Shared Prosperity through Strategic Community Investment: An IFC perspective | Anil Sinha, Regional Head Advisory Services IFC South Asia, 26 September, 2013

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Global HSE Conference | Sept 26 - 27 | New Delhi, India

Global HSE Conference | Sept 26 - 27 | New Delhi, India

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  • The presence and operation of a large firm presents a potential for benefits to the surrounding communities.The benefits can materialize through different channels related to the firm’s operations, voluntary actions, or mandatory payments. The importance of each channel depends on local conditions and regulations
  • Steps 1-6 is the process to develop the inputs. Steps 6-7 is the model logic. Compares different scenarios based on risks and opportunities facing an operation/asset to determine which one is likely to yield the most value back to the company.#1 Stakeholder analysis is central to understanding site level risks and opportunities to positively impact communities when deciding on an optimal portfolio of sustainability investments.#2 The Tool is structured like a traditional business case. It estimates the difference between the value of two user-defined scenarios. For example: Scenario A, which may be defined as the “base case” and Scenario B, which may be defined as the sustainability investment portfolio.#3 The Tool uses MIGA country level data and IPA data at the project level to assess the total portion of risk that can be managed through sustainability investments. #4 To assess value creation, the tool conducts a cost benefit analysis of potential productivity gains from sustainability investments.#5 Value protection analyzes how much risk may be mitigated through sustainability investments by costing out the potential savings from reducing the frequency and intensity of negative events (for example delays in construction, disruptions in production, etc.)#6 The Quality component allows the user to rate the effectiveness of each sustainability intervention. The quality rating is a critical input to calculate the total value protection estimates.#7 The Tool has a built in Monte Carlo range function to account for uncertainty around data.All these inputs result in a probable range of achieving a net present value of a portfolio of sustainability investments. This allows for prioritization across investment possibilities as well as providing guidance on the optimal timing of investments.
  • Negotiations completed more quickly based on established relationships and experience. Didn’t have to pay for land acq team time
  • The ICA systematically measures and identifies bottlenecks and weaknesses along the investment cycle. It provides a investment improvement plan and sets the ground to strategically discuss with local authorities and officers the main obstacles along the investment cycle. The tool has been adapted to reflect the investment cycle in Peru and Colombia. Why this tool is so important: Identify management practices and compare them with a “standard”.Prioritize areas of improvement.Sensitize authorities with the project objectives.Introduce the logic of “measuring” results into public management. Define if the practices were adopted by the municipality.“Municipio al Día” is the first web-based portal in Peru to support improvements in skills and management practices of municipal officers and authorities. It uses a pool of experts to provide on-line services and updated information to local authorities and municipal officers in all regions of Peru.Promoting Internal Accountability: A user friendly electronic system developed to automatically generate Investment Monitoring Reports which allows local governments and communities to track progress of key projects and take corrective actions along the investment cycle based on the information obtained. Reports are used in management meetings for monitoring municipal the investment portfolio’s progress. Citizen report Cards:Publication to present in a multi-stakeholder meeting the population’s evaluation of a key service provided by the municipality to identify possible areas of improvement. Education Caravanas: Interpersonal communication methodology that teaches basic concepts of royalties and municipal investment to rural communities in a fun and interactive way. Includes street theatre and educational games. Stakeholder Engagement meetings: Interpersonal communication methodology that teaches basic concepts of royalties and municipal investment to local leaders and organized groups.

