IFC CORPORATE GOVERNANCE

METHODOLOGY AND CONDUCTING

CG ASSESSMENT: KEY STEPS,
RESOURCES AND TOOLS

Oct 2023
WHAT IS ESG?

A set of environmental, social, and governance (ESG) factors

considered by companies when managing their operations, and
investors when making investments, in respect of the risks,
impacts, and opportunities relating to but not limited to:
Environmental issues: potential or actual changes to the physical or
natural environment (e.g., pollution, biodiversity impacts, carbon
emissions, climate change, natural resource use);
Social issues: potential or actual changes on surrounding community
and workers (e.g., land, health and safety, supply chain, diversity and
inclusion); and
Governance: corporate governance structures and processes by
which companies are directed and controlled (e.g., board structure
and diversity, ethical conduct, risk management, disclosure and
transparency), including the governance of key environmental and
social policies and procedures.
IFC’s ESG Standards comprise the Performance Standards (PS),
which define clients' responsibilities for managing their environmental
and social risks, and the Corporate Governance Methodology,
which sets out an approach to evaluate and improve the corporate
governance of clients.
 IFC is an ESG standard-setter, helping redirect capital
in support the SDGs

Environmental & Social Performance

Standards

 Through the Equator Principles, the PSs have  IFC’s ESG standards align with 16 of the 17
been embraced by 128 banks from 38 countries, Sustainable Development Goals and 30 of their
covering 70% of global project finance. underlying targets.
IFC Corporate Governance Methodology
Overview
WHAT IS CORPORATE GOVERNANCE?

Shareholders
Corporate governance provide capital
refers to the structures and
processes for the direction and
control of companies -
IFC Definition

Board of Directors
develops strategy
and oversees
Management runs management
the company’s daily Report periodically and
implement strategy
operations

Guide and supervise

 IFC Corporate Governance Methodology
How do we define Corporate Governance?
We follow IFC Corporate Governance Methodology, which generally examines the following:
Commitment to Corporate
Governance Shareholder & Stakeholder
Relations
Assessment of overall level of
commitment to and formalization and Shareholders Assessment of shareholder rights and
awareness of governance in the protections, AGM procedures,
organization. information to shareholders, conflict
/RPT policies.

Board Effectiveness Board of Directors Family Governance

Assessment of board roles, Assessment of family’s role in the

composition, committee structure, business and mechanisms used to
procedures, director duties, overall govern the relationship.
functioning.

Control Environment & Management Disclosure and Transparency

Processes
Assessment of information disclosures
Assessment of the overall
to shareholders and market;
effectiveness of internal controls, risk
transparency of information;
management, internal audit, external
accounting standards used.
audit, compliance.

Governance of Stakeholder Engagement: The company’s approach to external

communication includes a mechanism to receive and respond to inquiries and
complaints and, where communities are affected, ensures effective stakeholder-
engagement management and grievance mechanisms.
The IFC CG Methodology is internationally recognized, having been
adopted by 35 other DFIs and other investment firms.
IFC-led CG Development Framework Initiative
35 Signatories (And Counting) Using IFC Methodology

Signing Ceremony – 2011 World Bank-IMF Meetings

 CORE TOOL-CG PROGRESSION MATRICES

LEVELS

Level 1 Level 2 Level 3 Level 4

PARAMETERS

Commitment to Good Corporate Governance

Structure and Functioning of the Board of Directors

Control Environment P R O G R E S S I O N
Transparency and Disclosure

Treatment of Minority Shareholders

Governance of Stakeholder Engagement

IFC Corporate Governance Progression Matrix: Assessment
Parameters

Commitment Structure and Function Control Disclosure and Treatment of Governance of

to ESG of the Board of Environment Transparency Minority Stakeholder
commissioners Shareholders Engagement
● Formalities: CG ● Internal Audit ● Financial
code & basic CG ● Roles, Election & Function reporting and ● Voting Rights ● Stakeholder
documents Succession ● Internal Control External Audit Mapping
● Protective Rights
● Code of Ethics ● Composition System ● Risk Disclosure ● Stakeholder
● Investor Relations
● Designated CG ● Committees ● Risk Governance ● Corporate Engagement Policy
Officer/Corp. or ● Compliance Disclosure ● Worker Grievance
● Meeting Frequency,
Company ● Sustainability Mechanism
Procedures & ● Elements of
Secretary /ESG Reporting
Practices External Audit ● Affected
● Recognition Communities
● Evaluation & ● Integration of
● Understanding of Performance Grievance
E&S
Business case for Mechanism
● Oversight of E&S ● Subsidiary
CG
Governance
 IFC Tools – CG Progression Matrix
VALUE ADDITION
1. Basic 2. Intermediate 3. Good 4. Leadership
Practices Practices International
ATTRIBUTES

