of paper, that primarily uses stalks from cotton ï¬?nance projects, please visit http://www.ifc.org metals, plastic, cardboard, bulbs, and production, red gram, soybean, /ifcext/disclosure.nsf/Content/IFCExclusionList. batteries were recycled, and and rice husks. The Rake Power 43,217 pounds of ofï¬?ce supplies and VCS project, owned by IFC client furniture were donated to local chari- Shalivahana Green Energy Limited, will table organizations. In addition, enable farmers to get a better price FY11 CARBON EMISSIONS INVENTORY FOR IFC’S GLOBAL INTERNAL BUSINESS OPERATIONS Metric Tons of Carbon Dioxide Equivalent Total Emissions 44,649.55 (100%) Business Travel 29,918.00 (67.0%) Electricity 11,992.90 (26.9%) Purchased Steam 44.43 (0.1%) Water Chiller Electricity 209.44 (0.5%) Refrigerants 1,300.65 (2.9%) Mobile Sources 759.33 (1.7%) Stationary Combustion 424.81 (1.0%) IFC’s FY11 carbon emissions totaled approximately 44,650 metric tons of carbon dioxide equivalent (tCO2e), which includes emissions from carbon dioxide, methane, and nitrous oxide. 41 for their agricultural products and will greater emphasis on results report- Three years ago, we began a create opportunities for rural people ing, consistent with World Bank dialogue with stakeholders on our to collect and transport biomass. Group objectives. annual report, a process that has While IFC maintains provisions to provided substantive feedback on the protect commercially sensitive, delib- material issues covered in the report. OUR NEW ACCESS TO erative, and conï¬?dential information, Our stakeholder panel comprises INFORMATION POLICY stakeholders may now pursue an representatives from civil society, the As a global, multilateral ï¬?nance institu- independent two-stage appeals private sector, and foundations. Each tion with operations in many regions mechanism to challenge decisions not year since instituting the panel, we and sectors, IFC affects a diverse to disclose particular information. have begun engagement earlier in our range of stakeholders. Transparency IFC believes that greater trans- annual report process in order to better and accountability are fundamental to parency can improve business incorporate the panel’s feedback. fulï¬?lling our development mandate. performance and promote good IFC also continues to work with Transparent organizations are better governance. We hope that over the World Bank Group’s Civil Society able to manage reputational risks and time the changes will result in better Team to reach out to civil society on a more likely to enjoy a robust license project outcomes, increased aware- regular basis. The Compliance to operate. ness on the part of affected com- Advisor/Ombudsman, in collaboration IFC’s new Access to Information munities, and stronger relationships with IFC project teams, also maintains Policy, which came into effect this with stakeholders. close contact with local communities, year, will improve our ability to com- For more information, visit www.ifc civil society organizations, and other municate our development impact and .org/disclosure. stakeholders. how we manage environmental and This increased—and ongoing— social risk. Increased transparency engagement has allowed us to form a OUR ENGAGEMENT WITH CIVIL SOCIETY about our projects and investments more continuous feedback loop with will allow for more informed dialogue IFC systematically seeks feedback our stakeholders. and feedback. from stakeholders. It’s critical to our Under the policy, IFC will disclose ability to deliver results. more project-level information during When we reviewed our all stages of our projects. The new Sustainability Framework—an environmental, social, and develop- 18-month process that ended last ment impact disclosure requirements year—we engaged with stakeholders, will also apply to investments made including civil society organizations in through ï¬?nancial intermediaries—an more than 16 countries. The input important and growing area of IFC’s received helped us institute a new portfolio. This policy shift puts a Access to Information Policy. 