Sustainable finance framework November 2019
Introduction:
Founded in 1973, the Islamic Development Bank (“IsDB”) is a multilateral development Sustainable finance institution, with 57 member states, and an observer at the United Nations General Assembly. IsDB aims to improve the lives of those it serves by promoting social and economic development in Muslim countries and communities worldwide, delivering impact at scale. As the only multilateral development bank to solely have developing countries as its membership and shareholder base, IsDB is essentially a ‘south south’ bank, driven by the desire to work together to address the challenges faced by humanity.
The Bank is committed to prioritizing the UN Sustainable Development Goals in specific development needs of its Member Countries. ordnance with the As part of these ambitions, IsDB aims to boost its commitment towards sustainability through the potential issuance of Sukuk to finance sustainable investments. The issuance of Sukuk under this Sustainable Finance Framework will enable the Bank to diversify its sources of funding, while enhancing IsDB’s sustainability profile as well as helping the Bank to continue to deliver environmentally sustainable growth in a socially responsible and transparent manner.
Overview of Sustainable Initiatives at IsDB:
The IsDB Group is committed to the UN SDGs, recognizing that development objectives will vary from one member country to another. IsDB’s motivation to participate in achieving the SDGs comes from its dedication to solving t he development challenges of its member countries. The IsDB group has established a dedicated Community of Practice (CoP) to raise awareness and develop core expertise, generate knowledge and provide an intellectual environment to discuss innovative solutions for member countries to achieve SDGs. IsDB understands that there is a huge financing gap to achieve these goals help bridge this financing gap.
IsDB is widening its scope of activities beyond financing projects to also become a facilitator and a catalyst for mobilizing resources and finding development solutions from across the globe. While introducing this new facilitator and catalyst role as its strategic intent, IsDB will continue to finance projects to achieve its objectives. These projects will address basic developmental needs in terms of poverty, health and education in low income countries (LICs) and countries in conflict.
Mainstreaming strategic initiatives:
As part of the Bank’s efforts to deliver more inclusive and sustainable development, IsDB will integrate contribution of Women and Youth in the development interventions and focus on addressing fragility and building resilience, finance the projects that are climate-friendly, and further expand technical cooperation and reverse linkage programs. The Bank is further improving scholarship programs and encouraging science, technology and innovation in its operations.
Sustainable Finance Project Selection Process:
The evaluation and selection process for any Sukuk issued under this Sustainable Finance Framework will be carried out by a Sustainable Finance Task Force (SFTF), which will monitor the project selection and evaluation allocation process as per the eligibility criteria defined in the Use of Proceeds section. The SFTF will consist of representatives from different Global Practices departments with relevant technical expertise as follows:
❖ Resilience and Social Development Department
• Climate Change Division
• Women and Youth Empowerment Division
❖ Treasury Department
• Capital Markets Division
❖ Risk Management Department, and,
❖ Budget, Performance and Results Department
Project Selection and Evaluation Process:
Sustainability finance Assessment Process at IsDB:
All projects that IsDB considers for potential allocation to a Green or Sustainability Sukuk, are subject to compliance with international conventions and agreements, including the ILO Labour Standards, host country laws and regulations, and IsDB’s policies to manage potential environmental and social risks – including the energy, transport, education, agricultural sector policies. Furthermore, as per IsDB’s Climate Change Policy and commitment to mainstreaming Climate Finance all of IsDB’s activities across all areas of its operations, investments and policies, incorporate climate risk identification and management. All physical assets are screened using a customized online tool, Aware.
Sustainable Finance Framework:
As part of this continued commitment to sustainability, IsDB has decided to create a Sustainable Finance Framework (the “Framework”) which is in accordance with the four components of Green Bond Principles 20189, Social Bond Principles 201810, and Sustainability Bond Guidelines 201811, and under which IsDB can issue Green or Sustainability Sukuk.
1. Use of Proceeds
2. Process for project evaluation and selection
3. Management of proceeds
4. Reporting
It is our intention to follow best practices in the market as the standards develop.
Use of Proceeds:
Under this Framework, IsDB can issue two types of Sukuk (the “Sukuk”):
1. Green Sukuk – for which the funds raised are exclusively allocated to Green Projects Categories;
2. Sustainability Sukuk – whereby the funds raised are allocated to Green Projects Categories and to Social Projects Categories
Conclusion:
The Sustainable Finance Task Force will be responsible for the following:
– Review and validate the selection of Eligible Projects based on the defined Eligible Criteria listed in the Use of Proceeds section above.
– Monitor the Eligible Projects portfolio, specifically, during the life of each Sukuk issued; the SFTF can decide to exclude or replace select Eligible Projects if an Eligible Project no longer meets the eligibility criteria, or the Eligible Project in the pool no longer requires funding.
– Determine if an Eligible Project requiring re-financing could be included in the pool as replacement or to enhance the asset diversity of the pool.
– Manage any future updates of the Framework and corresponding Second Opinion.