The growing interest in sustainable finance has resulted in a multiplication of initiatives. By mapping existing principles, practice standards, and tools, the Navigator makes it easier for market participants to operationalize the Sustainable Development Investing (SDI) definition agreed by the Alliance. Investors can find resources here to help them deploy capital that makes a positive contribution to sustainable development. Finance institutions can locate resources to mainstream sustainable development objectives in their lending practices. Corporates, with the support of the investors and finance institutions, can build on existing work to reorient their business models towards the SDGs. Using the Navigator helps investors have a better understanding of the many sustainable finance initiatives by providing a structured overview, creating synergies among these initiatives, avoiding duplication, and leading to more coherent approaches.

While the Navigator introduces a selection of multilateral and private sector initiatives, inclusion of these initiatives does not constitute an endorsement by the Alliance and users are expected to conduct their own research on every resource. The Navigator is not intended to be comprehensive and includes a sub-set of existing initiatives of use to investors, corporates, and finance institutions, though some initiatives are likely to provide value to all three.

Click on the links below to learn more.

 

 

Investors

Rethink investment strategies and processes

SDI-aligned investors can build on the following initiatives to rethink their investment strategies and operationalize them in their investment processes. This includes integrating SDG issues into their investment analysis and decision-making processes, and putting in place systems to monitor and manage the impact of their investment portfolios.

High-level principles

 
Principles for Responsible Investments

Objective: Encouraging investors to use responsible investment to enhance returns and better manage risks

Methodology: The 6 Principles for Responsible Investment are voluntary and aspirational principles for incorporating ESG issues into investments. In signing the Principles, investors publicly commit to adopt and implement them, where consistent with fiduciary responsibilities. 

Signatories are required to report on their responsible investment activities annually, which are then assessed by PRI. The PRI has also implemented minimum requirements for signatories such as having an investment policy that covers the firm’s responsible investment approach, covering >50% of AUM.

Participants: 4000+ signatories

ToolsPRI Reporting Framework / Reporting Tool

Six Principles for Responsible Investment

1.    We will incorporate ESG issues into investment analysis and decision-making processes.
2.    We will be active owners and incorporate ESG issues into our ownership policies and practices.
3.    We will seek appropriate disclosure on ESG issues by the entities in which we invest.
4.    We will promote acceptance and implementation of the Principles within the investment industry.
5.    We will work together to enhance our effectiveness in implementing the Principles.
6.    We will each report on our activities and progress towards implementing the Principles.

 
Operating Principles for Impact Management

Objective: Establishing a global standard around the management of investments for impact.

Methodology: The Operating Principles for Impact Management, convened by the IFC, describe the features of investment management that contributes to measurable positive social or environmental impact as well as financial returns. The nine operating principles provide the building blocks for a robust impact management system across the investment cycle, from strategic positioning to exit. Signatories to the principles are required to publish an annual statement in which they disclose how each principle is incorporated into their investment process. In addition, their alignment with the principles must be independently verified.

Participants: 150+ asset managers and owners
 

Nine Operating Principles

Strategic Intent
1. Define strategic impact objective(s), consistent with the investment strategy. 
2. Manage strategic impact on a portfolio basis.

Origination & Structuring
3. Establish the Manager’s contribution to the achievement of impact. 
4. Assess the expected impact of each investment, based on a systematic approach. 
5. Assess, address, monitor, and manage potential negative impacts of each investment. 

Portfolio Management
6. Monitor the progress of each investment in achieving impact against expectations and respond appropriately. 

Impact at Exit
7. Conduct exits considering the effect on sustained impact. 
8. Review, document, and improve decisions and processes based on the achievement of impact and lessons learned. 

Independent Verification
9. Publicly disclose alignment with the Principles and provide regular independent verification of the alignment. 

 
Net-Zero Asset Owner Alliance

Objective: Define a common standard for transitioning asset owner portfolios to net-zero GHG emissions by 2050. While it is structured as a member alliance, the commitments made by members provide a blueprint for SDI-aligned investors pursuing net-zero emissions.

Methodology: The Net-Zero Asset Owner Alliances is composed of asset owners that have committed to decarbonizing their portfolios. Members are asked to set a net-zero target at the portfolio level, measure and manage impact on the real economy, and advocate for net-zero targets. Convened by UNEP-FI and PRI in 2019, the alliance originally started with six asset owners. In 2021, the Alliance published its Inaugural 2025 Target Setting Protocol that explicitly sets out how individual members will set short-term targets.

Users: 60+ global asset owners representing over $10 trillion in assets under management

Commitments of Participating Asset Owners

Participants are asked to subscribe to the following statements:

  1. Commit to transitioning investment portfolios to net-zero GHG emissions by 2050 and establish intermediate targets every five years;
  2. Embed this commitment through a holistic approach to managing sustainability considerations, including but not limited to climate change;
  3. Advocate for corporate and industry action, as well as public policies, that support a low-carbon transition of economic sectors in line with science; and
  4. Expect that governments will follow through on their own commitments to ensure the objectives of the Paris Agreement are met.
 
Principles for Positive Impact Finance

Objective: Provide a high level framework to enable finance and its public and private stakeholders to analyze and manage impact across the economy.

Methodology: In October 2015, the UNEP Finance Initiative’s banking and investment members called for a new 'positive impact' financing paradigm to support the achievement of the SDGs. The Principles for Positive Impact Finance were subsequently realized to guide investors in increasing their positive impact on the economy, society and the environment. The principles consider both positive and negative impacts across three pillars of sustainable development and apply to all forms of financial institutions and financial instruments.

Tools:

  • Principles for Positive Impact Finance
  • Impact Radar: maps the specific impact areas business and finance can have a positive or negative effect on
  • Model Frameworks: provide guidance on integrating impact considerations into business processes and decision-making
  • Holistic Impact Analysis Tools

Principles for Positive Impact Finance

  1. Definition: Positive Impact Finance is that which serves to finance Positive Impact Business. It is that which serves to deliver a positive contribution to one or more of the three pillars of sustainable development (economic, environmental and social), once any potential negative impacts to any of the pillars have been duly identified and mitigated. By virtue of this holistic appraisal of sustainability issues, Positive Impact Finance constitutes a direct response to the challenge of financing the Sustainable Development Goals (SDGs).
  2. Frameworks: To promote the delivery of Positive Impact Finance, entities (financial or non financial) need adequate processes, methodologies, and tools, to identify and monitor the positive impact of the activities, projects, programmes, and/or entities to be financed or invested in.
  3. Transparency: Entities (financial or non financial) providing Positive Impact Finance should provide transparency and disclosure on: (a) The activities, projects, programs, and/or entities financed considered Positive Impact, the intended positive impacts thereof (as per Principle 1); (b) The processes they have in place to determine eligibility, and to monitor and to verify impacts (as per Principle 2); and (c) The impacts achieved by the activities, projects, programs, and/or entities financed (as per Principle 4).
  4. Assessment: The assessment of Positive Impact Finance delivered by entities (financial or non financial), should be based on the actual impacts achieved.
 
Core Characteristics of Impact Investing

Objective: Provide clear reference points and practical actions to establish a baseline for impact investing. Since SDI encompasses impact investing, among other market practices, SDI-aligned impact investors benefit from a high-level framework to adhere to.

Methodology: The Core Characteristics of Impact Investing, convened by the GIIN in partnership with impact investors, define what constitutes credible impact investing through four high-level principles. It complements the GIIN's definition of impact investing by helping investors understand the essential elements of impact investing, define the credibility of their practices, and consider the quality of the practices of potential investment partners.

Tools: Four core characteristics of impact investing

 

Core characteristics of impact investing

Intentionality

Impact investing is marked by an intentional desire to contribute to measurable social or environmental benefit. Impact investors aim to solve problems and address opportunities. This is at the heart of what differentiates impact investing from other investment approaches which may incorporate impact considerations. 

Use Evidence and Impact Data in Investment Design

Investments cannot be designed on hunches, and impact investing needs to use evidence and data where available to drive intelligent investment design that will be useful in contributing to social and environmental benefits.

Manage Impact Performance

Impact investing comes with a specific intention and necessitates that investments be managed towards that intention. This includes having feedback loops in place and communicating performance information to support others in the investment chain to manage towards impact.

Contribute to the Growth of the Industry

Investors with credible impact investing practices use shared industry terms, conventions, and indicators for describing their impact strategies, goals, and performance. They also share learnings where possible to enable others to learn from their experience as to what actually contributes to social and environmental benefit.

Practical guidance

 
SDG Impact Standards for Private Equity Funds

Objective: Establishing a voluntary global standard for a decision making and impact management system that supports positive contribution to sustainable development and achieving the SDGs. Part of a broader harmonized set, these standards apply specifically to private equity, debt, and venture capital fund managers.