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  • 1. Shared Prosperity through Strategic Community Investment: An IFC perspective Anil Sinha, Regional Head Advisory Services IFC South Asia 26 September, 2013
  • 2. IFC: Private sector arm of the World Bank Group Mission to reduce poverty and increase shared prosperity Guarantees of private sector investment’s non- commercial risks Interest-free loans and grants to governments of poorest countries Loans to middle-income and credit- worthy low- income country governments Finance Debt Equity Advisory Services Sustainable Business Access to Finance Investment Climate PPP IBRD International Bank for Reconstruction and Development IDA International Development Association IFC International Finance Corporation MIGA Multilateral Investment and Guarantee Agency
  • 3. What Our Clients Say About Community Investment Challenges • “We spend lots of money, but relations with communities don’t improve (and sometimes even deteriorate)… • Our community communicates by blocking our roads • Infrastructure projects we build for them lie abandoned • Local stakeholders become dependent on us • We get endless requests – it’s hard to say “no” • Our CI program has little to do with our core business • In the end, we have little to show for all the resources spent”
  • 4. Strategic Community Investment "If you want to go quickly, go alone. If you want to go far, go together." —African proverb For IFC, strategic community investment (CI) involves voluntary contributions or actions by companies to help communities in their areas of operation address their development priorities, and take advantage of opportunities created by private investment, in ways that are sustainable and support business objectives.
  • 5. Different channels for generating local benefits Company VoluntaryMandatory Infrastructure Consumption Employment Purchases Projects & Initiatives Royalties /Taxes Demand for Inputs Demand for G&S Roads Increased Business Opportunities Increased Income and Employment Improved Infrastructure and Services indirect direct Operational Royalty Management Community Investment Strat. Local Sourcing $ for local public investment IFC’s SBA/SCI Offer
  • 6. Cairn-IFC Program • Program duration: July 2007 to December 2010 • Co-funded by IFC and Cairn • Enterprise Centre: • Started in July 2007 and continues as a legal entity under Cairn since January 2011 • Focuses on skill development for employability, MSME and vendor development • Child & Maternal Health (CMH): September 2007 to July 2009 • Dairy project: Started in January 2007 and continues under Cairn’s CSR activities • State government lends support to the program Cairn CSR Barmer SURE CEDPA ICECD
  • 7. Key Outcomes in 3 years  6617 persons (1771 women) received vocational trainings and 75% of them linked with jobs/ self employment activities,. Income levels have gone up from 25% to 32% for trainees across various trainings given by EC  60,000 workers were trained on Health, Safety, Environment and Security (HSES), which led to more than 49 million incident free safe man-hours on Cairn sites.  119 new micro enterprises operate in the region, 2500 odd farmers have been provided inputs for better farming practices and links with inputs suppliers  80 local MSMEs have received orders worth INR 89.3 Million, 22 have now their company websites  Over 8700 persons have directly benefited by health camps/Melas, more than 2400 children and 800 pregnant women have been immunized  4000 truckers been covered under awareness on AIDS  13 dairy cooperatives now contribute by about 14% to the total milk collection by the state dairy federation in Barmer. The average price realisation has gone up from INR 9 to INR 16.80. 7
  • 8. Financial Valuation Tool and its benefits  Evaluation of site-specific community investment portfolios  Public tool (www.fvtool.com)  Estimates expected net present values (NPVs) of community investments  Answers two critical questions: “what” is the right portfolio of community investments? “what” is the financial return they will likely bring?  Improve community investment strategic planning  Assess value of a community investment portfolio  Improve cross-functional engagement around social responsibility  Establish an understandable business case and business language for community investment  Overcome “silo” approach in cross-functional discussions
  • 9. Key Components of the FV Tool This tool adds an additional layer of rigor to your traditional approaches to stakeholder engagement, risk analysis and financial modeling. Monte Carlo is simply rolling the dice 1000+ times to model uncertain outcomes.
  • 10. Value Driver Examples  Cairn learned pipeline security issues reported by farmers through SMS cell phone program led to up to $2 M in savings from averted sabotage.  Rio Tinto Madagascar identified large potential savings through local workforce training to reduce dependency on expat workers at very remote operation.  Newmont’s community relations team in negotiating land and owners cost helped 6-month fast forward at second site creating savings in owners cost = approx $350K.  Oyu Tolgoi realized the value of shifting from onsite housing for workers to developing a local town.
  • 11. Revenue Management: Sample Tools • Investment Capacity Assessment (ICA) • Municipal Knowledge-sharing Platform: Municipio al Dia; • Promoting Internal Accountability • Citizen Report Cards (CRC) • Educational Caravans • Stakeholder engagement meetings Practitioners Guide Rating Matrix & Good Practices Report templateWide range of web-based services - 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 2008-Qtr1 2008-Qtr2 2008-Qtr3 2008-Qtr4 2009-Qtr1 2009-Qtr2 2009-Qtr3 2009-Qtr4 2010-Qtr1 2010-Qtr2 2010-Qtr3 2010-Qtr4 2011-Qtr1 FAQs Downloaded Visits to Municipal Calendar Visits to Library and Training material Visits to the Tip and Question of the Month Citizen Report CardStakeholder meetings
  • 12. GeoReach: IFC’s Geomapping tool • IFC has piloted a country focused district based geomapping tool • Why Georeach? – Varied definitions of “poverty” globally that do not necessarily fit South Asia – Lack of understanding of access issues in defining ‘Base of the Pyramid’ – India has high growth but still home to 30% of the world’s extreme poor – Demonstrating relevance of investments in underserved markets – Clients might be based out of Tier 1 cities, but have reach that expands in poor/underserved areas – Gathering more granular level data to inform operational strategy
  • 13. Benefits to Strategy and Operations • Understand where there is a lack of access to specific resources, such as Health & Education, Infrastructure, and Agribusiness-- help advocate where projects may have a greater impact • Helps to visualize the reach of client interventions • Synthesize complex data into simple, yet powerful ways • Maps and Analytics can guide client expansion strategies at a district level in India
  • 14. Note: This map has been provided for illustration purposes only. Illustration: Financial Inclusion Project (FINO) Results 14 Data not Available BOP districts (as per IDG 4 ) Non-BoP districts BOP districts targeted by FINO Non-BOP districts targeted by FINO 183 400 No. of districts across India (583) BOP Districts 117 257 No. of districts targeted by FINO (374) BOP Districts 31% of FINO’s target districts are BOP districts FINO covers 64% of India’s BOP districts Comments from FINO • Perfectly aligned with our strategy, very helpful tool • Very helpful in designing and launching new products. For example: crop insurance/ weather insurance product - tool provides initial data about density of customer pockets to support product development and access the initial product demand
  • 15. Good Practice Principles for Strategic Community Investment 1. STRATEGIC  Activities flow from a well-defined strategy  Addresses both short and long-term objectives  Focuses selectively on a few key areas for greatest impact  Looks beyond financial resources  Evolves with the business phase 2. ALIGNED  Aligns the strategic issues of the business with the development priorities of local communities, civil society, and government to create “shared value”  Coordinates CI with other company policies and practices that affect communities,  Promotes cross-functional coordination and responsibility 3. MULTI-STAKEHOLDER DRIVEN  Positions the company as a partner in multi-stakeholder processes  Recognizes that a multi-stakeholder approach reduces company control  Supports communities and local governments
  • 16. Good Practice Principles for Strategic Community Investment (contd) 4. SUSTAINABLE  Seeks to avoid dependency, encourage self-reliance, and create long-term benefits  Does not commence activities without a viable exit or handover strategy  Invests heavily in capacity building, participatory processes, and organizational development  Reinforces, rather than replaces, indigenous institutions and processes where feasible 5. MEASURABLE  Measures return on community investment to both the company and the community  Uses outcome and impact indicators to measure the quantity and quality of change  Tracks changes in community perceptions to gain real-time feedback on performance  Uses participatory methods of monitoring and evaluation  Proactively communicates the value generated by CI to internal and external audiences
  • 17. Measuring Shared Value