Practices
Commitment to
Good Corporate
Governance
Board
Effectiveness

Control Environment

Transparency and
Disclosure

Shareholder Practices

Governance of
stakeholder
engagement
 HIGHLIGHTS OF CHANGES-E&S COMPONENTS
Commitment to • ESG integration and Stakeholder Engagement
ESG (Leadership and • Oversight of ESG at the Board level / Board level committee to review ESG
Culture) issues
• National / Global Leader in ESG
Structure and • Board approves sustainability strategy and E&S policies
Functioning of the Board • Board verifies ESMS is in place and audited
of Directors • E&S issues are a recurring Board agenda item
• Board member with understanding of E&S risks, and if sensitive industries,
then at least one E&S Expert
Control Environment • ESMS integrated into the corporate Risk Management framework
• Head of E&S/ Sustainability has unfettered access to the Board and reports to
the Risk Management Committee or Sustainability Committee of the Board
Transparency and • Annual Report includes ESG reporting
Disclosure • Annual Report uses IIRC, GRI, SASB and/or other acceptable framework
• E&S data is subject to independent assurance

Treatment of Minority • Addition of Sixth Parameter Governance of Stakeholder Engagement

Shareholders
 MORE ON CLIMATE GOVERNANCE

IFC Corporate Governance Methodology Parameters and Climate Governance Focus

Commitment: Create a climate mindset and demonstrate leadership

Board Structure and Functioning: Active board engagement on climate change
Control Environment: Integrate climate-change issues into key systems and functions
Disclosure and Transparency: Share climate data with stakeholders
Minority Shareholder Treatment: Include shareholders in climate-related decision-making
Governance of Stakeholder Engagement: Involve impact stakeholders
 IFC ESG Performance Indicators

Parameters Weight Performance Metric -3 -2 -1 0 1 2 3

A. Commitment
to ESG SCORE
Corporate Company has a No information. The company has a
Governance Corporate There is a reference Corporate
The company has a
Code Governance Code. to a Corporate Governance Code, it
Corporate
Governance Code is disclosed and
Governance Code
Evidence that there but it is not company explains
and it is disclosed.
is no Corporate disclosed. level of compliance
Governance Code. with code.
Code of Ethics or Company has a Code No information. The company has a
Conduct of Ethics or Conduct. Code of
There is a reference The company has a
Ethics/Conduct, it is
to a Code of Code of
disclosed and
Ethics/Conduct but Ethics/Conduct and
Evidence that there company explains
it is not disclosed. it is disclosed.
is no Code of level of compliance
Ethics/Conduct. with code.
Corporate There is a designated Publicly available Publicly available
Governance officer/body evidence of evidence there is no There is a There is a
Officer responsible for sanctions within the officer/body There is reference designated designated
overseeing Corporate last year from the responsible for to a Corporate Corporate/Company Corporate/Company
Governance policies authorities for a overseeing Counsel or other Secretary or Secretary or
No information.
and practices. violation of law, Corporate designated officer Corporate Corporate
regulation and/or Governance Policies that is responsible Governance Officer Governance Officer
rules related to and Practices for this role. that does not report that reports to the
corporate to the Board Chair. Board Chair.
governance.