42 IFC Annual Report 2012 Independent Assurance Report on a Selection of Sustainable Development Information Further to the request made by IFC, we performed a review on a selection of sustainable development information in the Annual Report for the ï¬?nancial year ending June 30, 2012, including quantitative indicators (“the Indicatorsâ€?) and qualitative statements (“the Statementsâ€?). We selected statements that were deemed to be committing, of particular stakeholder interest, of potential reputation risk to IFC, together with state- ments on corporate responsibility management and performance. The Indicators and the Statements are related to the following material areas: Material Areas Statements Indicators IFC Policy “The IFC Development Goalsâ€? (p. 18) “IFC’s Sustainability Frameworkâ€? (pp. 36–37) Development “Advisory Services Resultsâ€? (p. 23) Investment projects Rated High (p. 3): 68%; and detailed values effectiveness of by industry (p. 25, and p. 29 on the flip side of this report), by investments and region (p. 25, and p. 29 on the flip side of this report), and by advisory services performance area (p. 25); and weighted and unweighted scores (p. 29 on the flip side of this report) Advisory Projects Rated High (p. 3): 72%; and detailed values by business line (p. 25) and by region (p. 25) Environmental and social performance and impacts of IFC’s activity Environmental and “IFC Performance Standardsâ€? (p. 14) FY12 Commitments by Environmental and Social Category (p. 28 social ratings “Environmental and Social Risk Managementâ€? (p. 37) on the flip side of this report): Category Commitments ($ millions) Number of projects A 931 17 B 3,629 153 C 6,975 267 FI 3,340 120 FI-1 140 2 FI-2 410 11 FI-3 37 6 15,462 576 Engagement in the “Global Resultsâ€? (p. 26 on the flip side of this report) poorest countries Section of “Sparking Growth and Opportunity in the Poorest Countriesâ€? including “Since 2005, our investments in IDA countries [...] that virtually devastated the economy.â€? (pp. 52–53 on the flip side of this report) Section of “The growing importance of South-South Investmentâ€? including “It’s also a strategic priority for IFC [...] helped raise environmental and social standardsâ€? (p. 64 on the flip side of this report) Climate change Section of “Addressing Climate Change, an urgent priorityâ€? including Commitments in Climate-related investments for FY12 (p. 3): “In FY12, IFC invested [...] were climate-relatedâ€? (p. 43 on the flip $1,621 million side of this report) Financial inclusion Section of “Pioneering Local-Currency Financeâ€? including Number and amounts of microï¬?nance loans and SME loans for “Recognizing the risk this presents [...] and CFA francs over the next CY11 (p. 24) decadeâ€? (p. 49 on the flip side of this report) Type of loans Number of loans (millions) Amount ($ billions) Section of “Why Trade Finance Matters for Developmentâ€? including Microï¬?nance 19.7 19.84 “We think trade ï¬?nance [...] a 23 percent increase over FY11â€? (p. 65 SMEs 3.3 181.25 on the flip side of this report) Section of “Freeing up Capital for Development in Emerging Marketsâ€? including “We are a signiï¬?cant backer of private equity funds in emerging markets [...] nearly a third of all jobs provided by our clientsâ€? (p. 62 on the flip side of this report) Evaluation of “Independent Evaluation Groupâ€? (p. 30) IFC’s activity 43 Material Areas Statements Indicators Food security “Strengthening Food Security in Developing Countriesâ€? (p. 46 on the Responsible business behavior and additionality flip side of this report) Access to health “Helping the Poor Obtain Better Education and Health Careâ€? (p. 47 care and education on the flip side of this report) Responsible Section of “Expanding Economic Opportunities for Womenâ€? including business “Women are a powerful source of economic growth [...] a quarter of which will be women-ownedâ€? (p. 56 on the flip side of this report) Section of “Who beneï¬?ts?â€? including “Our projects are helping address climate change [...] seven new stress-tolerant seed varieties for local farmers to useâ€? (pp. 4–5) “Sustainable Businessâ€? (p. 10) Mobilization Section of “The Power of Mobilizationâ€? including “Our record of strong and consistent proï¬?tability [...] In FY12, we mobilized $2.7 billion in syndicated loansâ€? (p. 61 on the flip side of this report) Governance “IFC and Corporate Integrityâ€? (p. 35) Corporate “Our Footprint Commitmentâ€? (pp. 40–41) Carbon Emissions (p. 40): 44,650 tCO2 equivalent in ï¬?nancial footprint year 2012 Our review aimed to provide limited assur- It is our responsibility to express a conclu- • At the corporate level, we implemented ance1 that: sion on the Indicators and the Statements analytical procedures and veriï¬?ed, on a test 1. the Indicators were prepared in accor- based on our review. Our review was con- basis, the calculations and the consolidation dance