Finance mechanisms to achieve the SDGs
Dec 12, 2017
The latest Climate Action webinar, held ahead of the inaugural Sustainable Investment Forum Europe, united Careen Abb, Positive Impact Finance, Programme Lead at UNEP Finance Initiative and Gerbrand Haverkampf, Executive Director of the Index Initiative and Founding Partner of the World Benchmarking Alliance to discuss finance mechanisms to achieve the SDGs.
The financing gap
The UN Sustainable Development Goals (SDGs) were adopted in 2015 by governments around the world covering development issues ranging from gender equality to climate change. In order to achieve those goals, investment needs to increase to accelerate sustainable innovation. Careen Abb, from UNEP FI, explained how the magnitude and the nature of the financing gap can be better understood by first assessing the investment needs, and then subtracting the existing the public and private SDG financial flows. While 90 per cent of the financing needs are covered in developed countries, only 60 per cent of the investment needs are realised in emerging and developing regions, and as low as 10 per cent in Africa.
The SDGs are a great framework that provide with a common language and agenda, but insufficient guidance for companies in terms of measuring their impact. Information and data are still mostly missing for informed investment decisions to be made.
The Positive Impact Finance Initiative and the World Benchmarking Alliance both focus on scaling investment for sustainable development.
The Positive Impact Finance Initiative was launched in 2015 by UNEP Finance Initiative. The Initiative aims at not only understanding better what is already being done in terms of sustainable investment but also identify what can be done to bridge the financial gap, thanks to a new impact-based financing approach.
The World Benchmarking Alliance started its consultation process in September 2017 during the UN General Assembly, hoping to be officially established in September 2018. The Alliance was initiated by BSDC, the UN Foundation, Aviva and the Index Initiative to collaboratively create publicly available benchmarks on how companies contribute to the SDGs.
The importance of benchmarking
Gerbrand Haverkamp from the Index Initiative outlined the context for the creation of the World Benchmarking Alliance during the webinar. He mentioned the importance of setting up benchmarks that would be publicly available and free for all for accountability purposes, as opposed to existing information about ESG factors and others, which are generally paid for. The consultation phase aims at identifying stakeholders’ expectation and building an appropriate and collaborative methodology for the new benchmarks, which should reflect what society and investors expect from companies. Thanks to consultation roundtables around the world, the Alliance wants to ensure the inclusion of all actors, including in developing and emerging regions.
All companies will be assessed, without exception, to ensure that the benchmarks do not just become a list of the willing. Companies will be assessed by the Alliance and an extra review committee according to the public domain data, and additional data that they will provide to the Alliance. The resulting benchmarks will be impartial, focused on impact and encourage new inclusive business models.
Gerbrand Haverkamp mentioned two approaches for companies to look at their impact in terms of SDGs. Firstly, when looking at a specific industry, identifying how the company can contribute to the SDGs, and which SDGs. For example, a media company can have an impact related to the goals related gender equality or peace. The other approach would be to start from a specific goal, such as Climate Action and identify which industries can contribute to that goal – energy companies for example.
Re-thinking the investment approach
Careen Abb explained how the Positive Impact Finance Initiative was not only focusing on re-directing capital flows but also on capital creation, and how SDGs could become the heart of value creation and new business models. Positive impact finance is a new approach which is complementary to existing initiatives, and can be applied to bonds as well as other types of financial products. Positive Impact is defined by a positive contribution to one or more of the three pillars of sustainable development, and the approach aims at integrating impact into investment at the very beginning of the process, without subordinating returns to impact. The focus is on engaging the private sector at earlier stages of planning and solution building, rather than later when the project actually comes to realisation e.g. building a road etc.
Transparency is one of the main principles of Positive Impact Finance, as opposed to putting into place a set methodology and interpretation of what is positive or negative impact. Positive and negative impact can be subjective – especially depending on the geography, which is why the Initiative promotes transparency as a better way to help investment decisions. This relates to the work of the World Benchmarking Alliance.
According to Careen Abb, when potential negative impacts are identified – before the product is released, further analysis is first needed to establish if they will materialise or if they can be avoided. If the negative impacts are not avoidable, they should be mitigated; and if mitigation is not possible, they should be compensated.
Although the Positive Impact Finance Initiative is still at early stage, some financial products have already been created in the experimentation phase. Positive impact bonds have been issued by Societe Generale, a member of the initiative, and were both of substantial sizes and oversubscribed. Guidance to assist interested financial institutions is being developed for next year.
The two panellists reminded us that although the accent is now on private sector engagement, it is not a substitute to an enabling policy framework. Both public and private sectors need to accelerate tangible action to finance and achieve the SDGs. The Positive Impact Finance initiative and the World Benchmarking Alliance work with stakeholders around the world to fill the gap of the existing SDGs framework. Both initiatives are looking for new partners, and are happy to engage with any interested organisation.
This webinar was held ahead of the Sustainable Investment Forum Europe, which is organised by Climate Action in official partnership with UNEP Finance Initiative on 13 March 2018 in Paris. Find more information about the Forum here