Design of a Sustainable Financing Strategy with a Focus on the Social Portfolio for the SME Segment and the Green and/or Blue Economy

Banco de Occidente S.A. is a financial entity supervised by the Financial Superintendence of Colombia (SFC by its Spanish acronym). The portfolio of the bank was focused on the commercial segment, i.e. business portfolio. Within this portfolio, the small and medium enterprise (SME) segment was identified as a strategic development pillar with a clearly defined focus on growth for the following years.

In this sense, Banco de Occidente intended to move forward with elaborating its Sustainable Financing Strategy that would supplement its sustainability strategy, thus enabling the identification of market opportunities in the social portfolio of the SME segment, the green portfolio, and/or the blue portfolio. The intent was to establish an actionable road map not only to extend this kind of investment and measure the contributions to the Sustainable Development Goals, but also for the bank to prepare for the issuance of thematic bonds, be them green, blue, and/or social ones.

With the above aims in mind, IDB Invest hired Econoler to support the efforts of Banco de Occidente in the design of its Sustainable Financing Strategy with a main focus on the social portfolio for the SME segment, the green portfolio, and/or the blue economy which led to the future emission of thematic bonds. 

Within the framework of this mandate, Econoler carried out the following tasks:

• Assess/evaluate the current portfolio of the bank and its Sustainable Financing Strategy, with a focus on the social portfolio and the green or blue economy, including an analysis of current internal processes, strategies, operations, and capacities;

• Identify improvement recommendations based on the weaknesses and deficiencies identified and on the best practices as well as international and regional guidelines;

• Assess externalities such as local regulations and the market appetite for the development of a financing strategy for the sustainable portfolio: Social portfolio for the SME segment and green or blue economy. This analysis was conducted at the level of the bank, target market, and Colombia’s regulatory framework;

• Identify projects, products, solutions, and technologies that may be framed within social portfolio and the green or blue economy, aligned with existing frameworks and regulations at the local and international levels including, among others, the taxonomy of the European Union, taxonomy of the Climate Bonds Initiative, ICMA regulations (GBP), Nationally Determined Contribution (NDC) of Colombia, national climate change strategy for marine resources and water management, among others;

• Revise eligible products and solutions currently available in the markets where Banco de Occidente operates as well as identify the offerings of financial products of competitors;

Based on the above-mentioned activities, Econoler’s experts prepared deliverables by:

• Developing a sustainable taxonomy for the social portfolio and the green or blue financing;

• Determining a baseline by means of an analysis of the current portfolio to identify the projects currently held by the bank in its portfolio and that may be considered as sustainable financing (social, green and blue) according to the results of the taxonomy definition;

• Identifying market niches that may be developed and prioritized by Banco de Occidente;

• Developing a guideline for the follow-up and labeling of the sustainable financing portfolio based on the results of the portfolio and taxonomy analyses.

• Developing a Sustainable Financing Strategy promoting the effective adoption and active use of financial solutions in the social portfolio for the SME segment and the green or blue economy portfolio;

• Organizing workshops for capacity development with two separate target groups: One composed of senior bank management and the other composed of the commercial team, the risk team, and the finance team as defined by Banco de Occidente.

At the end of this mandate, Banco de Occidente had a clear strategy for the development of its green, blue, and social portfolios.