1
3
 IFC ESG Performance Indicators

Parameters Weight Performance Metric -3 -2 -1 0 1 2 3

B. Structure &
Functioning of
the Board of
Directors SCORE

Board At least 33% of Publicly available Publicly available Publicly available

Independence independent directors evidence of sanctions evidence of sanctions evidence that there
meet an adequate within the last year from within the last 3 years are no independent
level of independence. the authorities for a from the authorities for directors.
>1/3 and <= 1/2 of
See the IFC Indicative violation of law, a violation of law, <= 1/3 of directors >1/2 of directors are
directors are
Independent Director regulation and/or rules regulation and/or rules No information. are independent by independent by this
independent by this
Definition as an related to independence related this definition. definition.
definition.
example. of Board members to independence of
Board members

Board Diversity There are at least 25% There are no women

<=1/4 of the Board > 1/4 and <= 1/3 of >1/3 of the Board
of women (non- on the Board.
comprises of women the Board comprises comprises of women
promoter/sponsor) on No information.
(non-promoter- of women (non- (non-promoter-
the Board.
sponsor). promoter-sponsor). sponsor).

Level of Impact on Performance

High
Medium
Low

1
4
 Sustainalytics ESG Risk Ratings: Assessment Parameters
Corporate Governance is a
foundational element
It applies to all companies
irrespective of the subindustry they
are in.
On average, CG contributes about
20% to the overall unmanaged risk
score of a company.
1
5
Material ESG issues are a set of
ESG-related factors that pose
potential economic risks for
companies
Assessment of material ESG issues
occurs at the subindustry level, is
refined at the company level, and is
reviewed annually.
Idiosyncratic Issues are
‘unpredictable’ or unexpected
Issues that are event-driven and
become material if the associated
event assessment passes a
significant threshold.
 Comparision with Sustainalytics CG Ratings

Sustainalytics Metrics for Corporate Governance: Six Key Pillars

​The experience, track record and actions of a
Board and Management Quality and Integrity company’s board should reflect its ability to provide
strategic leadership and oversight.

​The board’s structure should allow for sufficient

Board Structure oversight, representation, and accountability to its
shareholders.

​A company’s constitution and ownership structure

Ownership and Shareholder Rights should respect outside shareholders’ rights as they
would for the board, management, and major holders.

​A company’s remuneration policies and practices

Remuneration should incentivize management to build value.

​A company’s financial reports should be reliable

Auditing and Financial Reporting and subject to necessary oversight.

​ company’s decision-making should reflect the

A
Stakeholder Governance needs and expectations of all stakeholders, including
customers, workers, suppliers, communities, and​

1
6
Corporate Governance Assessment Guidelines

Topics in the Guidelines

I. Commitment to Corporate Governance III. Management Control Environment IV. Transparency & Disclosure Practices
Sponsor, Board & Management Commitment Business Planning & Monitoring Disclosure Responsibility
CG Codification Organizational Structure Financial & Non-Financial Disclosure
II. Board Effectiveness Management Decision Making V. Shareholder & Stakeholder Practices
Board Role Communication Shareholder Rights
Director Duties Conduct/ Ethics AGM Conduct
Chairman Role Human Resource Management Director Nominations
Board Composition Information Technology Management Shareholder Information
Audit Committee Risk Management & Control Framework Conduct Policies
Other Board Committees Internal Audit Dividend Policies
Board Procedures External Audit Stakeholder Relations
Corporate Secretary
Board & Executive Remuneration
Board Evaluations
Board’s Role in Sustainability
Advance Methodology for Financial Institutions
There is a further guidance on assessing CG of banks and other
FIs along with some model templates
 Sample Corporate Governance Report
CG Area Risk Covenants/Comments
Commitment to Recommended covenant: None
Good CG Moderate Comment: Democratic co-operative social pact and established legal framework
Structure and Recommended covenant: (i) Appoint 1 independent director; (ii) Establish a nominations
Functioning High committee; (iii) Split CEO/chairperson role
of the Board Comment: Board member’s selection inappropriate; Lack of “check and balances”; Apparent
concentration of power in CEO/Chair; No independents; 5 year director term
Control Environment Recommended covenant: Establish a proper audit committee
and Processes Moderate Comment: Risk of management override of controls; CEO chairs the audit committee

Transparency Recommended covenant: Establish a proper audit committee

and Disclosure Moderate/Low Comment: Newly appointed auditor

Treatment of Recommended covenant: None

Minority Shareholders Low Comment: One vote per member regardless of holding; Democratic process appears to end
in stymied election of FC’s board
Other CG issues; Recommended covenant: None
Financial discipline Low Comment: Commercial basis of operations

Conclusion: IFC must design its debt instrument to mitigate risks as much as possible.
Scope: Limited assessment work, but recommendations are commensurate with work done.
Other: (i) Deep democratic CG process; (ii) Client Serves BOP (high grassroots participation); (iii) Recent removal of state influence.
Implementation: Some of the recommended changes address allocation of power and are usually impossible to achieve post-disbursement.

