Eco-Business Fund for Latin America and the Caribbean

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Project Number: 
11813-06
Expected Consideration Date by the Board: 
06/28/2016
Date Posted: 
05/24/2016
Company: 
Borrower: Eco-Business Fund S.A., SICAV-SIF (“Eco-Business” or the ¨Fund¨)
Sponsoring Entity: 
Finance in Motion
Sector: 
Financial Markets
Location: 
Regional
Scope Objective: 

The objective of the Fund is to promote business practices that contribute to biodiversity conservation and the sustainable use of natural resources through the provision of dedicated financing and technical assistance. Eco-Business is a regional fund and targets only investments in the Latin American and Caribbean (“LAC”) region, its investment activities focus on sustainable agriculture and agri-processing, forestry, fishery and aquaculture, and tourism.

The Fund channels financing to local producers, primarily via financial institutions (“FIs”) that operate according to the principles of responsible finance. In limited cases (max. 15% of the total portfolio), the Fund also provides direct financing for high-impact businesses and projects. To enhance the impact of its investments, the Fund has created a development facility to complement its investments with technical assistance both to the FI level and to the final beneficiaries for capacity building, market studies and impact assessment activities.

The Fund size is targeted at US$300 million. IIC’s Financing would consist of an unsecured subordinated financing of up to the lesser of (i) US$60 million or (ii) 25% of the Fund size, with a tenor of up to 6 years and an up to 3 year commitment period. It is expected that the financing will include (a) an IIC-IDB subordinated loan of up to US$40 million, and (b) a potential subordinated co-financing of up to US$20 million from the China Fund. The additional funding of Eco-Business will be comprised of equity and senior loans expected to come from domestic and international private institutional investors as well as development financial institutions.

The main development impact of the project will be to expand access to finance for sustainable businesses. The success of the project is expected to demonstrate to the financial markets that sustainable businesses can represent an attractive sector with measured risk, attractive returns and substantial growth potential, thus encouraging FIs in the region to direct more resources to this sector. The project will promote the connection of FIs interested in strategically and systematically financing sustainable businesses with institutional investors and technical assistance resources.

Environmental Review: 

This operation is classified as an FI-2 under the IIC’s Sustainability Policy. Based upon the nature of this transaction (i.e. a partnership to provide funding to FIs to on-lend to sustainable businesses that contribute to biodiversity conservation and the sustainable use of natural resources in the region), there are likely to be minimal to moderate direct environmental, social or health and safety (ESHS) and labor impacts and risks. The IIC, as part of the due diligence process, will analyze the environmental and social, health and safety aspects of the Fund’s portfolio related to the use of proceeds, as well as current lending practices and procedures specific to environmental and social risk screening. IIC will require the Fund to adopt an Environmental and Social Management System to mitigate the risks present in sub-loan transactions.