43609 - SP River CleanUp

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Summary of Investment Information

Project Number

43609

Company Name

DESENVOLVE SP - AGENCIA DE FOMENTO DO ESTADO DE SAO PAULO S.A.

Date SPI Disclosed

Dec 29, 2020

Country

Brazil

Region

Latin America and the Caribbean

Projected Board Date

Jan 27, 2021

Environmental Category

FI-2 - Limited

Status

Active

Last Updated Date

Aug 9, 2021

Department

Regional Industry FIG LAC & EUR

Industry

Financial Markets

Previous Events

Approved : Feb 22, 2021
Signed : Apr 26, 2021
Invested : May 14, 2021

Sector

Development Finance Company

Project Description

The proposed IFC investment consists of a financing package of up to US$100 million to Desenvolve SP – Agência de Fomento do Estado de São Paulo S.A. (“Desenvolve SP” or “DSP”) to support its lending to private sector medium sized water and energy service companies (“WESCOs”) operating in the water, wastewater and solid waste sectors. The financing package will consist of an A-loan up US$75 million and would mobilize institutional investors to invest in an up to US$25 million B-Loan. The proceeds of IFC’s loan will be used as followed: (i) at least 75% will be used to finance WESCOs that enter into performance-based contracts (“PBCs”) under the Pinheiros River Clean-up program; and (ii) up to 25% will be used to finance small and medium-sized enterprises (“SMEs”) in the waste and water sector (the “Project”).

Associated Advisory Engagement

N/A

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	75.0
Equity

IFC's loan to the financial institution described in this SII is targeted for on-lending to the following sector(s):

Product Type	Use of Proceeds
Straight Senior Loan	INFRA Projects (RE/Waste Management)
Straight Senior Loan	Loans to SME Borrowers

IFC's Definitions of Targeted Sectors can be found here.

Development Impact

The most significant expected project-level outcomes are the stakeholder impact from increasing access to sewage network and wastewater treatment by tackling the financial constraints of WESCOs, as well as the ensuing environmental impact by reducing the amount of untreated wastewater and associated pollutants discharged into the Pinheiros river basin. Beyond the proposed investment, IFC anticipates that this investment will promote market competitiveness with strong demonstration effects of supporting the implementation of PBCs to leverage the expertise of the private sector in the wastewater sector. Successful implementation of the proposed investment is expected to attract private sector developers in the wastewater sector in Brazil by demonstrating the feasibility and bankability of similar projects.

Through this Project, IFC will provide financial additionality in the form of Financing Structure, through the provision of commercial funding to help it diversify its funding beyond public sources, resource mobilization and non-financial additionality via knowledge, innovation and capacity building as IFC's E&S specialist will support the client to enhance its Environmental and Social (E&S) management system ("ESMS") to assess supported sub-projects against IFC's Performance Standards.

E&S Category Rationale / Risks and Mitigation

The project will support the private sector portfolio of the sub-national agency, Desenvolve SP, targeting: (i) 75% contractors of SABESP operating under the Pinheiros River Clean-up Program; and (ii) 25% to SMEs in the waste and water sector in the state. The potential environmental and social (E&S) risks and impacts associated with the project are likely to have primarily medium E&S risks. High E&S risk sub-projects will not be eligible; therefore, this transaction was categorized as FI-2 according to IFC’s Sustainability Framework. Applicable requirements for the project include IFC’s Exclusion List, compliance with Brazilian E&S laws and IFC’s Performance Standards (to assess contractors under the Pinheiros River Clean-up Program).

The key risks and impacts derive from the portfolio of supported activities and the Bank’s capacity to identify and manage the potential E&S risks associated with such activities. Desenvolve SP’s SME portfolio risks are mostly associated with issues relevant to management of Occupational Health and Safety (OHS), pollution prevention and community safety. As for the Pinheiros River Clean-up Program, portfolio and potential pipeline risks are associated with the contractors’ capacity to assess and manage OHS risks related to its workforce and to the affected communities during the construction phase. Although “PS-5: Land Acquisition and Involuntary Resettlement” is triggered because small-scale land acquisition is required for construction of sewage pumping stations and, while the Program seek negotiated settlements for acquiring such sites, it can resort to expropriation. However, due to the limited nature of the interventions, risks and impacts, if any, are expected to be low. High-risk projects and coal-related activities will not be eligible.

Summary of Client Environmental and Social Management System (ESMS)

Desenvolve SP has an existing Environmental and Social Management System (ESMS) to assess E&S risks of sub-projects and collaterals. Procedures include E&S categorization in line with inherent sector risks, client E&S performance rating based on a self-assessed questionnaire, screening of sub-clients against host country laws through the verification of permits, site visits and corrective action plan prior to disbursement. Although DSP’s ESMS is in line with IFC’s requirements for its SME portfolio, gaps identified for the Pinheiros River Clean-up Program are related to assessing sub-projects against IFC’s Performance Standards, as well as limited monitoring activities during the entire project-cycle. As part of the Project, Desenvolve SP will be required to: (1) enhance its ESMS procedures to apply IFC’s Performance Standards to the Pinheiros River Clean-up portfolio; (2) remain committed to applying the labor standards as required by IFC Performance Standards 2; and (3) submit a periodic report to IFC.

Contacts

For Inquiries About the Project, Contact

DESENVOLVE SP – AGÊNCIA DE FOMENTO DO ESTADO DE SÃO PAULO S.A.
Brunna Teles Pereira
Institutional Relations Manager
+55 11 31230477
brunna.pereira@desenvolvesp.com.br
Rua da Consolação 371, Sao Paulo - SP
www.desenvolvesp.com.br

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IFC supports its clients in addressing environmental and social issues arising from their business activities by requiring its real sector clients to set up and administer appropriate grievance mechanisms and/or procedures to address complaints from Affected Communities in relation to environmental and social issues arising from IFC's clients' business activities. Since 2012, IFC's Financial Intermediary clients applying the Performance Standards are required to develop External Communications Mechanisms to receive and review inquiries or complaints from any interested party regarding the E&S risks and impacts of their operations.

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This Summary of Investment Information (SII) is prepared by IFC to disclose a factual summary of the main elements of the potential investment. It also includes findings and recommendations related to environmental and social considerations regarding this potential investment. The purpose of the SII is to enhance the transparency of IFC’s activities. For any project documentation or data included or attached herein, whether prepared by the project sponsor or otherwise, authorization has been given for public release by the project sponsor. IFC considers that this SII is of adequate quality for release to the public, but has not necessarily independently verified all of the project information therein. It is distributed in advance of IFC Board of Directors’ consideration and may be periodically updated thereafter. Board dates are estimates only and this document should not be construed as presuming the outcome of the Board Directors’ decision. The following SII is disclosed in accordance with IFC's Access to Information Policy (AIP) that went into effect on January 1, 2012.

The map is for illustrative purposes and does not imply the expression of any opinion on the part of the World Bank, concerning the legal status of any country or territory or concerning the delimitation of frontiers or boundaries. Country borders or names do not necessarily reflect the World Bank Group's official position. In some cases, available project location information is limited to the country of the project's activities. Locations are approximate.

Task Description	Completion Date
Nominate E&S Officer	Condition of disbursement
ESMS Enhancement	Condition of disbursement
Implement staff training	Within 3 months of disbursement

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