Footer
 CG Integrated
SAMPLE into
CG SECTION Our Investments
& ACTION - Example
PLAN FROM SHA
ARTICLE II
Corporate Governance
Shareholder Agreement: Sample CG Section
Section 2.01. Board Composition . (a) The number of Directors comprising the Board shall be no less than five (5) and no more than nine (9) and shall be
fixed by the Board within these limits from time to time. At least 1/3rd of the Directors comprising the Board shall be Independent from the Sponsor. The
appointed directors shall possess relevant skills in banking, risk management, and finance and accounting…. The Board shall constitute and maintain an
audit committee which shall comprise of all non-executive Directors and include at least one (1) director independent from the Sponsor….
Completion
No. Action Timeframe (from
Disbursement date)
Develop formal board charters and policies to clarify the roles
and expectations of the board and delineate authorities versus
1.1 3 months
management; particularly its role in strategy, oversight, and risk
governance.
1.2 Develop formal Related Party Transaction and Conflict policies. 3 months Sample CG
Revise board composition (per the terms in the Corporate Action Plan
1.3 6 months
Governance Matters section).
Revise the Audit Committee (per the terms in the Corporate 6 months
1.4
Governance Matters section).
Appoint and train a Corporate Secretary (part-time) to ensure 6 months
1.5
proper working procedures and adherence to CG policies.
Develop formal board working procedures to increase board role 6 months
1.6
and effectiveness.
Develop a formal Corporate Governance Code and Code of 6 months
1.7
Conduct.
Provide training to the board and senior executives on modern 6 months
1.8
CG and Risk Governance techniques.
Setup a Board Risk Management Committee, consisting of all
2.1 12 months
non-executives with appropriate banking/risk mgt skills.
 Sample - Client
SAMPLE CG SECTIONCG Roadmap
& ACTION PLAN FROM SHA

Target Completion

No. Task Priority Pre-Investment Post-Investment Post-Investment Post-Investment Post-Investment

(within 3 mos) (within 6 mos) (within 12 mos) (within 18 mos)
1.0 Develop Governing Documents
1.1 Develop Memorandum and Articles of Association. High
●
●
Develop a Corporate Governance Code which summarizes the key Corporate Governance related policies and
1.2 High
practices for YESC.

●
Develop a Code of Conduct which defines the conduct and ethical principles and practices to which YESC staff
1.3 High
are expected to adhere.

●
Develop Board and Committee Charters that define the roles, responsibilities, structure, and procedures for the
1.4 High
Board and its Committees; include authority matrices.
2.0 Establish Well-Functioning Board of Directors

●
Designate the board composition (5 to 9 members; three yr terms with proper mix of SH nominees and
2.1 High
independent members, prioritizing industry skills and financial-accounting) expertise.

2.2 Elect a Board Chairman, separate from the CEO/General Manager. High
●
2.3 Appoint and train a Corporate Secretary to ensure proper working procedures and adherence to CG policies. High
●
●
Develop formal board working procedures to ensure board efficiency and effectiveness and incorporate into
2.4 High
board charters and the CG Code.

2.5 Begin conducting formal board meetings. High

●
●
Establish an Audit Committee (3 non-exec members with majority independent/minority SH nominees
2.6 High
including Chair; at least one with acctg expertise).

2.7 Provide training to the board and senior executives on modern Corporate Governance practices. High/Med
●
2.8 Establish Other Board Committees as needed and determined by the Board. Med
●
2.9 Implement a formal annual board evaluation process to ensure the board continuously improves it functioning. Med
●
●
Begin Succession Planning for the Board Chairman & Key Executives to identify possible future successors for
2.10 Med
key positions and development plans to help prepare future leadership of YESC.
IFC CG Assessment
Key Steps, Resources, and Tools
CG Assessment: Key Steps
• Conduct regulatory review of local laws and regulations
• Collect internal company documents
Desk • Send out a preliminary questionnaire to clients
Research