with the reporting criteria applicable ducted in accordance with the ISAE 3000, of the Indicators. in 2012 (the “Reporting Criteriaâ€?), consisting International Standard on Assurance • We collected supporting documents for in IFC instructions, procedures and guide- Engagements from IFAC.4 Our indepen- the Indicators or Statements, such as reports lines speciï¬?c for each indicator, a summary dence is deï¬?ned by IFAC professional code to the board of directors or other meetings, of which is provided in the Annual Report, of ethics. loan contracts, internal and external presen- for the indicators related to Commitments by tations and reports, or survey results. Environmental and Social Category (p. 28 • We reviewed the presentation of the NATURE AND SCOPE OF OUR REVIEW on the flip side of this report) and Develop- Information and the Indicators in the Annual ment effectiveness of investments and We performed the following review to be Report and the associated notes advisory services (p. 25) and on IFC’s able to express a conclusion: on methodology. website and • We assessed the Reporting Criteria, 2. the Statements have been presented in policies and principles, with respect to their LIMITATIONS OF OUR REVIEW accordance with “IFC’s Policy on Disclosure relevance, their completeness, their neutrality of Informationâ€?, which is available on IFC’s and their reliability. Our review was limited to the Statements website2 and the principles of relevance, • We reviewed the content of the Annual and Indicators identiï¬?ed in the table above completeness, neutrality, clarity and reliability Report to identify key statements regarding and did not cover other disclosures in the as deï¬?ned by international standards.3 the sustainability areas listed above. Annual Report. It is the responsibility of IFC to prepare • At the corporate level, we conducted Our tests were limited to document the Indicators and Statements, to provide interviews with more than 25 persons reviews and interviews at IFC’s headquarters information on the Reporting Criteria and to responsible for reporting to assess the in Washington, D.C. Within the scope of compile the Annual Report. application of the Reporting Criteria or to work covered by this statement, we did not substantiate the Statements. participate in any activities with external 1 A higher level of assurance would have required more extensive work. 2 http://www.ifc.org/ifcext/disclosure.nsf/content/disclosure_policy 3 ISAE 3000 from IFAC, Global Reporting Initiative (GRI), or AA1000 Accountability Standard. 4 ISAE 3000: “Assurance Engagement other than reviews of historical data,â€? International Federation of Accountants, International Audit and Assurance Board, December 2003. 44 IFC Annual Report 2012 stakeholders, clients, or local IFC ofï¬?ces nor RELIABILITY LETTER TO THE BOARD OF GOVERNORS did we conduct testing or interviews aimed at verifying the validity of information related We would like to note that IFC has made The Board of Directors of IFC has had this to individual projects. progress in strengthening internal controls Annual Report prepared in accordance with related to “Development effectiveness of the Corporation’s by-laws. Jim Yong Kim, advisory servicesâ€? and “Carbon Footprint.â€? President of IFC and Chairman of the Board INFORMATION ABOUT THE REPORTING CRITERIA However, we note that IFC would beneï¬?t of Directors, has submitted this report with AND THE STATEMENT PREPARATION PROCESS from further formalizing the reporting tools the audited ï¬?nancial statements to the Board With regards to the Reporting Criteria and and internal controls for the indicator related of Governors. The Directors are pleased to the Statement preparation policies and to “Climate-related investmentsâ€? and for the report that for the ï¬?scal year ended June 30, principles, we wish to make the following Environmental and Social component (E&S) 2012, IFC expanded its sustainable devel- comments: of the investment services’ development opment impact through private sector invest- outcome. In particular, the process related to ments and Advisory Services. updating E&S risk evaluations should be RELEVANCE better formalized to ensure that in all cases IFC presents sustainability information on its the most up-to-date information is being own impact and on environmental and social used to rate projects on their E&S performance. risks, impacts and outcomes of projects it ï¬?nanced directly or through ï¬?nancial interme- CONCLUSION