Methodology: The SDG Impact Standards for Private Equity Funds, convened by UNDP, encourage activities that measure and manage progress towards addressing pressing economic, social and environmental challenges to catalyze activity and investment and close gaps in current market practice to achieving SDGs by 2030. The Standards promote a shift from reporting current activities differently (i.e. using the SDGs as a reporting filter) to doing things differently. The Standards underwent two rounds of public consultation and an assurance framework is in development to provide for independent assurance and an SDG Impact Seal.

Tools:

  • Standards
  • Practical guidance
  • Assurance framework
  • Self-Assessment tool for Private Equity Fund

SDG Impact Standards

Businesses and investors are increasingly seeking opportunities to make a positive contribution towards sustainable development and achieving the SDGs by 2030 – and looking for guidance to help translate that intent to action. The SDG Impact Standards have been designed to meet that need. They provide a common language and best practice guidance for integrating impact management into business and investment practices and decision-making – including focusing on both positive and negative impacts on people and the planet.  They are grounded in existing high-level principles of practice and provide necessary context for applying other tools and frameworks, including metrics, taxonomies and reporting frameworks.  The Standards can be used by anyone – they are voluntary and freely available public good.  

The foundation for the Standards is:

  • Contributing positively to sustainable development and achieving the SDGs
  • which cannot be achieved without demonstrating respect for human rights and other responsible business practices
  • and is realized through effective impact management and decision making

The SDG Impact Standards operationalize these foundations through four Standards:

  • Standard 1 (Strategy): Embeds contributing positively to sustainable development and achieving the SDGs into purposes and strategic decision making
  • Standard 2 (Management Approach): Integrates impact management and contributing positively to sustainable development and achieving the SDGs into operations and management decision making
  • Standard 3 (Transparency): Discloses how it integrates contributing positively to sustainable development and achieving the SDGs into its investment strategy, management approach, governance and decision making, and reports (at least annually) on its performance
  • Standard 4 (Governance): Reinforces commitment to contributing positively to sustainable development and achieving the SDGs through governance practices
 
IRIS+
Objective: Creating an impact accounting system that impact investors can use to measure, manage, and optimize their impact. Of particular relevance to SDI-aligned investors is the system's alignment with the SDGs, their goals, and targets.
 
Methodology: IRIS+, released in 2019, was developed by the Global Impact Investing Network (GIIN) through extensive market consultation. From 2018-19, GIIN convened over 800 stakeholders to inform the design of the system. IRIS+ responds to the pain points - little implementation guidance, a lack of core metrics, and continued fragmentation of tools - identified during this consultation.
 
Participants: +5,800 organizations use it
 
Tools:  
  • Thematic taxonomy provides a common language around impact categories (e.g. agriculture) and impact themes (e.g. food security), and identifies common goals and Core Metrics Sets by impact theme.
  • Core Metric Sets are short lists of key impact performance indicators, which are built on standard IRIS metrics and are essential to the understanding the progress or achievement of the impact goals of the investment.
  • IRIS Catalog of Metrics 500+ individual metrics designed to measure the social, environmental and financial performance of an investment.

IRIS+ and the SDGs

IRIS+ translates the SDGs into aligned IRIS metrics that investors can use throughout the investment management process

  • SDG Goals: 31 IRIS Core Metrics Sets align to the SDGs at the Goal level
  • SDG targets: 70 SDG targets align with a set of IRIS metrics; 81% of the IRIS Catalog of Metrics aligns with SDG targets.
 
Guidance for Active Ownership in Listed Equity

Objective: Helping investors in listed equity integrate active ownership into their investment strategies. SDI-aligned investors can use this practical guidance to further SDG alignment in their public equity portfolios.

Methodology: Principle 2 of the Principles for Responsible Investment (PRI) recommends the integration of ESG issues into active ownership. PRI has developed guidance for this integration in the form of a series of best practices. Guidance is available around developing an active ownership policy, engaging portfolio companies successfully on ESG issues, voting at general meetings with or without proxies, and disclosing engagement and voting to stakeholders.

In 2019, PRI released a definition of 'Active Ownership 2.0' - a new vision for stewardship that emphasizes outcomes, common goals, and collaborative action.

Tools:

  • Definition of active ownership
  • Engagement, voting, and disclosure best practices

 

Best Practices to Link Active Ownership to Investment Decision Making Include:

  • Ensuring regular cross-team meetings and presentations
  • Sharing active ownership data across platforms that is accessible to ESG and investment teams
  • Encouraging ESG and investment teams to join engagement meetings and roadshows
  • Delegating some engagement dialogue to portfolio managers
  • Involving portfolio managers when defining an engagement programme and developing voting decisions
  • Establishing mechanisms to rebalance portfolio holdings based on levels of interaction and outcomes of engagements and voting
  • Considering active ownership as a mechanism to assess potential future investments
 
Impact Management Project

Objective: Building consensus among organizations on how to measure, manage and report impacts on environmental and social issues. In doing so, it provides a common lens for SDI-aligned investors to understand the impact performance of different enterprises against the SDGs.

Methodology: Through its practitioner network of 2,000+ organizations, the Impact Management Project (IMP) has built consensus around how to talk about, measure, and manage ESG risks and positive impact. It has defined norms that provide a structured framework for understanding impact and a classification of investment by impact characteristics. 

Tools:

  • Five dimensions of impact: IMP participants have built consensus around five dimensions of impact performance (see below)
  • Data categories: specific types of data needed to understand enterprise performance on each of these dimensions
  • How enterprises can manage their impact: guidance for enterprises on how to manage their impact
  • How investors can manage their impact: guidance for investors on how to manage their impact and that of their investees

Five Impact Dimensions

The IMP reached consensus that impact can be deconstructed into:

  1. What? What outcome(s) do business activities drive? Is the outcome positive or negative? How important are these outcome(s) to the people (or planet)?
  2. Who?  Who experiences the outcome? How underserved are the affected stakeholders?
  3. How Much? How much of the outcome occurs across scale, depth and duration?
  4. Contribution? What is the enterprise’s contribution to the outcome, accounting for what would have happened anyways?
  5. Risk? What is the risk to people and planet that impact does not occur as expected?
     
 
UNEP FI Corporate Impact Analysis Tool

Objectives: Helping banks and investors gain a cross-cutting view of the impact status and possibilities of their clients and investee companies. 

Methodology

The open-source tool comprises a workflow in two parts:

  • Impact Identification, based on a company cartography and a review of the impact needs of the countries in which the company operates. The tool produces company impact profiles per sector of activity based on the in-built sector/impact maps and country needs assessment framework, which enables the user to determine most significant impact areas.
  • Impact Assessment, where the company’s impact performance and its impact management capabilities are reviewed.

At the end of the analysis, users determine the status of the company, which can be Positive Impact, Positive Impact Transition, or Not Positive Impact. The insights and data compiled in the process are intended to form the basis for impact-savvy and impact optimizing strategic planning and target-setting.

Key Sector Map

The map, included in the tool, seeks to capture sectors/activities that are key to different impact areas, which are derived from the UNEP FI Impact Radar.

This can mean they are indispensable to fulfilment of an impact area, or they are severly undermining an impact area (both positive and negative impacts are considered). Sectors/activities are deemed key when the scale/intensity and the probability of the impact association is high.

The map provides positive and negative associations between a sector/activity of a company and an impact category, but does not provide specific Key Performance Indicators (KPIs) to measure this association. 

The sectors/activities are classified as per the International Standard Industrial Classification (ISIC) code. 

Identify activities with positive impact

SDI-aligned investors can use the following initiatives to identify investable activities that align with their sustainable investment strategies. Investors need clear standards and criteria to assess whether an activity they finance (i.e., company products/services or a project) contribute to the SDGs. Taxonomies have been created to classify sectors and activities with positive impact, while data providers quantify the sustainable revenue exposure of a company.

Detailed taxonomies

Some taxonomies include minimum technical criteria to be met for each sector/activity.

 
EU Taxonomy

Objective: Creating a uniform and harmonized classification system, which determines the activities that can be regarded as environmentally sustainable for investment purposes across the EU. 

Methodology: EU taxonomy sets technical screening criteria, for activities which: contribute to environmental objectives and avoid significant harm to other environmental objectives (see the six objectives below). These activities must also meet minimum social standards defined under ILO Core Labor Conventions.
 