• Conduct interviews with all board members, senior management, and outside stakeholders (e.g. legal counsel,
external auditor)
On-site
Interviews

• Compare client’s current CG structure with national and international best practices
• Analyze client’s CG structure and practices utilizing IFC CG Assessment Guidelines
Assessment • Submit a draft report to client that contains both analysis and list of recommendations
Report

• Ensure that the report doesn’t contain factual inaccuracies

• Provides an opportunity to gauge client’s initial reaction
Client • Hold preliminary meetings with the client (if necessary) to explain various aspects of the report
Consultation

• Finalize CG Assessment Report

Final • Present the report to the board and senior management
Report

• Track client’s progress

Post
• Provide training and further support if requested (e.g. CG training for board, implementation support)
Assessment
 CG Assessment: Timeline
January February March April May June
1. The client completes
questionnaire and 2 Weeks
provides requested
documents
2. Conduct on-site
1 Week
interviews
3. Produce and deliver
6-8 Weeks
draft report
4. Consult with client 4 Weeks

5. Presentation of the
final report 1-2 Days

6. Post-assessment
support Ongoing
Information Request
No. Information Request
1. Articles of Association. Please provide the company’s Articles of Association and any amendments.
2. Ownership structure: Please provide a chart or description setting out the important shareholdings, holding
companies, affiliates and subsidiaries of the company, indicating ultimate beneficial ownership and percentages of
shares held by each.
3. Governance structure: Please provide a chart setting out the governance structure of the company, indicating the
principle organs of the company’s governance and to whom each reports (including the AGM, BoD and any board
level committees).
4. Corporate governance code: Please provide a copy of any codes or policies related to corporate governance.
5. Code of Ethics: Please provide a copy of the code of ethics or code of conduct.
6. Shareholders agreements: Please provide details of any shareholders agreements or other informal arrangements
among all or some shareholders.
7. Annual report: Please provide the latest annual report.
8. Organizational structure: Please provide a chart setting out the organizational structure of the company and its
subsidiaries, showing key lines of business and the reporting lines.
9. Board policies: Please provide any policies or by-laws relating to the practices of the Board of Directors.

10. Agenda and minutes: Please provide a copy of minutes of board meetings (full board and board committees) from
the last fiscal year and the current fiscal year to date.
11. Current Board membership: Please provide a list of the current members of the BoD with summary CVs indicating,
at a minimum, their affiliations with the company, management and controlling shareholders, and other companies
on which such persons sit as board members.
Information Request
12. Audit Reports: Please provide a copy of recent Internal Audit reports and External Audit reports.
13. Risk management: Please provide a copy of recent Risk Management plan(s).
14. Financial Policies and Procedures: Please provide a copy of any policies or procedures related to the key financial
processes in the organization (e.g., financial reporting, maintaining general ledger, accounts payable/receivable).
15. Budget: Please provide a copy of recent budget or resource plan.
16. Strategic Plan: Please provide a copy of recent Strategic Plans.
17. Financial statements: Please provide a copy of all quarterly and annual financial statements for last fiscal year and
the current fiscal year to date.
18. Major transactions and material events: Please provide a brief description of any major transactions or material
events (e.g., mergers, acquisitions, new subsidiaries) over the past three years.
19. Employee stock ownership and stock options: Please provide descriptions of any employee stock ownership or
stock options schemes in place at the company.
20. Shareholders Meetings: Please provide a timetable for the Annual General Meeting of Shareholders.
21. Attendance and results of Shareholders Meetings: Please provide a summary of the attendance and results of all
Shareholders Meetings (annual and extraordinary) for the past three years, including number of shares represented,
number of shareholders represented, agenda items and record of votes.
22. Related party transactions: Please provide a table of related party transactions and other operations of the
company that required shareholder approval over the past three years.
Who to Interview

