Building Sustainable Value Chains to Ensure Sustainable Growth
Covid-19 has caused important disruptions on global value chains, which have translated into products and services shortages and increased costs. The effects of these disruptions, aggravated by a number of environmental disasters, are still felt one year and a half after the pandemic erupted.
We have seen recent headlines about how scarcities are affecting supply of critical goods and commodities across the world, and how the increased trade costs are now causing inflation on commodities prices, including food and agricultural products. As shown in the Asian Development Bank’s 2021 Trade Finance Gaps, Growth, and Jobs Survey, the disruption of production/supply chains is still a major concern for companies which is expected to continue during 2022.
The exposure of the world’s value chain vulnerabilities, and their enormous associated complexities, has put value chains in the international spotlight, drawing attention to the need for public policy changes to ensure stronger value chain security and a stronger focus on sustainability. Earlier this year, the European Union (EU) announced legislation – expected to come into force by 2023 – on ESG (Environmental, Social, and Governance) due diligence on the value chain.
This legislation is intended to encourage companies to “dig deeper” to cease, mitigate and prevent ESG risks in their value chains, and hold them, their suppliers, and sub-contractors liable when they harm human rights, the environment, and good governance.
As the ESG aspects of value chains have become a priority for regulators and heightened attention from investors and consumers, a number of – fairly new – private sector companies are working towards providing the right tools to (i) measure and trace relevant metrics such as water usage, emissions, biodiversity and sourcing, and/or (ii) assess and certify environmental, social and/or governance performance. With the aid of technology, these “certifiers” aim to provide greater transparency and clearer standards to this compendium of efforts.
Also, more and more, so-called “social” companies are committed to improving the living conditions of the population and the communities where they operate, including within their value chain, with a focus on generating shared value. Many of these companies have support programs for Micro, Small and Medium Enterprises (MSMEs), and policies to promote diversity, inclusion, and environmental sustainability. Also, more and more companies are publishing sustainability reports to communicate their ESG performance, which help them not only to measure risks and opportunities, but also to add transparency to their operations and build trust vis-à-vis their stakeholders.
In 2018 IDB Group joined other Multilateral Development Banks (MDBs) to catalyse low-emissions and climate-resilient development with special focus on aligning policies, operations and activities toward a climate resilient development. MDBs play a key role in promoting secure and sustainable value chains and leading the way when it comes to integrating ESG as part of our due diligence. This is also aligned with IDB Invest’s strategic goals of achieving sustainable and inclusive growth on its role of strong partner for the region’s private sector.
In this way, IDB Invest’ work focuses on immediate opportunities for regional integration by (i) supporting the reconfiguration of global value chains and integration initiatives, (ii) supporting the digital economy and technologies to foster innovation, (iii) support MSMEs by generating better conditions that contribute to the recovery, (iv) climate change actions helping countries foster resilience and adaptation, and (v) gender equality and diversity by empowering women and vulnerable populations.
In May this year, IDB Invest agreed to provide up to $50 million worth of financing for Grupo Mercon, a deal that will support Latin American coffee’s value chain, especially in Guatemala, Honduras, Colombia, Peru and Brazil, promoting growth and economic recovery. The investment is part of a $500 million regional syndicated loan facility, structured, managed and administered by Rabobank, with prices linked to key sustainability initiatives, aligned with Mercon's strategy of raising the standard of living of coffee-growing communities in the region, promoting a positive environmental and social impact.
The project will directly support small and medium coffee producers in rural Latin American populations, considering that over 90 percent of Mercon's coffee suppliers are SMEs. The investment will facilitate access to financing for producers to guarantee the sustainability of their businesses and protect jobs. This is decisive for reducing poverty and improving the quality of life in these communities: coffee is Central America’s second largest export, producing more than 10% of the coffee exported worldwide and generating around 2 million jobs in the region. Likewise, the project will promote climate-smart practices to reduce crop losses, improve efficiency and reduce greenhouse gas emissions.
For IDB Invest, stimulating recovery implies facilitating access to short- and long-term financing for firms, particularly for smaller firms in the most affected sectors and segments, as well as deploying technical assistance to help firms reignite their operations. As a group, IDB priorities is to work toward the Sustainable Development Goals (SDGs) and to ensure LAC meets them by 2030. This way climate action and sustainability are pillars of our plan and at the core of our “Vision 2025” to accelerate the regions recovery and enable sustainable an inclusive work.
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