Taxonomy regulation

The regulation defines 6 environmental objectives

  1. Climate Change Mitigation 
  2. Climate Change Adaptation 
  3. Sustainable use and protection of water and marine resources 
  4. Transition to a circular economy 
  5. Pollution prevention control, and 
  6. Protection and restoration of biodiversity and ecosystems

Technical Screening Criteria will define the conditions under which an activity qualifies as a Substantial Contribution for a specific environmental objective and as Doing No Significant Harm (DNSH). These screening criteria could include the following three components:

  1. Principles: Rationale for how the activity will result in a substantial contribution and/or avoidance of significant harm to the environmental objective 
  2. Metrics: Method(s) by which the environmental performance of the economic activity will be measured
  3. Thresholds: Qualitative or quantitative conditions which must be met to be considered environmentally sustainable
     
 
Impact Investing Market Map

Objective: Providing a taxonomy to identify companies that are providing solutions to the SDGs. 

Methodology: Market Map focuses on medium and large companies (privately-owned or listed equity firms). The Market Map provides: 

  • a common definition of a thematic investment that is aligned with at least one international organization, global market leader and/or data provider; 
  • basic criteria, including thematic conditions (e.g. industry certifications) and financial conditions (minimum  % of company revenues from products and services in a theme) for companies to align with the theme; and 
  • KPIs used by the impact investing community to track and assess performance of a specific theme. 
     

10 Thematic Investments

  • Energy efficiency
  • Green buildings
  • Renewable energy
  • Sustainable agriculture
  • Sustainable forestry
  • Water
  • Affordable housing
  • Education
  • Health 
  • Inclusive Finance

The map links the 10 themes to relevant SDGs and their respective targets and indicators.

 
Climate Bonds Taxonomy

Objective: Provide an overview of the mitigation and adaptation investment opportunities across the major sectors of the global economy. SDI-aligned fixed income investors benefit from a supply of bonds and loans certified as contributing to the Paris Agreement.

Methodology: The Climate Bonds Taxonomy is used by the Climate Bonds Initiative as part of its standard-setting and certification work. It serves as an initial screen for inclusions and exclusions for climate-aligned sectors and is used by the initiative when reviewing labelled bonds or loans for inclusion in its green bond list. It encompasses sector-specific eligibility criteria, some of which must continue to be met over time, while others refer to the inherent characteristic of the assets.

Covered sectors

Energy

  • Electricity and heat production
  • Transmission
  • Distribution
  • Storage

Transport

  • Passenger
  • Freight
  • Supporting infrastructure

Water

  • Supply management
  • Wastewater treatment

Buildings

  • Commercial
  • Residential
  • Energy efficiency
  • Urban development

Land use and marine resources

  • Agriculture
  • Husbandry
  • Aquaculture
  • Seafood

Industry

  • Industrial and energy intensive processes

Waste and pollution control

  • Recycling, re-use, and other waste management

Information and communications technology

  • Networks, management, and communication tools

List of eligible sectors

Other taxonomies simply provide a list of sectors/activities linked to sustainable development objectives or do not disclose publicly the technical criteria they use.

 
Green and Social Bond Use of Proceeds Categories

Objective: Promoting transparency and integrity in the development of the Green, Social and Sustainability Bond markets by setting a standard for bond issuance. SDI-aligned fixed income investors can consult the list of eligible activities and their mapping against the SDGs in making investment decisions.

Methodology: The International Capital Market Association (ICMA)'s approach to these bonds is based on four core principles:

  • Use of proceeds: the associated funds need to finance or refinance activities with clear environmental benefits (Green Bond), positive social outcomes (Social Bond) or both (Sustainability Bond) – see the list of eligible activities below.
  • Process for Project Evaluation and Selection: the issuer must communicate the environmental/social objectives and the process to determine the eligibility of the projects as well as the related criteria.
  • Management of Proceeds: the proceeds should be tracked by the issuer in an appropriate manner. 
  • Reporting: the issuers should provide up to date information on the use of proceeds and expected impact through an annual report.

Participants: ICMA is a not-for-profit association with 580 members in 62 countries (as of Oct 2019).

Tools:

Green and Social Bond - Eligible categories

ICMA defines a broad list of categories eligible for the green and social bonds.

The list includes for green bonds

  • Renewable energy 
  • Energy efficiency (e.g. refurbished buildings); 
  • Pollution prevention and control (e.g. waste recycling); 
  • Environmentally sustainable management of living natural resources and land use (e.g. environmentally sustainable agriculture; forestry an and fishery; 
  • Terrestrial and aquatic biodiversity conservation (including the protection of coastal, marine and watershed environments); 
  • Clean transportation; 
  • Sustainable water and wastewater management; 
  • Climate change adaptation (e.g. early warning systems); 
  • Eco-efficient and/or circular economy adapted products, production technologies and processes 
  • Green buildings 

The list includes for social bonds

  • Affordable basic infrastructure (e.g. clean drinking water, sewers, sanitation, transport, energy) 
  • Access to essential services (e.g. health, education and vocational training, healthcare, financing and financial services) 
  • Affordable housing 
  • Employment generation, and programs designed to prevent and/or alleviate unemployment stemming from socioeconomic crises, including through the potential effect of SME financing and microfinance 
  • Food security and sustainable food systems (e.g. physical, social, and economic access to safe, nutritious, and sufficient food that meets dietary needs and requirements; resilient agricultural practices; reduction of food loss and waste; and improved productivity of small-scale producers) 
  • Socioeconomic advancement and empowerment (e.g. equitable access to and control over assets, services, resources, and opportunities; equitable participation and integration into the market and society, including reduction of income inequality)
     
 
China Green Bond Project Catalogue

Objective: Identifying priority projects with positive environmental impact that can be financed through the issuance of green bonds. While focused on Chinese domestic priorities, it enumerates a list of green bond proceeds of possible interest to SDI-aligned fixed income investors.

Methodology: In 2015, the People's Bank of China issued guidelines for green bonds within the inter-bank market. These guidelines stipulate the requirements for projects to qualify as green, the expected management of proceeds and reporting, and a taxonomy in the form of the Green Bond Endorsed Project Catalogue. The Catalogue defines eligible green projects and provides guidelines for project classification and eligibility criteria for six environmental sectors (those below).

Tools:

  • Green Bond Endorsed Project Catalogue

Green Bond Endorsed Project Catalogue:

Projects must fall under one of the following six categories to be endorsed:

  1. Energy Saving: through constructing high efficiency facilities and conducting energy-saving improvement, to reduce energy/ water/ raw material consumption per unit product or service, lower pollutants and GHG (e.g.,CO2) emissions generated from resource consumption, and achieve resource conservation, GHG emission reduction and pollutant alleviation.
  2. Pollution Prevention and Control: through constructing facilities for desulfurization, denitrificaiton, dust removal and sewage treatment, as well as other forms of integrated environmental treatment, to reduce pollutant discharge, control environmental pollution, protect, restore and improve environment.
  3. Resource Conservation and Recycling: through the exploitation and reuse of tailings and associated mines, reuse of industrial and agricultural waste, recycling and remanufacturing of waste metals and non-metallic, to improve resource utilization, save resources and minimize environmental damages.
  4. Clean Transportation: through the construction of railway, urban rail transit and clean fuel production units, and promotion of new energy vehicles, to reduce GHG emission and pollutant discharge intensity, achieving energy conservation and emission reduction.
  5. Clean Energy: substituting fossil energy consumption with renewable energy such as solar energy, wind energy, hydropower, geothermal energy, ocean energy, to reduce pollutants and CO2 emitted from the exploitation, production and consumption of fossil fuels; through the utilization of low carbon energy such as natural gas, to minimize pollutant discharge and GHG emission reduction.
  6. Ecological Protection and Climate Change Adaption: through comprehensive treatment of soil erosion, ecological restoration, disaster prevention and control, and natural reserve construction, to improve the ecological environment quality, strengthen disaster prevention ability, and enhance biodiversity conservation, etc.; through afforestation, forest tending and conservation, eco-agriculture, animal husbandry and fishery, and strengthened infrastructure construction, to adapt to climate changes.
 
SDI Asset Owner Platform Taxonomy

Objective: Establishing and maintaining a taxonomy of solutions (i.e. company’s products and services categories) that contribute to the SDGs. SDI-aligned investors can use this unique tool to understand and optimize the contributions of their portfolio to the 2030 Agenda.

Methodology: The taxonomy was created by identifying investable SDG targets and exploring how companies, through their product and services, could provide solutions to achieving these targets. Companies can then be classified depending on whether they provide these solutions. The determination is typically based on whether companies derive revenues from solutions listed in the taxonomy. For example, a company providing food testing equipment & services is included in the taxonomy related to SDG 2 (“zero hunger”).

The platform and its taxonomy is governed by four founding asset managers: APG, AustralianSuper, BCI, and PGGM. Data can be accessed through solutions provider Qontigo.

SDI Asset Owner Platform - Dataset

The platform leverages artificial intelligence solutions to identify which companies offer products and services included the taxonomy and uses a set of predefined rules to classify whether a company can be considered as providing a positive contribution to the SDGs.