 Representative/s of Controlling Shareholders

Shareholder/s
 Representative/s of Holders of
Significant Blocks of Shares
 Chairman
Board Members  Corporate Secretary
 (All) Members (or especially
 Chief Executive Officer Outsiders; Committee Chairs)
 Chief Financial Officer
 Other ‘C-Executives’
 General Counsel
 Chief of Internal Audit Management Staff
 Controller/Chief Accountant
 Compliance Lead
 HR Lead
 IT Lead
 Key Operations Managers  External Auditor
 Other? Other External  Outside Counsel
 Non-Exec Family Members
 Other?
 Project Purpose and Approach: Why Are We Here?
 Conduct a CG Assessment
Please Keep In Mind…
 The Assessment will identify recommendations to
improve your CG practices and a plan for  We are not auditors!
implementation  The more open and candid, the better
 This week we will be conducting interviews with
 We will ensure confidentiality of
directors and executives.
input/comments
 The purpose is to solicit input and suggestions for
strengthening CG practices.  Intended to be a tool & benefit for your
company
 We will then develop recommendations based on this
input, our experiences, and best CG practices.

Project Approach
Phase 1 : Conduct Assessment
Time: 8 weeks Outcome: CG Improvement Roadmap

Phase 2: Implement Targeted Changes

Time: TBD (~1 to 12 mos) Outcome: Implemented Leading CG Practices
Benchmarking

Benchmarking is part of the CGA and can be done against:

1. Local regulations (Company law, CG Notification, RPT instruction)

2. ASEAN CG Scorecard

3. Relevant listing rules

4. Performance of other companies

Note: Utilizing a Director’s survey to quantify point of view of current board members.
Tips
1. Interview people separately and limit the number of interviewers.
2. Avoid getting into debates/lectures about how things should work. Let the interviewees express
their point of views/feedback.
3. Form versus function. Don’t rely solely on what’s being disclosed/available publicly.
4. Be flexible. You don’t need to follow the Guidelines/Methodology line by line. Let the
conversation flow where it needs to.
5. Treat all information with the utmost confidentiality.
6. Use the CGA as a point of entry to gain buy in and educate client about the importance of CG.
7. Interview tone: try to be more forward looking and elicit their ideas for improvement. Don’t come
across as an overly critical auditor.
8. Treat the CGA as a collaborative process.
9. Don’t attribute any statement to specific individuals.
10. Do not be over prescriptive. Be practical with recommendations.
Final Deliverables
ESG/CG Report and Implementation
Plan
Final Deliverables

The final CG Assessment and Improvement Plan report includes the following:

CG Assessment/Analysis

List of Recommendations

Action Plan

Timeline for Implementation

Sample Documents
Formulating Recommendations
Identify ‘Laundry List’ of Recommendations
• Review issues identified during current analysis.
• Determine solutions for the company, in light of best practices.
• Consider where they should be in the long-term.
• Consider recommendations over the near-term, medium-term, and long-term to
achieve desired state.
• ‘Best in Class’ is not always feasible.

Formulate Recommendations
• Group recommendations into logical themes.
• Create explicit, actionable initiatives of a manageable size.
• Consider breaking large changes/recommendations into smaller, more manageable
initiatives.
• Prioritize recommendations.
• Consider appropriate pace of change – be careful not to ‘overwhelm’ client.
Formulating Recommendations: Examples

List of Recommendations:
• Update Audit Committee (AC) terms of reference
• Increase frequency of meeting for AC Strengthen Audit
• Improve meeting work procedures of AC Committee Work
• Revise AC annual work plan
Procedures
• Improve AC interaction with Internal Audit
 MAINTAIN ONE-THIRD OF THE BOARD
1 INDEPENDENT AND UTILIZE THE SKILLS OF THE
INDEPENDENT DIRECTORS
CONTINUE TO IMPROVE BOARD SKILLS AND
2 EXPERTISE
STRUCTURE AND

