Credit Fund Project
IDB Invest is considering an investment of up to US$40 million (in BRL equivalent) through the subscription of senior quotas of an investment fund in Brazil. IDB Invest’s participation will allow the fund to reach the necessary scale to effectively execute its investment strategy and reach its minimum size.
The fund will invest in debt instruments to mid-sized companies in Brazil with limited access to finance from commercial banks and capital markets. The fund manager of the fund is a local investment management company with extensive experience in the local market.
The fund’s target sectors include retail and consumer-related, specialty services, non-traditional financial institutions, and infrastructure. The proposed project will be approved under the following IDB Invest delegated facility: “Debt Capital Markets Program”.
1. Overview of Scope of IDB Invest E&S Review The environmental and social (“E&S”) review of the proposed transaction was carried out through an E&S desk research of pertinent information regarding the fund manager and the by-laws of the fund. This included a review of the fund manager’s E&S policies and procedures.
2. Environmental and Social Categorization and Rationale The fund’s investment activities are expected to have a medium risk potential. Therefore, per the IIC’s Environmental and Social Sustainability Policy, the fund has been categorized as FI-2. The fund will be restricted from investing in Category A sub-projects.
3. Environmental and Social Risks and Impacts The main E&S risks of this project are associated with the fund manager’s capacity to identify and manage the E&S risks associated with the fund’s investment activities. The potential risks associated with its main lending activities include occupational, health and safety related themes for services companies and pollution prevention for utilities and manufacturing.
The fund has in place an E&S management system to identify and manage the E&S risks of its portfolio. Its system includes adequate E&S procedures, and an assigned E&S Officer to manage E&S risks and impacts.
4. Mitigation Measures The fund manager will be required to ensure that all investments made by the fund comply with the IIC Exclusion List, applicable E&S local laws, and the IIC’s environmental and social guidelines including the International Finance Corporation (“IFC”) Performance Standards. The professional defined as the E&S Officer of the fund will be required to attend the IDB Invest’s Environmental and Social Risk Management training workshop for financial intermediaries.
IDB Invest requires that the fund manager of the fund develops and implements an External Communication Mechanism to review inquiries or complaints from any interested party regarding the E&S risks and impacts of their operations.
The fund manager will also be required to hire or to ensure that the fund hires a qualified external consultant to assess the E&S risks of applicable transactions, to submit the E&S Due Diligences conducted prior to investment by the fund and to submit an annual E&S monitoring report to IDB Invest.