The dataset covers some 8,000 companies and contain for each company the rationale for its classification and the contribution to relevant SDG’s. These data can then be aggregated at the portfolio level to provide transparency on the portfolio alignment with the SDGs.

Data on sustainable revenues

Several providers offer services to quantify the percentage of a company’s activities aligned with a sector/industry/theme considered as sustainable. While this is useful, revenue exposure is an imperfect measure of impact. The SDI definition calls for fundamental analysis at the company/project level to check the positive impact. 

 
SDG Solutions Assessment

Objective: Measure the impact and the contribution towards the SDGs in publicly traded funds and portfolios. SDI-aligned investors can use the scores to optimize portfolio alignment with the SDGs.

Methodology: The SDG Solutions Assessment is a revenues-based approach that identifies a product or service category’s contribution or obstruction towards attaining each individual goal. The results are provided in form of Revenue Percentages, Objective Scores, and the SDG Solutions Score.

The Objective Scores are based on the classification of products and services offered and their respective revenue shares. The SDG Solutions Score provides an aggregated assessment, taking into account a company’s most distinct objective impacts. The assessment scale is translated into five broader performance categories (see below).

Tools:

Assessment scale

The SDG Solutions scale ranges from -10.0 to 10.0:

  • No Net Impact (-0.1 to 0.1)
  • Significant Obstruction (-10.0 to -5.1)
  • Limited Obstruction (-5.0 to -0.2)
  • Limited Contribution (0.2 to 5.0)
  • Significant Contribution (5.1 to 10.0)
 
FTSE Russell Green Revenues
Objective: Providing data to help investors measure their contributions to the green economy. While not explicitly anchored in the Paris Agreement, it provides a measure of environmental sustainability of possible value to SDI-aligned investors.
 
Methodology: FTSE Russell is a revenue-based model that measures the percentage of a company’s total revenue that comes from “green” products. Companies are categorized using a unique industrial taxonomy for green goods, products, and services that covers 10 sectors and 133 microsectors.
 
Coverage: 14,700 companies (including FTSE Global All Cap Index and Russell 3000)
 
Tools: 
  • Sustainable Indices: Using this methodology, FTSE Russell has created the following sustainability indices: FTSE Environmental Opportunities, FTSE Environmental Technology, FTSE ESG, FTSE Climate, FTSE Ex-Fossil Fuel, FTSE Climate Balanced Factor and FTSE Green Revenues.

SDG Index Product Case Study:

Dutch pension fund, Pensioenfonds Detailhandel, has partnered with index provider FTSE Russell and BlackRock to develop and implement a sustainable benchmark for its €5.8bn developed markets equity portfolio.

  • The four SDGs included in Pensioenfonds Detailhandel’s sustainable investment policy are “decent work and economic growth” (SDG 8), “responsible consumption and production” (SDG 12), “climate action” (SDG 13), and “peace, justice and strong institutions” (SDG 16).
  • The index has been designed to align an equity benchmark with aspects of the United Nations’ Sustainable Development Goals (SDGs).
  • Company weights within the index are adjusted using FTSE Russell’s ESG research on themes such as climate change, human rights and labour standards.

Measure company / project sustainability performance

SDI-aligned investors can use these information providers to measure a company or project's sustainability performance. Once investors understand what activities to invest in, they need quantitative information about the sustainability performance of company or project they might finance. This information is often produced by external providers and is either publicly available or behind a paywall.

Company SDG ratings and scores publicly available

While most methodologies and data scoring a company on its sustainability performance are behind paywalls, some initiatives provide data free of charge.

 
Carbon Tracker Company Profiles

Objective: Help investors understand how well companies in carbon-reliant industries (i.e. oil and gas, power and utilities) align with well below 2˚C climate goals of the Paris Agreement. SDI-aligned investors considering engagement or divestment in these industries can use this tool to inform their strategy.

Methodology: Carbon Tracker generates in-depth reports on every company. This includes scenario benchmarking, using its "Least-Cost Methodology" that assumes that the lowest cost projects will be most competitive in an increasing low demand world. In addition, it analyzes the governance structure and remuneration incentives of the company, and proposes questions for investors that choose to engage the company on its carbon performance. Carbon Tracker uses this analysis to score the signatories’ progress annually and identify which companies have moved and by how much. 

Coverage: 65+ companies

Tools:

  • Company Profiles

 

Analyzed companies

 

  • AES Corporation 
  • AGL Energy
  • American Electric Power Company
  • BHP Group
  • BP
  • Canadian Natural Resources Limited
  • Centrica
  • Cez
  • Chevron Corporation
  • China Petroleum & Chemical Corporation (Sinopec)
  • CNOOC
  • ConocoPhilips
  • DEVON ENERGY CORPORATION
  • Dominion Energy
  • Duke Energy Corporation
  • E.ON
  • Ecopetrol Sa
  • EDF
  • ENEL
  • ENGIE
  • Eni SpA
  • Equinor
  • Eskom Holdings 
  • Exelon Corp
  • Exxon Mobil Corporation
  • FirstEnergy Corp
  • Fortum
  • Iberdrola
  • Imperial Oil
  • JX Holdings, Inc
  • Korea Electric Power
  • Lukoil OAO
  • National Grid
  • Naturgy Energy Group S.A. 
  • Nextera Energy
  • NRG Energy
  • NTPC
  • OCCIDENTAL PETROLEUM CORPORATION
  • Oil & Natural Gas Corp
  • OMV AG
  • ORIGIN ENERGY LIMITED
  • PETROCHINA Company Limited
  • Petroleo Brasilerio SA – Petrobas
  • PGE
  • PJSC Gazprom
  • Power Assets Holding
  • PPL Corporation
  • PTT
  • Reliance Industries
  • Repsol
  • Resneft
  • RWE
  • Santos
  • Sasol
  • Shell
  • Southern Company
  • SSE
  • Suncor Energy
  • Teck Resources
  • Total
  • Vistra Energy Corp
  • WEC Energy Group
  • Woodside
  • Xcel Energy
 
World Benchmarking Alliance

Objective: Creating free, publicly available benchmarks that measure and compare corporate performance on the SDGs, which will empower all stakeholders, from consumers and investors to employees and business leaders to encourage sustainable business practices across all sectors. SDI-aligned investors benefit from a public tool grounded in the needs of the SDGs.

Methodology: The World Benchmarking Alliance (WBA)'s methodology was developed through extensive stakeholder dialogues from 2017-18. Rather than assess companies goal by goal, it rates their contributions to seven 'systems transformations' need to achieve them. Data is collected through an online data platform, with a form that is pre-populated with publicly available information and sent directly to companies for completion. Once the data is received, it is analyzed and verified. 

Companies: 2,000 keystone companies to be assessed by 2023

Tools:

The following benchmarks have been developed:

Other benchmarks under development include:

  • Gender Benchmark
  • Access to Seeds Index
  • Climate and Energy Benchmark
  • Circular Benchmark
  • Digital Inclusion Benchmark
  • Financial System Benchmark

Seven Systems Transformations:

  • Social transformation: Achieve universal human development by respecting human rights, promoting equality and empowering people to pursue the opportunities and choices they value. 
  • Agriculture and food system transformation: Produce healthy and nutritious food to feed a growing world population, while staying within planetary boundaries, and offer farmers, fishers and their families a decent standard of living. 
  • Decarbonization and energy transformation: Provide universal access to modern energy services while significantly reducing the world’s dependency on carbon-based energy. 
  • Circular transformation: Decouple consumption and production from natural resource use and design out waste and pollution. 
  • Digital transformation: Harness the potential and benefits of digital technologies for all while managing risks, including safeguarding against undesirable effects. 
  • Urban transformation: Create sustainable, inclusive and connected cities that are safe, resilient and clean. 
  • Financial system transformation: Reorient the flow of resources and exercise good stewardship to accelerate the economy’s transition towards long-term sustainable development. 
 
Transition Pathway Initiative

Objective: Providing independent research that empowers investors to assess the alignment of their portfolios with the goals of the Paris Agreement. In light of the importance of the Paris Agreement to the implementation of the SDGs, this tool is a helpful public asset for SDI-aligned investors.

Methodology: Using publicly disclosed company information, the initiative evaluates and track companies' management quality and carbon performance, compares this performance against international agreements and national pledges, and publishes this data online free of cost. 16 sectors, from oil and gas to services, have assessed as of September 2020.

Tools:

  • Transition Pathway Initiative tool: ranks corporations across or by sector
  • Similar tool for corporate fixed income issuers is under consideration

Management Quality Assessment

Companies’ management quality is assessed against a series of indicators, covering issues such as company policy, emissions reporting and verification, targets, strategic risk assessment and executive remuneration.