diaries. This level of disclosure is in line with that of other multilateral development banks. Based on our review, nothing has come to A speciï¬?c effort is made by IFC to assess its our attention that causes us to believe that: development results, notably through its • the Indicators were not established, in all Development Outcome Tracking System material aspects, in accordance with the (DOTS) and the preparation and testing of Reporting Criteria; IFC Development Goals (see p. 18). • the Statements were not presented, in all material aspects, in accordance with “IFC’s Policy on Disclosure of Informationâ€? and the COMPLETENESS principles of relevance, completeness, neu- The Indicators’ reporting perimeter covers trality, clarity and reliability as deï¬?ned by most relevant IFC activities. The perimeters international standards. actually covered by each indicator have been indicated in the comments next to the data in Paris-La Défense, France, August 20, 2012 the Annual Report. In particular, regarding DOTS ratings, the Development Outcomes’ The Independent Auditors ratings of IFC’s Trade Finance investments ERNST & YOUNG et Associés are not currently reported. With the growing importance of Trade Finance activities in IFC’s portfolio, IFC started the rollout of a DOTS framework to rate the development results of Trade Finance to prepare a future disclosure. Eric Duvaud Partner, Cleantech and Sustainability NEUTRALITY AND CLARITY IFC provides information on the methodolo- gies used to establish the Indicators in the comments next to the published data or in the related sections and is available on the IFC website (links listed on p. 66 on the flip side of this report). 45 Stakeholder Review Panel Statement on 2012 Annual Report Three years ago, IFC piloted its ï¬?rst stake- Panel members applaud IFC’s efforts PANELISTS holder review panel on the 2010 Annual to track and measure outcomes, especially Report. The engagement helped identify The panel comprises the following experts: current efforts to measure development issues of concern to external stakehold- • Arvind Ganesan, Director, Business and impacts; they encourage IFC to expedite ers and contributed to a process of mutual Human Rights, Human Rights Watch this work. The panel also supports IFC’s learning and understanding for both IFC • Marina Gorbis, Executive Director, work and approach of providing advice and and the panelists. Currently, the panel com- Institute for the Future guidance to the private sector to operate prises eight experts who provide IFC with • Daniel Kress, Deputy Director, Health more sustainably, ethically and transparently. diverse external perspectives to improve the Economics, Bill & Melinda Gates Foundation These practices are examples of how IFC reporting of its complex work—including its • Sabine Miltner, Managing Director, innovates through experimentation by gath- dilemmas, opportunities, and results—in the Sustainability, Deutsche Bank AG ering lessons learned, asking for feedback Annual Report. • Shalini Nataraj, Vice President, Programs, and advice, and reï¬?ning the practices and Global Fund for Women processes. The panel encourages IFC to • Ruth Rosenbaum, Executive Director, include these types of stories in the report in BACKGROUND Center for Reflection, Education and addition to project-related work. This year, in response to feedback from Action (CREA) The Panel thought that the new sec- last year’s panel, IFC deepened the • Faiza Shaheen, Senior Researcher, New tion in the front of the report describing the engagement with the panel in several key Economics Foundation achievements over the past ï¬?ve years—under respects: (1) rather than identifying an addi- • Ken Wilson, Executive Director, The the leadership of outgoing EVP and CEO tional set of material issues, the panel reï¬?ned Christensen Fund Lars Thunell—provided a clearer description the material issues developed by IFC and of IFC’s strategies, role, and achievements its board; (2) it engaged with two Directors than in prior reports. IFC should continue the MATERIAL ISSUES (Bill Bulmer, Director of IFC’s Environment, practice of discussing current year’s activi- Social, and Governance Department; and The following material issues were identiï¬?ed ties within a longer time horizon and includ- Nigel Twose, Director, Development Impact) by IFC and reï¬?ned by the panel: ing a summary of key results and learnings and one Vice President (Jingdong Hua, • Promoting Inclusive Growth and