INTERNATIONAL FINANCE CORPORATION PERFORMANCE STANDARD

Base Document

Performance Standards on Social and Environmental Sustainability - 2012

Contextualization

The Intenational Finance Corporation - IFC is a member organization of the World Bank. Its objective is to promote economic development by financing private sector businesses in developing countries. IFC was founded in 1956, is present in 184 countries, and operates in more than 100 countries. In the year 2022, it executed the amount of US$ 32.8 billion in investments. Of this amount, in Brazil in 2022, US$ 4.22 billion were invested in various segments.

IFC raises credit by issuing bonds in the international capital markets to finance projects. The credit reverted to low-cost financing. Its main activity is in socially responsible investment through roles linked to sustainable indicators. Specifically in the area of sustainability, it is present through programs for the issuance of Green Bonds for projects related to Climate Change, and Social Bonds for projects that address social issues. Both programs are aligned with the IFC's Green Bond Principles and Social Bond Principles. At the same time, there are other forms of financing, but all must comply with certain standards developed by the IFC.

IFC-funded projects must comply with the organization's Performance Standards (PS). These PS consist of documents with criteria of:

● Assessment and Management of Social and Environmental Risks and Impacts

● Conditions of Employment and Work

● Resource Efficiency and Pollution Prevention

● Community Health and Safety

● Land Acquisition and Involuntary Resettlement

● Biodiversity Conservation and Sustainable Management of Living Natural Resources

● Indian people

● Cultural heritage

Source: IFC

The IFC does not have a specific activity for the soy agribusiness. The most important aspect in relation to PS is its reference for socio-environmental risk assessment at shareholder level. Banks, other investment institutions and financial organizations use the Equator Principles, which are a set of socio-environmental criteria that help financial organizations to ensure that they finance responsible projects in the social and environmental sphere. These principles underlie the IFC PS. There is a categorization of the risk level of projects that are A (high risk), B (medium risk) and C (low risk), as detailed below.

Category A: consists of projects with risk of irreversible environmental impact, therefore, sensitive, different or unprecedented.

Category B: are projects with an environmental impact on human populations or in environmentally relevant areas, but with the possibility of reversing damage.

Category C: are the other projects that have little or no adverse environmental impact.

FI category: are the commercial activities that involve investments in Financial Institutions (FI) or through delivery mechanisms involving financial intermediation. This category is divided into:

FI-1:financial exposure through FI classified as category A.

FI-2:financial exposure through FI classified as category B or with a very limited number and categorized as A.

FI-3:financial exposure through FI classified as category A.

Agricultural-related projects that comply with the Equator Principles use the IFC standard to conduct due diligence on clients of all levels and types of organization. Especially for agricultural enterprises, several financial organizations use PS as a reference for assessing socio-environmental compliance.

The socio-environmental analysis assesses whether the client identifies and manages socio-environmental risks, considering the relationship with stakeholders, traditional populations and indigenous peoples. Effectively on aspects of deforestation, issues of biodiversity protection, flora monitoring, and the promotion of sustainable management of living natural resources are evaluated

The standard does not give legal compliance parameters, although it does require compliance with local laws. In the absence of specific laws, internationally recognized parameters are used. The IFC also does not certify clients, as this is not a quality or sustainability certification. This is a set of voluntary adoption performance standards, which may be required by financial institutions to assess the risk of socioenvironmental impact on their investments. The purpose is to guide conduct in accordance with international conventions and treaties on socio-environmental risk management.

The chart below illustrates compliance with the four principles used in the benchmarking analysis among sustainability standards.

Legal Compliance

IFC requires legal compliance in social, human rights and labor relations criteria.

Management Of Social And Environmental Risks At Stakeholder Level

The IFC PS require mechanisms for assessing and managing socio-environmental risk, neighbouring communities, indigenous peoples and stakeholders.

Good Agricultural Practices

PS IFC define criteria for the efficient use of pesticides and chemicals. They require legal compliance and compliance with international conventions and treaties for agricultural management, in addition to the application of good practices in the use of natural resources.

Deforestation Control

Compliance with national legislation (forest code)

The IFC PS do not have criteria aligned with national legislation. Establishes the need for environmental preservation and conservation of areas of High Conservation Value (HCV) and requires compliance with international conventions or local legislation. In its Performance Standard 6 - Biodiversity Conservation and Sustainable Management of Living Natural Resources, it defines that in cases where a proposed project is located in a legally protected area or in an internationally recognized area, legal permission for the development of activities must be demonstrated.

Compliance with EU RED II

The IFC PS do not make direct reference to the European Union's biofuels policy.

Considerations regarding HCV

Performance Standard 6 - Biodiversity Conservation and Sustainable Management of Living Natural Resources defines through the requirements of protection and conservation of biodiversity the need to identify areas containing natural habitats or modifications, as well as habitats of high critical value. Intervention in these areas must be legally permitted and still comply with SP requirements. However, intervention in these areas is allowed when:

● Inexistence of viable alternatives within the region for the development of the project in modified or natural habitats that are not critical;

● The project does not have measurable adverse impacts on the biodiversity values for which the critical habitat is designated, nor on the ecological processes that support those biodiversity values;

● The project does notentailsthe net reduction in the global and/or national/regional population of any speciesgravely threatenedor Threatened for a reasonable period (determined by expert).

Transparency Mechanism

IFC does not publish the results of its due diligence on clients, or clients of Financial Institutions. The respective clients are not exempt from publishing the results of the diligences, but must establish communication mechanisms with interested parties.

General Observations

The IFC PS are the main reference for financial institutions to assess the socioenvironmental risk of their direct project clients, or through Financial Institutions. However, other institutions not linked to the IFC also employ its principles for projects with potential risk of social and/or environmental impact.

Category B developments are the most common among project clients, especially for investment projects in agribusiness.

The standard is not a certification, but a system of performance standards that investment clients must comply with. It focuses on socio-environmental aspects, but it is multisectoral and very comprehensive, being the main market reference.

Financing projects commonly have linked deforestation and monitoring indicators, with recovery or conservation goals.

Sources For Consultation

IFC Performance Standards:www.ifc.org

IFC Fiscal Year:www.ifc.org