Based on their performance against these indicators, companies are placed on one of five levels:

  • Level 0 – Unaware of (or not Acknowledging) Climate Change as a Business Issue
  • Level 1 – Acknowledging Climate Change as a Business Issue
  • Level 2 – Building Capacity
  • Level 3 – Integrated into Operational Decision-making
  • Level 4 – Strategic Assessment

Carbon Performance Assessment

Companies’ carbon performance is assessed using the modelling conducted by the International Energy Agency (IEA) for its biennial Energy Technology Perspectives report. This modelling is used to translate emissions targets made at the international level into sectoral benchmarks, against which the performance of individual companies can be compared.

The initiative use 3 benchmark scenarios, which in most sectors are:

  • Paris Pledges, consistent with emissions reductions pledged by countries as part of the Paris Agreement (i.e. NDCs);
  • 2 Degrees, consistent with the overall aim of the Paris Agreement, albeit at the low end of the range of ambition;
  • Below 2 Degrees, consistent with a more ambitious interpretation of the Paris Agreement’s overall aim.

Company SDG ratings and scores behind paywalls

There are many ways to score a company on its sustainability performance and currently no harmonization of SDG scoring methodologies. Unlike credit ratings, scores may vary substantially by providers. This problem is compounded by the lack of consistent data reported by companies.

 
SDG Impact Framework
Objective: Developing a tool to measure and quantify impact using SDG contributions of publicly listed companies. This tool can be used to create high-impact products for mainstream investors.
 
Methodology: Companies receive an SDG impact score based on the magnitude and quality of their contributions to the SDGs through their products, services and operations.
 
Scoring: >1600 companies assessed
 
Tools: 
  • The impact framework can be used to report on the impact of a portfolio on the SDGs

SDG Impact Framework

Step 1: Product Focus – Do products or services contribute positively or negatively to the SDGs?

Each industry is assigned a baseline SDG score. The contribution of specific companies is then assessed in detail to enhance or detract from the baseline score. To do this, RobecoSAM uses a proprietary guidebook with an extensive set of rules consisting of 75 unique, industry-specific indicators (kPIs) that span more than 50 industries.

Step 2: Company policies & processes – Do the company’s business conduct contribute to the SDGs?

Analysts check if the way the firm operates is compatible with the SDGs. Analyses rely on comprehensive evaluations of a company’s governance, internal policies, and historic track record on material sustainability issues.

Step 3: Continuous monitoring – Has the company been involved in controversies?

Monitor meaningful incidents and controversies such as Spills, Bribery and Fraud

 
SDG Alignment Tool

Objective: Provide investors with a complete view of a company’s net contribution – both positive and negative – towards addressing each of the 17 SDGs. SDI-aligned investors benefit from a means of benchmarking the SDG contributions of their currently portfolio and/or potential investees.

Methodology: MSCI's SDG Alignment tool draws on publicly available information, in addition to self-declared alignment with the goals. It uses this data to provide net alignment scores and assessments for each of the SDGs on a scale from 'Strongly Aligned' to 'Strongly Misaligned'. The model also offers assessments on two dimensions – product alignment and operation alignment – for each company and for each of the SDGs.

Coverage: 8,600+ equity and fixed income issuers

Tools:

  • SDG Alignment Tool

 

Preliminary Results

 

MSCI, in applying the tool to its global equity index, found that:

  • Across all 17 SDGs, 54 percent of companies in MSCI's global equity index were mostly aligned, meaning that they showed no strong misalignment on any of the SDGs and had more areas assessed as aligned than misaligned.
  • SDG 8 (decent work and economic growth) showed the highest degree of alignment: of the global equity index constituents (as of August 11, 2020), a third were found to be aligned or strongly aligned with the goal either through offering products enabling economic advancements (such as SME financing, digital divide solution, or education materials and services) or supporting inclusive and fair employment and support for communities.
  • Goals 7 (clean energy), 12 (sustainable consumption and production) and 13 (climate action) had the highest percentage of companies (8%-9%) misaligned with the goals, driven mostly by continuing reliance on fossil fuels.
 
SDG Impact Rating

Objective: Provide investors with a holistic measurement of a company’s positive or negative impact on the SDGs.

Methodology: ISS's SDG Impact Rating assesses a company’s positive or negative impact on the 17 SDGs across across three pillars: product and services, operations management, and controversies. A company’s operations score is based on industry-specific indicators, derived from ISS's ESG Corporate Rating, mapped to the relevant SDGs. Impact is measured thematically for each of the goals as well as at an aggregate level. Companies are rated on a scale of -10 (significant negative impact) to +10 (significant positive impact).

Coverage: 6,500+ companies

Pillars of assessment

  1. Product and services: identifies to what extent products and services contribute to or obstruct the SDGs (leveraging ISS's SDG Solutions tool).
  2. Operations management: evaluates impact along the entire value chain.
  3. Controversies: identifies alleged or verified failures to respect established norms that may impede or obstruct the SDGs.
 
Vigeo-Eiris SDG Ratings
Objective: Providing rating and research that evaluates corporations’ contribution to the achievement of the SDGs. Vigeo-Eiris appears to have developed one of few tools dedicated to assessing companies by their contributions to the SDGs, making it of possible value to SDI-aligned investors.
 
Methodology: Vigeo-Eiris uses ESG data from company disclosure (i.e. CSR, 10-K) and secondary sources including NGOs and third-party data. To assess exposure to controversy, Vigeo-Eiris gathers information from 33,000 news sources. It conducts an internal peer review of all profiles and its methodology is reviewed by an independent committee and audited. 
 
Ratings: 4,500+ corporations (of which only 250 are ranked as highly positive to the SDGs)
 
Tools: 
  • Solactive Sustainable Development Goals World Index: based on Vigeo Eiris’ Equities research, maps the SDGs against the included companies’ products, services and behaviors
  • SDG Assessment: Measurement of companies’ contribution to achieving the SDGs through behavior and product

SDG Assessment

The 17 SDGs are translated into 8 themes subdivided by:
  • Behaviour: 1.Business Ethics 2.Governance 3.Social Welfare 4.Human Capital 5.Healthy lives
  • Products: 6.Development Tools 7.Climate Change 8.Natural Capital
Measurement of companies’ contribution to the SDGs through across 3 angles of analysis:
  • Acting Responsibly (e.g. SDG behaviour performance)
  • Mitigating & Remediating Harm (e.g. presence of critical controversies)
  • Finding Opportunities (e.g. level of involvement in positive impact activities)
The SDG contribution of a company is then ranked from highly positive to highly adverse

Cross-check alignment

SDI-aligned investors can use these information providers to cross-check company reporting with unreported information (e.g. media). Companies might commit to sustainable development objectives (for example, using the UN Global Compact principles) and report positively on their performance, yet their practices remain unsustainable. In addition to assessing sustainability performance, SDI-aligned investors are expected to confirm the coherence of this performance through such cross-checks.

Controversy check

SDI investors are expected to cross-check company reporting with unreported information (e.g. media) to verify the absence of inconsistencies with sustainable development objectives (for example, using the UN Global Compact principles).

 
RepRisk ESG Risk Platform

Objective: Facilitating the assessment of a company or project's risk exposure to ESG issues. It can help SDI-aligned investors screen companies for involvement in ESG controversies that might not be self-disclosed.

Methodology: Rather than provide ESG ratings, RepRisk assesses material ESG risks. It analyzes information from public sources and stakeholders and intentionally excludes company self-disclosures. It employs transparent, rules-based methodology, leverages AI and machine learning, and makes daily updates.

Companies assessed: 150,000+

Tools:

  • RepRisk Index: a quantitative measure of a company’s or project’s reputational risk exposure to ESG issues
  • RepRisk Rating: a letter rating (AAA to D) that facilitates benchmarking and ESG integration
  • UNGC Violator Flag: identifies companies with a high risk or potential risk of violating one or more of the ten UN Global Compact Principles
  • RepRisk Violator Index: customizable to a client's ESG risk framework, internal policies, and risk appetite
 
Arabesque S-Ray

Objective: Assess companies for increased reputational risk because of ESG performance. SDI-aligned investors can use the tool to assess corporate practices and reduce their exposure to ESG risk.

Methodology: Arabesque S-Ray analyses companies based on the four core principles of the UN Global Compact (GC): human rights, labour rights, the environment,and anti-corruption. It has quantified these principles to produce a GC Score for companies.

In addition, it offers a 'temperature score' of companies' contribution to global warming and an ESG score focused on financial materiality.

Tools:

  • GC score: measures reputational risk of companies
  • Temperature score
  • ESG score
 
Vigeo-Eiris Controversy Risk Assessment

Objective: Keep investors informed about allegations affecting their portfolio companies. SDI-aligned investors could use this tool to manage post-investment ESG risk and make informed decisions to actively engage or divest.