3 IMPROVE BOARD’S OVERSIGHT OF E&S ISSUES

4 STRENGTHEN THE RISK COMMITTEE

TRANSFORM HUMAN RESOURCE COMMITTEE INTO

5
FUNCTION

CORPORATE GOVERNANCE, NOMINATION AND

II. BOARD

REMUNERATION COMMITTEE
6 FORMALIZE THE DIRECTOR
NOMINATION/SELECTION PROCESS

7 IMPROVE THE BOARD WORKING PROCEDURES

8 ENHANCE
PLANNING
BOARD’S ROLE IN SUCCESSION

9 DEVELOP
PROGRAM
A BOARD TRAINING/INDUCTION

10 DEVELOP BOARD EVALUATION PROCESS

RECOMMENDATIONS

S TA N D A R D I Z E A N D F O R M A L I Z E A
1 C O M PA N Y - W I D E A P P R O A C H T O
VI. GOVERNANCE OF

S TA K E H O L D E R E N G A G E M E N T A N D
R E P O R T O N A C C O R D I N G LY

W O R K E R G R I E VA N C E M E C H A N I S M S
2
ENGAGEMENT

SHOULD BE FORMALIZED,
STAKEHOLDER

I M P L E M E N T E D C O M PA N Y - W I D E A N D
R E P O R T O N A C C O R D I N G LY
A F F E C T E D C O M M U N I T I E S G R I E VA N C E
3 MECHANISMS SHOULD BE
FORMALIZED, IMPLEMENTED
C O M PA N Y - W I D E A N D R E P O R T O N
A C C O R D I N G LY

Phase Two: Long-term implementation, usually 1-3 years period

 3 IMPROVE BOARD’S OVERSIGHT OF E&S ISSUES
While ABC expresses commitment to ESG, the Bank has taken limited steps to demonstrate this in material
form, especially with regard to E&S governance at the board level.
STRUCTURE AND

Recommendation: ABC should improve the board’s involvement in E&S oversight and ensure that E&S matters are
an integral part of board’s strategic decision making.
FUNCTION

Board of directors should more actively engage in oversight of various E&S issues (including climate risks and opportunities).
II. BOARD

It appears that management is primarily responsible for dealing with E&S issues whereas the role of the Board as well as
associated structures and processes that can help with this oversight are not clearly defined.

To change the current situation, the Board should:

i) consider the risks and opportunities associated with E&S (including climate change mitigation and adaptation) to be an
integral part of their accountability for the long-term stewardship of the organization and identify / discuss key E&S factors that
affect the strategy and risk appetite of the Bank;

37
 3 IMPROVE BOARD’S OVERSIGHT OF E&S ISSUES
ii) ensure that the executive team assesses the short-, medium- and long-term materiality of E&S-related risks and
opportunities for the Bank on an ongoing basis and E&S issues are fully integrated into the Bank’s vision / purpose and its
STRUCTURE AND

strategy and risk appetite as well as the entire decision-making process at the Bank;

iii) set measurable targets and KPIs on E&S;

iv) align executive incentives to promote the purpose, strategy and long-term prosperity of the company and include ESG-
related targets and indicators (including climate adaptation) in the remuneration policies and executive incentive schemes;
FUNCTION
II. BOARD

v) ensure that material E&S risks, opportunities and strategic decisions are disclosed to all stakeholders after a reasonable
assurance attestation by an independent provider; and

vi) closely monitor implementation of IFC’s recommendations under the section 7. Environmental and Social Management of
this report.

Board should be aided in these efforts by the Board Risk Committee in the short-term (Also see section II. Board Structure and
Function 4. Strengthen the Risk Committee) and consider establishing a Sustainability Committee in the medium term.

As discussed in the coming observations, the Board should be aided in these efforts by its relevant sub-committees.
Furthermore, the Board should include Board members with relevant expertise and establish continuing education programs to
improve member knowledge of E&S risk issues.
 1 STANDARDIZE AND FORMALIZE A COMPANY-WIDE APPROACH TO
STAKEHOLDER ENGAGEMENT AND REPORT ON ACCORDINGLY

RECOMMENDATIONS Approach to stakeholder engagement is on a project-by-project basis and defined by local needs.
While customizing for particular jurisdictions is prudent, it should develop a standardized approach
that can be replicated and adapted for specific countries.
VI. GOVERNANCE OF

Recommendation: ABC should adopt a group-wide stakeholder engagement policy,

stakeholder mapping policy and procedures to ensure effective Board oversight. The
Director of Sustainability should report to the Risk Committee (RC) to be established in
Phase Two.
ENGAGEMENT
STAKEHOLDER

