Inter-American Development Bank
facebook
twitter
youtube
linkedin
instagram
Abierto al públicoBeyond BordersCaribbean Development TrendsCiudades SosteniblesEnergía para el FuturoEnfoque EducaciónFactor TrabajoGente SaludableGestión fiscalGobernarteIdeas MatterIdeas que CuentanIdeaçãoImpactoIndustrias CreativasLa Maleta AbiertaMoviliblogMás Allá de las FronterasNegocios SosteniblesPrimeros PasosPuntos sobre la iSeguridad CiudadanaSostenibilidadVolvamos a la fuente¿Y si hablamos de igualdad?Home
Citizen Security and Justice Creative Industries Development Effectiveness Early Childhood Development Education Energy Envirnment. Climate Change and Safeguards Fiscal policy and management Gender and Diversity Health Labor and pensions Open Knowledge Public management Science, Technology and Innovation  Trade and Regional Integration Urban Development and Housing Water and Sanitation
  • Skip to main content
  • Skip to secondary menu
  • Skip to primary sidebar
  • Skip to footer

Sostenibilidad

Just another web-blogs Sites site

  • HOME
  • CATEGORIES
    • Agriculture and Food Security
    • Climate change
    • Ecosystems and Biodiversity
    • Environmental and Social Safeguards
    • Infrastructure and Sustainable Landscapes
    • Institutionality
    • Responsible Production and Consumption
  • Authors
  • English
    • Español
evergreen container at sea Fotografía de Sven Piper on Unsplash

Supply Chain Risks and Challenges in Financial Intermediation

April 29, 2024 por Stephanie Valle Leave a Comment


Global supply chains are the fundamental basis of economic development worldwide. Through a complex and organized structure, they aim to boost the production and trade of productive activities. In the member countries of the Organization for Economic Co-operation and Development (OECD), the logistics sector represents 10% of GDP on average. According to the Economic Commission for Latin America and the Caribbean (ECLAC), the logistics sector directly contributes 7.5% to GDP and generates about 6.4% of direct formal and informal employment in Latin America.  

The modern economy is organized into supply chains, which generates value in productive activities. This fosters a business ecosystem among different actors, including providers, manufacturers, transporters, distributors, wholesalers, and the final customer. A strong relationship between production and employment is generated that has as its objective the global supply of goods and services. Supply chains also represent a major challenge in terms of employment, human rights violations, child and forced labor, human trafficking, greenhouse gases, and a range of environmental impacts, particularly important in an economy of scale such as Latin America.

LATAM region

In Latin America and the Caribbean, an estimated 1.2 million persons are subject to forced labor, according to data from the International Labour Organization (ILO). It is also estimated that the value of child labor linked to direct and indirect goods and services exports for LAC still amounts to 22%. The share of child labor in exports reaches 40% in the region. In South America, it is estimated that these exports represent 15.4% of total employment.

On the other hand, Latin America and the Caribbean is responsible for a significant proportion of net greenhouse gas emissions (45% of the total) related to agriculture, change in land use, and forestry combined, versus a global average of 14%. Similarly, 80% of international trade goes through global supply chains and, though emissions from those supply chains are low in terms of global emissions, they are very dependent on carbon-based sectors and based on the exports of fossil fuels.  

Environmental and Social Effects of Financial Intermediation Operations

There are a variety of cases of environmental and social impacts in these operations linked not only to those exposed to them, but also to irreversible impacts such as the contamination of water and soil, massive deforestation, forced resettlements, impacts on livelihoods, and adequate and just compensation. The negative effects impact both populations and the environment.   

Worker on fruit packing facility. Supply chain
Photography by Arno Senoner on Unsplash

In this sense, development banks are necessary to promote investment in the public and private sectors, and even to address the financial crisis caused by COVID-19, since it represents a growth opportunity for countries in the process of economic and social development. The financial risks of providing credit through financial intermediation in operations becomes even more complex precisely because of the intervention of intermediaries, regarding which there is a lack of information about subprojects and final borrowers, as well as follow-up and monitoring in the execution of these investments. Due diligence, restrictions regarding projects that sub-borrowers can finance, and supervision of the sub-projects are key to eliminating risks and addressing the impacts that could arise.

Global Risk Management Initiatives

Global initiatives such as the Early Warning System are working with the banking sector. That initiative is promoting better monitoring and transparency of operations with financial intermediation, which allows for identifying and managing the negative impacts caused by the execution of these investments. The Artificial Intelligence software for sustainable investment, MALENA, allows for collecting significant information on social and environmental data in order to generate information for borrowers, regulators, and environmental, social, and governance analysts.