Methodology: Vigeo-Eiris's Controversy Risk Assessment analyzes controversies through three factors: severity, frequency, and company response. This analysis is based on publicly available information from legitimate, identifiable stakeholders.

Companies: It monitors 7,000 issuers on a daily basis.

Tools:

  • Controvery Risk Assessment

 

 
Sustainalytics Controversies Research

Objective: Identifying companies involved in incidents that may negatively impact stakeholders, the environment, or the company’s operations. SDI-aligned investors could use this tool to make informed investment decisions and manage post-investment risk.

Methodology: Sustainalytics monitors 60,000 news sources daily from around the world to identify those news items that could be significant from an ESG perspective. Incidents are identified and relevant information and references are collected, which accumulate and escalate into events. Events are classified into 10 topical areas and scored from one to five, depending on the reputational risk to the company and potential impact on stakeholders and the environment. The outlook is a forecast of how an rating will evolve over the next 12 months based on the various criteria, such as risk factors, management systems etc.

Coverage: 15,000+ issuers

Controversy Rating

Category 1

  • Significant impact on the environment and society with significant business risk
  • Evidence of structural problems at company and/or company has inadequate management systems

Category 2

  • Moderate impact on the environment and society with minimal risk to the company
  • Low frequency of incidents, company has strong management systems and/or actions taken to mitigate risks

Category 3

  • Significant impact on the environment and society with significant business risk
  • Evidence of structural problems at company and/or company has inadequate management systems

Category 4

  • High impact on the environment and society with high business risk
  • Structural/systemic problems, recurrence of incidents and company has inadequate management systems

Category 5

  • Severe impact on the environment and society with serious business risk
  • Exceptional egregious behavior, high frequency of incidents and company has poor management of the controversy

Disclosure score

To be eligible as SDI, companies have to be transparent about their business practices and provide adequate sustainability disclosure and reporting (see the corporate module below for more information on corporate reporting).

 
Support the Goals Business Ratings

Objective: Encourage corporate alignment with the SDGs by ranking companies' public commitment to their achievement. SDI-aligned investors can use the tool to assess a company's public alignment with the SDGs, though other tools are needed to assess actual alignment. 

Methodology: Support the Goals rates companies based on whether leadership has taken key steps to communicate their support for the SDGs. Its data is limited to 465 companies, mainly in Europe, North America, and Australia, that have signed onto the initiative or have been added due to their influence.

Tools:

  • Support the Goals business ratings

 

Rating methodology

Support the Goals generates a 1-5 rating by collecting data across five fields:

  • Planning - Has a company publicly stated a focus on the SDGs?
  • Commitment - Has it publicly declared measurable commitments to the SDGs?
  • Actions - Has it publicly shared examples of how its actions are supporting the SDGs?
  • Progress - Has it shared data showing its progress towards the SDGs?
  • Suppliers - Has it shared information about involving its suppliers?
 
Embedding Project - Contextual Goals Database

Objective: Helps corporates set sustainability goals and investors and other stakeholders benchmark relative performance of corporates. 

Methodology: The Embedding Project, through its Contextual Goals Database, maintains a database that of sustainability goals and commitments set publicly by large companies. Users can apply a variety of filters, including trending topics (e.g. COVID-19), themes (e.g. rights and wellbeing at work, water and climate), and SDGs. Corporate commitments are assessed against the project's criteria for a coherent commitment, generating a 0-3 score.

Tools:

  • Contextual Goals Database

 

Assessment criteria

The Embedding Project assesses corporate commitments using the following criteria:

Foundational criteria

  • Can the commitment be assessed?
  • Is it time-bound?

Pre-context criteria

  • Is the issue linked to strategy?
  • Does it employ a transparent approach?
  • Does it influence others?

Contextual criteria

  • Is it aligned with systems' resilience?
  • Is the strategy linked to resilience?
  • Does it include assumptions?
  • Does it enable resilience?

Target and reporting criteria

  • Does it set interim targets?
  • Is it transparent about progress?
 
Bloomberg ESG Disclosure Scores
Objective: Assessing companies by the transparency of their ESG disclosure. SDI requires transparency of data and SDI-aligned investors can use these scores to identify companies that are underperformers in disclosure.
 
Methodology: Bloomberg rates companies annually based on their public disclosure of quantitative and policy-related ESG data. ESG data from company disclosure (i.e. CSR, 10-K) and as well as through company direct contact is used to generate a disclosure score from 0-100.
 
Ratings: 13,000+ companies
 
Tools: 
  • Bloomberg disclosure score

Disclosure indicators

Bloomberg considers disclosure of the following data, among other indicators:

  1. Payroll
  2. Energy
  3. GHGs
  4. Water
  5. Waste
  6. Employee turnover
  7. Injury

Construct SDI-aligned portfolios

SDI-aligned investors can use indexes to help them construct portfolios with a positive impact on the SDGs. Several SDG indexes exist that group public companies of a higher sustainability performance. While this exposes investors to any weaknesses in the provider's sustainability assessment, indexes allow investors to efficiently build a portfolio of companies with a positive impact.

SDG-related indexes

SDG indexes identify companies of a certain sustainability performance and group them in indexes upon which funds and other financial products can be based. While ESG-based indexes have mushroomed, SDG-based indexes remain scarce.

 
Societal Development Index

Objective: Create an index product aligned with the achievement of the SDGs. Investors can use it to build an SDI-aligned portfolio.

Methodology: The Morningstar Societal Development Index employs a combination of exclusionary screening and positive ESG selection. Based on a negative screen for factors including ESG controversies and non-compliance with the UN Global Compact, companies are excluded. Companies are then selected based on their Societal Development Score, which considers 32 indicators that Morningstar and Sustainalytics have determined to be most germane to the SDGs. Lastly, the index favors companies that are active in the areas of the world where challenges are most acute, such as countries with low income or least developed status.

Tools:

Constituent companies

 

Most of the 200 index constituents are household names. Their products and services touch billions of people, and their footprints are massive in terms of workforce and environmental impact. For instance:  

  • Intel (INTC) earns inclusion thanks to strong labor standards, avoidance of conflict minerals in its chipmaking, and usage of renewable energy. 
  • Standard Bank of South Africa (SGBLY) makes its way into the index for extending access to credit, not just in its home market but in lesser-developed countries like Angola and Nigeria.  
  • Novo Nordisk (NVO), the Danish pharmaceutical giant, is active in drug donations and thoughtfully manages its supply chain. 
  • SK Telecom (SKMTF), a communications services company from Korea, has made admirable efforts in addressing the digital divide by extending the benefits of connectivity to remote areas. 
 
ACWI Sustainable Impact Index

Objective: Identify listed companies whose core business addresses at least one of the world’s social and environmental challenges as defined by the SDGs. SDI-aligned can use the index to align investments with themes inspired by the SDGs.

Methodology: MSCI's ACWI Sustainable Impact Index assesses sustainability performance using five themes: basic needs, empowerment, climate change, natural capital, and governance. It screens a parent index for companies that derive at least 50% of their revenues from products and services that address these themes and excludes companies that do not meet a minimum standard. As of 2016, the index had 71% greater exposure to estimated company revenue derived from sustainable impact solutions compared to the parent index, MSCI ACWI Index.

Tools:

  • ACWI Sustainable Impact Index
  • MSCI Sustainable Impact Taxonomy

MSCI Sustainable Impact Taxonomy

Environmental Pillar:

  • Climate change: includes alternative energy, energy efficiency, and green building
  • Natural capital: includes sustainable water, and pollution prevention

Social Pillar:

  • Basic needs: includes nutrition, major disease treatment, sanitation, and affordable real estate
  • Empowerment: includes SME finance, and education
 
SDG Leaders Index

Objective: Enable conscious investors to leave a positive impact on the planet in accordance with the SDGs.

Methodology: The SDG Leaders Index, developed by Solactive and ISS, starts with a broad market benchmark of listed stocks from developed and emerging market countries. From that index, companies involved in the manufacture or application of controversial weapons, companies with a verified failure to respect established norms such as human or labor rights, and companies that fail to provide sufficient compliance information are excluded. Companies are then selected based on their overall and single SDG Impact Rating - a proprietary evaluation developed by ISS ESG. 

Tools:

  • SDGs Leader Index
 
SDG Aligned Index

Objective: Support investors choosing to incorporate sustainable investment objectives into all aspects of their portfolios.

Methodology: The SDG Aligned Index, developed by FTSE Russell, Pensioenfonds Detailhandel and BlackRock, was designed to align a broad market equity benchmark with aspects of the SDGs. Company weightings within the index are adjusted using ESG research on themes including climate change, human right s, and community and labor standards. Tracking the custom index is expected to reduce exposure to CO2 emissions and fossil fuel reserves by approximately 50%, while exposure to green revenue will increase by around 10%.

