The project is an investment package of a senior loan of up to US$ 75 million, with an option to convert it into equity shares of UzPSB, and a trade finance facility. Absent the equity conversion, the project will support private sector SMEs and climate-related financing such as Renewable Energy, Energy Efficiency, Water Efficiency and Green Buildings.

The Bank’s overall portfolio is dominated by the corporate segment, including state-owned and municipal organizations. The corporate portfolio includes oil & gas, chemicals, energy, and large-scale manufacturing. It also includes cotton-related activities, which are evenly distributed in cotton production (by clusters) and cotton processing. The SME portfolio includes manufacturing, agriculture, services, mining and trade. The UzPSB’s overall portfolio includes substantial financial exposure to business activities with potential significant adverse environmental or social risks or impacts that are diverse, irreversible, or unprecedented. While the E&S risks of the loan are considered primarily medium, due to the potential equity conversion, which if executed would cause IFC to indirectly support higher risk activities, the project has been categorized as FI-1 according to the IFC’s Sustainability Policy.

The Project’s key E&S risks and impacts are associated with: (i) lending activities to the SME business line and climate projects, and, in the case of the loan conversion to equity, also to corporate borrowers involved in higher risk activities such as chemicals and energy production; (ii) capacity to assess and manage such risks through implementation of  an ESMS; and (iii) contextual risks associated with Uzbekistan, i.e. use of forced labor in relation to the Bank’s staff and in the supply chain of the Bank’s clients operating in the cotton sector.

The Bank has an ESMS in place and ESMS Officers appointed. The ESMS currently meets IFC requirements for SME finance. Initially, because the IFC project will be supporting only SMEs and climate-related sub-projects, the Bank will be required to manage E&S risks and impacts of these types of activities. IFC's applicable requirements will consist of the IFC Exclusion List, the applicable environmental and social national laws and regulations, and, for applicable climate-sub-projects projects, the IFC Performance Standards. For the trade finance portion, the Bank will be required to screen out excluded activities as well as activities in the cotton sector.

Under this project, the Bank will be required to enhance the ESMS in line with the IFC’s applicable requirements, which includes procedures to assess eligible climate projects against IFC Performance Standards, improve the supply chain risk management mechanism to ensure that cotton sector-related labor risks are assessed and mitigated in its loan portfolio, and develop an external communications mechanism to collect, review, and address any inquiries or concerns related to the business activities of the Bank received from external stakeholders. The Bank’s HR procedures will be also enhanced with an improved grievance mechanism and provisions for the event of retrenchment. If the loan is converted to equity, the Bank is also required to build capacity to manage higher risk transactions, implement the ESMS for entire portfolio of the Bank, and develop tools for screening its corporate portfolio against the IFC Performance Standards. Unless the ESMS in line with these requirements is in place, the conversion will not be exercised. An equity conversion will also trigger a requirement to phase out its exposure to coal (currently 7.9%) in accordance to IFC’s Green Equity Approach and to disclose annually the name, location by city, and sector for Category A subprojects.

In addition, UzPSB Uzbekistan will be required to meet IFC’s life & fire safety requirements and the requirements of IFC’s Performance Standard 2 on Labor and Working Conditions, including those related to the contextual risk of forced labor.