from IFC’s strategic plan and evolving busi- Vice President, Treasury, Syndications, and Human Development ness model. Information Technology) from IFC on lines • Jobs of work important to several material issues; • South-South Investment and SPECIFIC RECOMMENDATIONS and 3) it engaged with IFC earlier on the Trade Finance report by reviewing the draft outline. In addi- • Climate Change • Material issues should have a longer life tion, IFC sought feedback from the panel • Mobilizing Funds through IFC’s and be tied to both lessons learned and about ways to improve the value of the panel Asset Management Company and results to create a compelling story of IFC’s process going forward. Syndications Business annual work. IFC retained a neutral facilitator to man- • Results should be based on more than age the process. The panel consists of one year’s worth of data in order to share OVERALL FEEDBACK experts who serve one-year terms with the insightful lessons learned, trends, and possibility of one-year renewals. They partici- The panel appreciated the tone and forth- impacts. pated in two conference calls and an all-day rightness of the IFC team—in particular, the • IFC faces many contradictory forces in its meeting to reï¬?ne material issues, suggest Directors and Vice President who spoke portfolio around issues of less carbon-inten- improvements to the draft outline and ï¬?rst about their work and shared their insights, sive growth, inclusive growth that reaches draft, and to assess IFC’s responsiveness and the Director in charge of producing the women and the very poor, and the capital by reviewing the near-ï¬?nal report. The panel Annual Report, Bruce Moats. Panel mem- intensity of jobs. IFC should describe how did not approve or endorse the 2012 Annual bers serving for several years observed that these issues are interconnected, and how it Report but did approve this stakeholder they have learned a great deal about IFC, addresses these dilemmas, more explicitly. panel letter. Most panel members opted to enabling more nuanced and focused feed- • This year’s report provided a more com- be recognized for their service through a back. Panel members expressed their willing- prehensive description of key lines of work, modest honorarium. Beyond reimbursement ness to improve the stakeholder process in particularly Advisory Services; the panel of travel expenses to some panelists, there order to ensure the panel continues to add encourages IFC to continue this approach. were no other payments to panelists. value to IFC. 46 IFC Annual Report 2012 Financial Summary Financial Performance Summary From year to year, IFC’s net income is affected by a number of factors that can result in volatile ï¬?nancial performance. The overall market environment has a signiï¬?cant influence on IFC’s ï¬?nancial performance. The main elements of IFC’s net income and comprehensive income and influences on the level and variability of net income and comprehensive income from year to year are: ELEMENTS SIGNIFICANT INFLUENCES Net income Yield on interest earning assets Market conditions including spread levels and degree of competition. Nonaccruals and recoveries of interest on loans formerly in nonaccrual status and income from participation notes on individual loans are also included in income from loans. Liquid asset income Realized and unrealized gains and losses on the liquid asset portfolios, which are driven by external factors such as: the interest rate environment; and liquidity of certain asset classes within the liquid asset portfolio. Income from the equity Performance of the equity portfolio (principally realized capital gains, dividends, equity impairment write-downs, gains investment portfolio on non-monetary exchanges and unrealized gains and losses on equity investments). Provisions for losses on loans Risk assessment of borrowers and probability of default and loss given default. and guarantees Other income and expenses Level of advisory services provided by IFC to its clients, the level of expense from the staff retirement and other beneï¬?ts plans, and the approved administrative and other budgets. Gains and losses on other non-trading Principally, differences between changes in fair values of borrowings, including IFC’s credit spread, and associated ï¬?nancial instruments accounted for at derivative instruments and unrealized gains associated with the investment portfolio including puts, warrants and fair value stock options which in part are dependent