 

Focus SDGs

The SDG Aligned Index was developed with emphasis on four of the SDGs:

  • Decent work and economic growth (SDG 8)
  • Responsible consumption and production (SDG 12)
  • Climate action (SDG 13),
  • Peace, justice and strong institutions (SDG 16)

Corporate

Adhere to recognized high-level principles

To attract SDI-aligned capital, companies must adopt and evidence sustainable business practices. Adhering to these recognized high-level principles is a means of integrating sustainability into business practices.

High-level principles

The following principles help companies understand what sustainable business practices entail.

 
Global Compact Principles

Objective: Aligning companies strategies and operations with universal principles on human rights, labor, environment, and anti-corruption. SDI-aligned investors and corporations benefit from its work translating the SDGs into corporate strategy.

Methodology: The UN Global Compact is principles-based, with CEOs committing to implement ten principles, take action in support of the SDGs, and submit an annual report on progress that describes the company's actions to implement the principles.

Participants: 13,000+

Tools

  • SDG Compass: explains how the SDGs affect business so companies can put sustainability at the heart of their strategy. This tool was developed by the UN Global Compact, Global Reporting Initiative (GRI), and the World Business Council for Sustainable Development (WBCSD).
  • UN Global Compact Self Assessment Tool: to be used by company to assess their performance on social and environmental standards through a set 45 questions with a set of 3-9 indicators for each question.

The 10 Global Compact Principles

Human Rights
Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights; and
Principle 2: make sure that they are not complicit in human rights abuses.

Labour
Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining;
Principle 4: the elimination of all forms of forced and compulsory labour;
Principle 5: the effective abolition of child labour; and
Principle 6: the elimination of discrimination in respect of employment and occupation.

Environment
Principle 7: Businesses should support a precautionary approach to environmental challenges;
Principle 8: undertake initiatives to promote greater environmental responsibility; and
Principle 9: encourage the development and diffusion of environmentally friendly technologies.

Anti-Corruption
Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery.

 
Guiding Principles on Business and Human Rights
Objective: Providing guidelines for States and companies to prevent, address and remedy human rights abuses committed in business operations.
 
Methodology: The Guiding Principles for Business Enterprises, endorsed in 2011, foresee that:
  • All States have a duty to protect everyone within their jurisdiction from human rights abuses committed by companies. 
  • Companies have a responsibility to respect human rights—i.e., avoid infringing on the rights of others, and address any impact that does occur. This responsibility exists independently of whether States fulfill their obligations. 
  • When abuses occur, victims must have access to effective remedy, through judicial and non-judicial grievance mechanisms. 
Tools:  
  • Business & Human Rights Resource Centre platform to promote transparency on the implementation of the Guiding Principles on Business & Human Rights. 
  • Human Rights Due Diligence: Business enterprises should carry out human rights due diligence to identify, prevent, mitigate and account for how they address their adverse human rights impacts.

Corporate Responsibility to Respect Human Rights 

A. Foundational Principles includes:

Business enterprises should respect human rights. This means that they should avoid infringing on the human rights of others and should address adverse human rights impacts with which they are involved. 

B. Operational Principles includes a policy commitment: 

Business enterprises should express their commitment to meet this responsibility through a statement of policy that:

  1. Is approved at the most senior level of the business enterprise; 
  2. Is informed by relevant internal and/or external expertise; 
  3. Stipulates the enterprise’s human rights expectations of personnel, business partners and other parties directly linked to its operations, products or services; 
  4. Is publicly available and communicated internally and externally to all personnel, business partners and other relevant parties; 
  5. Is reflected in operational policies and procedures necessary to embed it throughout the business enterprise. 
 
Guidelines for Multinational Enterprises
Objective: Providing non-binding principles and standards for responsible business conduct in a global context consistent with applicable laws and internationally recognised standards.
 
Methodology: The Guidelines are the only multilaterally agreed and comprehensive code of responsible business conduct that governments have committed to promoting.

They include the following themes: human rights and labour rights, as well as information disclosure, environment, bribery, consumer interests, science and technology, competition, and taxation.

Participants: 44 adhering governments – representing all regions of the world and accounting for 85% of foreign direct investment – encourage their enterprises to observe wherever they operate.
 
Tools: 
  • OECD Due Diligence Guidance for Responsible Business Conduct

Due Diligence Guidance:

Practical support to enterprises on the implementation of the Guidelines by providing explanations of its due diligence recommendations and associated provisions.

1.Embed Responsible Business Conduct
2.Identify & Assess Adverse Impacts
3.Cease, Prevent or Mitigate Adverse Impacts
4.Track Implementation and Results
5.Communicate How Impacts are Addressed
6.Provide for or Cooperate in Remediation
 
CFO Principles on Integrated SDGs Investments and Finance

Objective: Support companies in leveraging corporate finance and investments for the realization of the SDGs.

Methodology: Through the CFO Taskforce, UN Global Compact signatory companies have worked to create a market for corporate investments and finance capable of channeling financial investments towards the SDGs. With the CFO Principles, the taskforce has identified principles and implementation guidance on how to achieve this objective.

Tools:

  • CFO Principles on Integrated SDGs Investments and Finance
  • Industry-specific guidance (forthcoming)
  • Examples of best practice (forthcoming) 

 

Principle 1 - SDG Impact Thesis and Measurement

Calls on companies to develop a specific SDG impact thesis that is aligned with country needs and to identify and mitigate negative impacts on relevant SDGs (across their supply chain). Lastly, companies should define goals, targets, and indicators to measure their contribution to the SDGs.

Principle 2 - Integrated SDG Strategy and Investments

Calls on companies to translate their SDG impact thesis into strategic objectives and initiatives. This integrated strategy should include a determination of funding sources and investment needs, and must be translated into decision-making through investment criteria that consider SDG impact alongside risk and return. Finally, corporate governance (e.g. executive compensation) should be leveraged to incentivize and monitor implementation. 

Principle 3 - Integrated Corporate SDG Finance

Calls on companies to develop an approach to raising corporate SDG finance that leverages a full range of financial instruments, is structured to enhance alignment with the SDGs, and maximizes the integrity and reputation of SDG-linked instruments. Where solutions are critical but underfunded, companies should leverage blended finance products.

Principle 4 - Integrated SDG Communication and Reporting

Calls on companies to proactively communicate their SDG impact thesis through investor communications, include SDG impact in integrated reporting, and work with external stakeholders on harmonizing disclosure standards and practices.

Implement changes

Companies can implement sustainability changes with the support of the following initiatives. From identifying action areas to setting targets, practical guidance and tools exist to help companies improve their positive impact and ultimately attract SDI-aligned investors.

Practical guidance and tools

 
Science Based Targets - Corporates

Objective: Provide companies with a clearly defined pathway to future-proof growth by specifying how much and how quickly they need to reduce their greenhouse gas emissions. Corporates can use it to set emission reduction targets in line with the Paris Agreement.

Methodology: Science Based Targets are set for the private sector based on what climate science says is necessary to meet the goals of the Paris Agreement. i.e. to limit global warming to well-below 2°C above pre-industrial levels and pursue efforts to limit warming to 1.5°C. Companies themselves can decide how to achieve this reduction, from cleaner energy and efficiencies to less carbon reliant business models, though practical guidance is provided by the initiative. Companies are asked to sign a commitment letter, submit their target for validation, and announce it publicly. 

Signatories: 992+ companies have signed on

Tools:

  • Set Your Target tool
  • Guidance in implementing it

Methodology

The Science Based Target methodology incorporate three approaches:

  1. Sector-based approach: The global carbon budget is divided by sector and then emission reductions are allocated to individual companies based on its sector’s budget.
  2. Absolute-based approach: The percent reduction in absolute emissions required by a given scenario is applied to all companies equally.
  3. Economic-based approach: A carbon budget is equated to global GDP and a company’s share of emissions is determined by its gross profit, since the sum of all companies’ gross profits worldwide equate to global GDP.
 
SDG Impact Standards for Enterprises

Objective: Establishing a voluntary global standard for a decision making and impact management system that supports positive contribution to sustainable development and achieving the SDGs. Part of a broader harmonized set, these standards apply specifically to private enterprises.

Methodology: The SDG Impact Standards for Enterprise, convened by UNDP, encourage activities that measure and manage progress towards addressing pressing economic, social and environmental challenges to catalyze activity and investment and close gaps in current market practice to achieving SDGs by 2030. The Standards promote a shift from reporting current activities differently (i.e. using the SDGs as a reporting filter) to doing things differently. The draft Standards have been released and will undergo two rounds of public consultation: from October 15th until December 15th, 2020 and a shorter consultation once they are revised.