Environmental and Social Management Systems

Focusing on due diligence in the preparation of a loan with financial intermediaries and understanding the sub-project, sector, and location are fundamental, particularly for investments that pose high and substantial environmental and social risks. During execution of the loan, it is critical to have selection and eligibility criteria. Toward this end, establishing a solid and high-level Environmental and Social Management System (ESMS) or its equivalent for the banking sector, an Administrative System for Environmental and Social Risks (ESRA), will enable the borrower to establish the depth and scope necessary to manage the environmental and social risks and impacts in its investment portfolio.

ESMS, ESRA

The ESMS or ESRA thus will have to analyze which of the potential problems the borrower could face, such as:

  • Lack of visibility of the primary supply chains
  • Capacity to incorporate effective actions that are proportional to the level of risk
  • Demonstrating the risks
  • Providing information on labor accidents and on human and physical resources needed for the handling of the risks, among others.

In conclusion, exposure to these types of risks in these types of financings is unavoidable, and it is necessary that the banking sector, a fundamental actor for development, is able to guarantee that financial intermediation projects meet environmental and social requirements. In this context, satisfactory application of environmental and social standards and, in the case of operations financed by the IDB, the Environmental and Social Policy Framework, will allow for effective management of the risks in all stages of the life cycle of a sub-project, based on a hierarchy of mitigation, and will in turn foster access to justice in environmental and social matters.


Filed Under: Environmental and Social Safeguards Tagged With: financial intermediaries, supply chain

Stephanie Valle

Stephanie Valle works as an Environmental Senior Specialist at the Environmental and Social Unit at the Interamerican Development Bank. She is working transversely across environmental topics for Andean countries and focusing on financial intermediaries (IF). Before joining IADB, Stephanie used to work as a sustainability consultant and worked extensively in energy and mining in the private sector. Stephanie is an environmental engineer, graduated from the National University of Federico Villarreal, has an Executive Master’s degree in Business Administration from INCAE, a Master in ESG from EOI, a Master in Environmental Science with mention in environmental engineering from UNALM and a certified PMP by the Project Management Institute (PMI).

Reader Interactions

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Primary Sidebar

Follow Us

Subscribe

SEARCH

Sustainability

This blog is a space to reflect about the challenges, opportunities and the progress made by Latin American and Caribbean countries on the path towards the region’s sustainable development.

SIMILAR POSTS

  • Managing environmental and social risks in supply chains
  • 3 things to know about managing labor risks in development projects
  • Why Assessing Contextual Risks Matters: How Understanding the Context Contributes to the Effectiveness of Operations
  • Labor Principles for Businesses that Respect Child Rights
  • Financial Institutions need tools to address climate risks in their portfolios

Footer

Banco Interamericano de Desarrollo
facebook
twitter
youtube
youtube
youtube

    Blog posts written by Bank employees:

    Copyright © Inter-American Development Bank ("IDB"). This work is licensed under a Creative Commons IGO 3.0 Attribution-NonCommercial-NoDerivatives. (CC-IGO 3.0 BY-NC-ND) license and may be reproduced with attribution to the IDB and for any non-commercial purpose. No derivative work is allowed. Any dispute related to the use of the works of the IDB that cannot be settled amicably shall be submitted to arbitration pursuant to the UNCITRAL rules. The use of the IDB's name for any purpose other than for attribution, and the use of IDB's logo shall be subject to a separate written license agreement between the IDB and the user and is not authorized as part of this CC- IGO license. Note that link provided above includes additional terms and conditions of the license.


    For blogs written by external parties:

    For questions concerning copyright for authors that are not IADB employees please complete the contact form for this blog.

    The opinions expressed in this blog are those of the authors and do not necessarily reflect the views of the IDB, its Board of Directors, or the countries they represent.

    Attribution: in addition to giving attribution to the respective author and copyright owner, as appropriate, we would appreciate if you could include a link that remits back the IDB Blogs website.



    Privacy Policy

    Derechos de autor © 2025 · Magazine Pro en Genesis Framework · WordPress · Log in

    Banco Interamericano de Desarrollo

    Aviso Legal

    Las opiniones expresadas en estos blogs son las de los autores y no necesariamente reflejan las opiniones del Banco Interamericano de Desarrollo, sus directivas, la Asamblea de Gobernadores o sus países miembros.

    facebook
    twitter
    youtube
    This site uses cookies to optimize functionality and give you the best possible experience. If you continue to navigate this website beyond this page, cookies will be placed on your browser.
    To learn more about cookies, click here
    x
    Manage consent

    Privacy Overview

    This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
    Necessary
    Always Enabled
    Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
    Non-necessary
    Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.
    SAVE & ACCEPT