on the global climate for emerging markets. These securities are valued using internally developed models or methodologies utilizing inputs that may be observable or non-observable. Grants to IDA Level of Board of Governors–approved grants to IDA. Other comprehensive income Unrealized gains and losses on listed Global climate for emerging markets equities and company-speciï¬?c performance. Such equity investments are valued equity investments and debt securities using unadjusted quoted market prices and debt securities are valued using internally developed models or method- accounted for as available-for-sale ologies utilizing inputs that may be observable or non-observable. Unrecognized net actuarial gains and Returns on pension plan assets and the key assumptions that underlay projected beneï¬?t obligations, including losses and unrecognized prior service ï¬?nancial market interest rates, past experience, and management’s best estimate of future beneï¬?t cost changes and costs on beneï¬?t plans economic conditions. 47 IFC has reported income before grants to IDA of $1,658 million in FY12, as compared to $2,179 million in the year ended June 30, 2011 (FY11) and $1,946 million in the year ended June 30, 2010 (FY10). The decrease in income before grants to IDA in FY12 when compared to FY11 was principally as a result of: (i) lower unrealized income from non-trading investments and other non-trading ï¬?nancial instruments accounted for at fair value; (ii) higher other-than-temporary impair- ment losses on equities and debt securities; (iii) lower income from liquid assets; (iv) higher provisions for losses on loans and guarantees; and (v) higher administrative expenses partially offset by: (i) higher realized gains on equity investments and gains on non-monetary exchanges; (ii) lower advisory services expenses, net of advisory services income; and (iii) higher foreign currency transaction gains and losses on non-trading activities. Grants to IDA totaled $330 million in FY12, as compared to $600 million in FY11 and $200 million in FY10. Accordingly, net income totaled $1,328 million in FY12, as compared with $1,579 million in FY11 and $1,746 million in FY10. IFC’s net income (loss) for each of the past ï¬?ve ï¬?scal years ended June 30 is presented below (US$ millions): NET INCOME (LOSS) FOR EACH OF THE PAST FIVE FISCAL YEARS ENDED JUNE 30 US$ millions 2012 $1,328 2011 $1,579 2010 $1,746 2009 $(151) 2008 $1,547 48 IFC Annual Report 2012 The table below presents selected ï¬?nancial data for the last ï¬?ve ï¬?scal years (in millions of US dollars, except where otherwise stated): SELECTED FINANCIAL DATA 2012 2011 2010 2009 2008 As of and for the years ended June 30 Net income highlights: Income from loans and guarantees $ 938 $ 877 $ 801 $ 871 $ 1,065 (Provision) release of provision for losses on loans & guarantees (117) 40 (155) (438) (38) Income (loss) from equity investments 1,457 1,464 1,638 (42) 1,688 Of which: Realized gains on equity investments 2,000 737 1,290 990 1,219 Gains on non-monetary exchanges 3 217 28 14 177 Unrealized (losses) gains on equity investments accounted for at fair value (128) 454 240 (299) 12 Dividends and proï¬?t participations 274 280 285 311 428 Other-than-temporary impairment losses (692) (218) (203) (1,058) (140) Fees and other — (6) (2) — (8) Income from debt securities 81 46 108 71 163 Income from liquid asset trading activities 313 529 815 474 473 Charges on borrowings (181) (140) (163) (488) (782) Other income Service fees 60 88 70 39 58 Advisory services income 269 — — — — Other 119 134 106 114 55 Other expenses Administrative expenses (798) (700) (664) (582) (549) Advisory services expenses (290) (153) (108) (134) (150) Expense from pension and other postretirement beneï¬?t plans (96) (109) (69) (34) (3) Other (23) (19) (12) (14) (3) Foreign currency transaction gains (losses) on non-trading activities 145 (33) (82) 10 (39) Income (loss) before net gains and losses on other non-trading ï¬?nancial instruments accounted for at fair value and grants to IDA 1,877 2,024 2,285 (153) 1,938 Net (losses) gains on other non-trading ï¬?nancial instruments (219) 155 (339) 452 109 Of which: Realized gains 11 63 5 — — Gains on non-monetary exchanges 10 22 6 45 — Unrealized (losses) gains (240) 70 (350) 407 109 Income before grants to IDA 1,658 2,179 1,946 299 2,047 Grants to IDA (330) (600) (200) (450) (500) Net income (loss) $ 1,328 $ 1,579 $ 1,746 $ (151) $ 1,547 Consolidated balance sheet highlights: Total assets $75,761 $68,490 $61,075 $51,483 $49,471 Liquid assets, net of associated derivatives 29,721 24,517 21,001 17,864 14,622 Investments 31,438 29,934 25,944 22,214 23,319 Borrowings drawn-down and outstanding, including fair value adjustments 44,665 38,211 31,106 25,711 20,261 Total capital $20,580 $20,279 $18,359 $16,122 $18,261 Of which: Undesignated retained earnings $17,373 $16,032 $14,307 $12,251 $12,366 Designated retained earnings 322 335 481 791 826 Capital stock 2,372 2,369 2,369 2,369 2,366 Accumulated other comprehensive income (AOCI) 513 1,543 1,202 711 2,703 49 2012 2011 2010 2009 2008 As of and for the years ended June 30 Financial ratios:1 Return on average assets (GAAP basis)2 1.8% 2.4% 3.1% (0.3)% 3.4% Return on average assets (non-GAAP basis)3 2.8% 1.8% 3.8% (1.1)% 3.7% Return on average capital (GAAP basis)4 6.5% 8.2% 10.1% (0.9)% 9.6% Return on average capital (non-GAAP basis)5 9.9% 6.0% 11.8% (3.0)% 9.0% Cash and liquid investments as a percentage of next three years’ estimated net cash requirements 77% 83% 71% 75% 62% External funding liquidity level6 327% 266% 190% 163% 96% Debt to equity ratio7 2.7:1 2.6:1 2.2:1 2.1:1 1.6:1 Total reserves against losses on loans to total disbursed portfolio8 6.6% 6.6% 7.4% 7.4% 5.5% Capital measures: Capital to risk-weighted assets ratio9 n/a n/a n/a 44% 48% Total Resources Required ($billions)10 15.5 14.4 12.8 10.9 10.4 Total Resources Available ($billions)11 19.2 17.9 16.8 14.8 15.0 Strategic Capital12 3.7 3.6 4.0 3.9 4.6 Deployable Strategic Capital13 1.8 1.8 2.3 2.3 3.1 Deployable Strategic Capital as a percentage of Total Resources Available 9% 10% 14% 16% 21% 1 Certain ï¬? nancial ratios, as described below, are calculated excluding the effects of unrealized gains and losses on investments, other non-trading ï¬? nancial instruments, AOCI, and impacts from consolidated Variable Interest Entities (VIEs). 2 Net income for the ï¬? scal year as a percentage of the average of total assets at the end of such ï¬? scal year and the previous ï¬? scal year. 3 Net income excluding unrealized gains and losses on certain investments accounted for at fair value, income from consolidated VIEs, and net gains and losses on non-trading ï¬? nancial instruments accounted for at fair value, as a percentage of total disbursed loan and equity investments (net of reserves) at cost, liquid assets net of repos, and other assets averaged for the current period and previous ï¬? scal year. 4 Net income for the ï¬? scal year as a percentage of the average of total capital (excluding payments on account of pending subscriptions) at the end of such ï¬? scal year and the previous ï¬? scal year. 5 Net income excluding unrealized gains and losses on certain investments accounted for at fair value, income from consolidated VIEs, and net gains and losses on non-trading ï¬? nancial instruments accounted for at fair value, as a percentage of paid-in share capital and retained earnings (before certain unrealized gains and losses and excluding cumulative designations not yet expensed) averaged for the current period and previous ï¬? scal year. 6 IFC’s objective is to maintain a minimum level of liquidity, consisting of proceeds from external funding to cover at least 65% of the sum of (i) 100% of committed but undisbursed straight senior loans; (ii) 30% of committed guarantees; and (iii) 30% of committed client risk management products. 7 The ratio of outstanding borrowings plus outstanding guarantees to subscribed capital plus undesignated retained earnings (less cumulative unrealized gains and losses on loans, equity investments, and other non-trading ï¬? nancial instruments accounted for at fair value in net income) at the end of the ï¬? scal year. 8 Total reserves against losses on loans to total disbursed loan portfolio is deï¬? ned as reserve against losses on loans as a percentage of the total disbursed loan portfolio at the end of the ï¬? scal year. 9 The ratio of capital (including paid-in capital, retained earnings, and portfolio (general) loan loss reserves) to risk-weighted assets, both on- and off-balance sheet. The ratio does not include designated retained earnings reported in total capital on IFC’s consolidated balance sheet. IFC’s Board of Directors has approved the use of a risk-based economic capital framework beginning in the year ended June 30, 2008 (FY08). Parallel use of the capital to risk-weighted assets ratio has now been discontinued. 