Stakeholder engagement policy and procedures should include stakeholder analysis, differentiated
approaches for priority groups, iterative disclosure and consultation requirements, and reporting.
Related reporting should include information on stakeholder engagement activities and outcomes
and be reported to the board through the newly established RC. The IFC Stakeholder Engagement:
A Good Practice Handbook for Companies Doing Business in Emerging Markets can be helpful in
the regard. Regarding stakeholder mapping, ABC should develop a uniform approach to defining,
identifying and engaging its stakeholders. Such stakeholders should include affected communities,
workers, contracted workers, primary supply chain workers, suppliers and contractors, neighboring
projects, local and international NGOs and CSOs.
A senior executive, such as the Director of Sustainability, should be responsible for stakeholder
dialogue and relationships and ensuring integration of stakeholder feedback in company’s strategy
and target setting.
In line with the Phase Two recommendation to develop an integrated report, ABC should
undertake a materiality analysis, disclose its SE Policy and describe its stakeholder identification
and mapping process.
 2 WORKER GRIEVANCE MECHANISMS SHOULD BE FORMALIZED,
IMPLEMENTED COMPANY-WIDE AND REPORTED ON
ACCORDINGLY
RECOMMENDATIONS
ABC does not have formalized worker grievance mechanisms that applies to the
entire group, rather, workers can address complaints to local managers and the
VI. GOVERNANCE OF

HR function; though it is developing a grievance mechanisms for the XXX country

project.
Recommendation: ABC should adapt the grievance and communication
mechanisms for XXX into company-wide mechanisms. Adequate management
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STAKEHOLDER

action plans should accompany such mechanisms and adequate board oversight
through the RC should be exercised.

As discussed in the Control Environment Section, the HR function should expand

its role company-wide throughout the group. Similarly, it could expand the work
in XXX throughout the company so that there are company-wide grievance and
communication mechanisms.
In line with better practices of corporate governance and to ensure adequate
oversite, ABC’s Board of Directors should receive periodic reports on grievance
outcomes, related management responses and trends periodically through the
newly established Risk Committee.
 3 AFFECTED COMMUNITIES GRIEVANCE MECHANISMS SHOULD BE
FORMALIZED, IMPLEMENTED COMPANY-WIDE AND REPORTED ON
ACCORDINGLY
RECOMMENDATIONS
ABC’s approach to affected communities engagement has been limited to local efforts, for
example, in XXX and XXX, it has implemented local stakeholder engagement plans and
community grievance mechanisms.
VI. GOVERNANCE OF

Recommendation: Similar to the case with worker grievance and communication

mechanisms, ABC should formalize the external grievance mechanisms into a group-wide
approach so that they could be implemented globally. Adequate management action plans
should accompany such mechanisms, and adequate board oversight through the RC should
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STAKEHOLDER

be exercised.

As with many policies and procedures, external grievance mechanisms should be group-
wide for all of ABC’s projects. Such mechanisms should include a mechanism for
stakeholder questions and complaints.

Characteristics of an effective mechanism would include: (a) an external and publicly

accessible communication procedure; (b) a mechanism that facilitates the resolution of
concerns from affected communities; (c) designated Affected Communities engagement
personnel (or sustainability champions) that have clearly defined responsibilities, training,
and reporting lines to senior management and the board; (d) accessible in local languages;
and (e) unresolved stakeholder issues require a management action plan for which the
board of directors through the RC should exercise appropriate oversight to ensure that
such action plans are undertaken.
Implementation Plan: Examples

Difficulty: Indicates the relative level of difficulty to

implement the recommendation.
 High level of difficulty
 Medium level of difficulty
 Low level of difficulty
Example

Priority: Indicates the relative urgency for Timeline: Indicates the target start and completion
ABC to implement this recommendation. milestones for each recommendation. The expression
High Priority “T+” indicates the number of months from the
Medium Priority implementation start date (i.e., if ABC begins
Low Priority implementation in July, then the example above
should start in the first month (July) and be completed
by the end of the sixth month (December).
Sample Final Report: ABC Co.
Sample Final Report: ABC Co.
Sample Final Report: ABC Co.

Important Disclaimer
Sample Tools and Templates to Aid Implementation

 Sample Corporate Governance Code

 Sample Code Of Ethics
 Sample Board Charter
 Sample Independence Definitions
 Sample Committee Charters
 Sample Terms Of Reference (e.g., Internal Audit)
 Policy On Related Party Transactions
 Sample Family Constitution
 Sample Family Employment Policies
 Other Sample Family Policies
 THANK YOU!

IFC.ORG/CORPORATEGOVERNANCE