10 The minimum capital required consistent with the maintenance of IFC’s AAA rating. It is computed as the aggregation of risk-based economic capital requirements for each asset class across the Corporation. 11 Paid-in capital plus retained earnings net of designated retained earnings plus general and speciï¬? c reserves against losses on loans. This is the level of available resources under IFC’s risk-based economic capital adequacy framework. 12 Total resources available less total resources required. 13 90% of total resources available less total resources required. 50 IFC Annual Report 2012 INVESTMENT PROGRAM Commitments In FY12, total commitments were $20,358 million, compared with $18,660 million in FY11, an increase of 9%, of which IFC commitments totaled $15,462 million ($12,186 million—FY11) and Core Mobilization totaled $4,896 million ($6,474 million—FY11). FY12 and FY11 commitments and Core Mobilization comprised the following (US$ millions): FY12 FY11 Total Commitments1 $20,358 $18,660 IFC Commitments Loans $ 6,668 $ 4,991 Equity investments 2,282 1,968 Guarantees: Global Trade Finance Program 6,004 4,638 Other 398 529 Client risk management 110 60 Total IFC Commitments $15,462 $12,186 Core Mobilization Loan participations, parallel loans, and other mobilization Loan participations $ 1,764 $ 3,457 Parallel loans 927 1,127 Other mobilization 814 134 Total loan participations, parallel loans, and other mobilization $ 3,505 $ 4,718 AMC Sub-Debt Capitalization Fund $ 215 $ 252 Equity Capitalization Fund 24 113 ALAC Fund 190 85 Africa Capitalization Fund 8 4 Total AMC $ 437 $ 454 Other initiatives Global Trade Liquidity Program and Critical Commodities Finance Program $ 850 $ 1,050 Infrastructure Crisis Facility 63 252 Public Private Partnership (PPP) Mobilization 41 — Total other initiatives $ 954 $ 1,302 Total Core Mobilization $ 4,896 $ 6,474 1 Debt security commitments are included in loans and equity investments based on their predominant characteristics. Core mobilization ratio The core mobilization ratio is deï¬?ned as: Loan participations + parallel loans + other mobilization + non-IFC investment part of structured ï¬?nance which meets core mobilization criteria + non-IFC commitments in Initiatives + non-IFC investments committed in funds managed by AMC + PPP Mobilization Commitments (IFC investments + IFC portion of structured ï¬?nance + IFC commitments in Initiatives + IFC investments committed in funds managed by AMC) For each dollar that IFC committed, IFC mobilized (in the form of loan participations, parallel loans, other mobilization, the non-IFC portion of structured ï¬?nance and the non-IFC commitments in Initiatives, and the non-IFC investments committed in funds managed by AMC) $0.32 in FY12 ($0.53 in FY11). 51 AMC The activities of the funds managed by AMC at June 30, 2012 and June 30, 2011 can be summarized as follows (US$ millions unless otherwise indicated): Equity Sub-Debt Africa Russian Bank Cap Fund Cap Fund ALAC Fund Cap Fund Cap Fund Total Assets under management at June 30, 2012: $1,275 $1,725 $1,000 $182 $275 $4,457 From IFC 775 225 200 — 125 1,325 From other investors 500 1,500 800 182 150 3,132 For the year ended June 30, 2012: Fund commitments to investees: From IFC 36 32 48 — — 116 From other investors 24 215 190 8 — 437 Disbursements from investors to Fund: From IFC 62 28 52 — — 142 From other investors 40 186 208 14 — 448 Disbursements made by Fund 97 208 174 11 — 490 Disbursements made by Fund (number) 6 2 8 3 — 19 Equity Sub-Debt Africa Russian Bank Cap Fund Cap Fund ALAC Fund Cap Fund Cap Fund Total Assets under management at June 30, 2011: $1,275 $1,725 $1,000 $55 $— $4,055 From IFC 775 225 200 — — 1,200 From other investors 500 1,500 800 55 — 2,855 For the year ended June 30, 2011: Fund commitments to investees: From IFC 168 38 21 — — 227 From other investors 109 252 85 4 — 450 Disbursements from investors to Fund: From IFC 214 47 17 — — 278 From other investors 138 316 64 1 — 519 Disbursements made by Fund 344 359 78 — — 781 Disbursements made by Fund (number) 4 3 4 — — 11 ADVISORY SERVICES The IFC Advisory Services Portfolio as of June 30, 2012 totaled $894 million, as compared to $822 million as of June 30, 2011. The breakdown of the Advisory Services Portfolio at June 30, 2012 and June 30, 2011, by Business Line, is summarized as follows (US$ millions): Sustainable Access to Investment Public-Private Business Finance Climate Partnerships Advisory Active portfolio as of June 30, 2012 $296 $226 $106 $266 Active portfolio as of June 30, 2011 $293 $204 $91 $234