Tools:

  • Standards
  • Guidance materials
  • Assurance framework

SDG Impact Standards

Businesses are increasingly seeking opportunities to make a positive contribution towards sustainable development and achieving the SDGs by 2030 – and looking for guidance to help translate that intent to action. The SDG Impact Standards have been designed to meet that need. They provide a common language and best practice guidance for integrating impact management into business practices and decision-making – including focusing on both positive and negative impacts on people and the planet.  They are grounded in existing high-level principles of practice and provide necessary context for applying other tools and frameworks, including metrics, taxonomies and reporting frameworks. The Standards can be used by anyone – they are voluntary and freely available public good.  

The foundation for the Standards is:

  • Contributing positively to sustainable development and achieving the SDGs
  • which cannot be achieved without demonstrating respect for human rights and other responsible business practices
  • and is realized through effective impact management and decision making

The SDG Impact Standards for Enterprises operationalize these foundations through four Standards:

  • Standard 1 (Strategy): Embeds contributing positively to sustainable development and achieving the SDGs into purposes and strategic decision making
  • Standard 2 (Management Approach): Integrates impact management and contributing positively to sustainable development and achieving the SDGs into operations and management decision making
  • Standard 3 (Transparency): Discloses how it integrates contributing positively to sustainable development and achieving the SDGs into its investment strategy, management approach, governance and decision making, and reports (at least annually) on its performance
  • Standard 4 (Governance): Reinforces commitment to contributing positively to sustainable development and achieving the SDGs through governance practices
 
ACT - Assessing Low Carbon Transition

Objective: Assess how ready a company is to transition to the low-carbon economy using a sector-specific methodology. Companies raising SDI-aligned capital benefit from an assessment framework to communicate their compatibility to investors.

Methodology: The ACT Initiative, convened by the French Agency for Ecological Transition and CDP, develops accountability frameworks to evaluate companies' compatibility with a 2°C pathway. It uses sector-specific methodologies to assess the credibility of corporate climate strategies and the consistency of their commitments to this pathway. ACT focuses on high emissions sectors. It has released methodologies for automobile manufacturers, electric utilities, real estate, property developers, and retail; methodologies for glass, chemicals, and paper & pulp are under development and consultation. These methodologies are published for independent use by companies, and companies can also seek an assessment by ACT.

Companies engaged: 224+

Tools:

  • Sector-specific methodologies
  • Assessments
  • Ratings, in partnership with the World Benchmarking Alliance

Common rating methodology

The ACT rating is based on responses to these five questions:

  1. What is the company planning to do? Has the company committed to a low-carbon future vision? Are its emissions reduction targets ambitious enough to get there? How quickly is it planning to act?
  2. How is the company planning to get there? Does the company have a transition plan to achieve its low-carbon vision? Will it drive the evolution of the business?
  3. What is the company doing at present? Does current company strategy lead to a decrease in emissions in the short-term? Are investment decisions today made with the long-term future in mind?
  4. What has the company done in the recent past? How do the business decisions made in the past influence company emissions trajectory?
  5. How do all of these plans and actions fit together? Is the business strategy consistent with emissions reduction targets? Do any business activities undermine the company’s ability to reach a low carbon future?
 
SDG Action Manager

Objective: Enable businesses to take action and track progress on the SDGs through a web-based solution. The online tool can help companies to learn about, manage, and directly improve their sustainability performance. 

Methodology: Companies can use the tool to self-assess, benchmark, and ultimately improve their impact performance. The SDG Action Manager is structured as a series of modules, beginning with a baseline module that provides a starting point for users and expanding to modules for each of the SDGs. SDG recommendations are tailored using a company's profile and sector. Developed by the UN Global Compact and the B Lab, the SDG Action Manager brings together the B Impact Assessment, the Ten Principles of the UN Global Compact, and the SDGs in a dynamic environment.

SDG Action Manager enables your company to:

  • Find your starting point. Learn which SDGs matter most to you based on your company profile, and how to take action today.
  • Understand and share your impact. Get a clear view of how your operations, supply chain, and business model create positive impact, and identify risk areas for each SDG.
  • Set goals and track improvement. We have 10 years to achieve the SDGs. Stay motivated and visualize your progress on the dashboard.
  • Collaborate across your company. Invite colleagues to join the SDG Action Manager, contribute expertise, and see real-time progress and performance.
  • Learn at every step. Determine high-impact action based on thought-provoking yet actionable assessment questions, benchmarks, and improvement guides.
  • Trailblaze together. Join a global movement of companies working to build a better world for people and planet by 2030.
     

Certification

Companies can seek certification to attest to their higher social and environmental performance.

 
B Corp

Objective: Certifying corporations that want to balance purpose and profit. While not anchored in SDGs, certification indicates higher ESG performance that can attract SDI-aligned investors.

Methodology: Certified B Corporations are legally required to consider the impact of their decisions on their workers, customers, suppliers, community, and the environment. This legal obligation is made, for instance, by updating their articles of incorporation, or reincorporating as benefit companies. 

Certified B Corporations also need to meet a 80-point bar on the B Impact Assessment, which is verified by B-Lab every three years.

Participants: 50,000+
 

B Impact Assessment

This is a free, online platform that evaluates how a company interacts with its workers, customers, community, and environment.

The tool comprises 3 steps:                                                            

  1. Assess: A series of questions to help companies learn what it takes to build a better business and how they perform against dozens of best practices. 
  2. Compare: Compare company’s answers to thousands of other businesses.
  3. Improve: Create a roadmap of improvements to deepen company's impact. 

Report on sustainable development impact

Companies can improve their reporting on sustainable development impact using the following initiatives. To be eligible for SDI-aligned investment, companies have to be transparent about their business practices and provide adequate sustainability disclosure and reporting. These initiatives help companies by providing a framework for reporting, standardizing a questionnaire, and identifying core indicators.

Reporting frameworks

Companies can use different frameworks to provide information to their stakeholders about their sustainability performance.

 
Global Reporting Initiative

Objective: Producing standards for sustainability reporting to help businesses communicate their impact on issues such as climate change, human rights and social well-being. As the most widely adopted reporting framework, SDI-aligned investors benefit from comparable reporting across a wide range of sectors.

Methodology: GRI Standards provide detailed guidance for disclosure around 33 sustainability topics divided by economic, social and environmental categories. Each sustainability topic includes several topic-specific disclosure requirements. GRI does not directly collect data from companies and does not set standards by sector.

Companies Reporting: 9,950+
 

Sustainability Reporting Standards

GRI's standards are composed of four categories:

  • Universal Standards: applicable to every organization producing a sustainability report (e.g. context setting, management approach)
  • Economic Standards: used to report on a corporation's impacts related to economic topics (e.g. market presence, anti-corruption)
  • Environmental Standards: used to report on a corporation's impact related to environmental topics (e.g. emissions, waste)
  • Social Standards: used to report on a corporation's impact related to social topics (e.g. local communities, labor relations)
 
Sustainability Accounting Standards Board
Objective: Helping corporations identify, manage and report on the sustainability topics that matter most to their investors. SDI-aligned investors benefit from this unique focus on financial materiality and SASB's work mapping its standards against SDGs.
 
Methodology: The Sustainability Accounting Standards Board (SASB) has developed 77 standards that are industry specific using extensive feedback from companies, investors, and other market participants. SASB focuses on the financial impacts of sustainability on companies; other initiatives, such as the Global Reporting Initiative (GRI), provide a wider framework for organizations to report on the impact they have on the world.
 
Tools: 
  • SASB Materiality Map: identifies 26 sustainability-related business issues organized into 5 dimensions that can be used by investors to identify the sustainability issues likely to be financially material for each industry. 
  • SASB and SDGs: explores interconnections between SASB standards and SDG targets

The five dimensions of sustainability

Environment

includes environmental impacts, natural resources as inputs to the production or harmful releases into the environment

Social Capital

addresses management of relationships with key outside parties, such as customers, local communities, the public, and the government. It includes issues related to human rights

Human Capital

addresses company’s human resources as key assets to delivering long-term value and includes issues that affect the productivity of employees, management of labor relations, and management of the health and safety of employees

Business Model & Innovation

addresses the integration of environmental, human, and social issues in a company’s value-creation process, including resource recovery and other innovations in the production process

Leadership & Governance

involves the management of issues inherent to the business model that are in potential conflict with the interest of broader stakeholder groups, and therefore create a potential liability. This includes regulatory compliance, risk management, corruption and bribery.

 
Task Force on Climate-Related Financial Disclosures
Objective: Providing a common framework for companies and investors to mainstream information (mainly qualitative) about climate change into business and investment practice. As an industry-led initiative, it was developed with mainstream corporations in mind and SDI-aligned investors will continue to benefit as adoption expands.
 
Methodology: Established by the Financial Standards Board (FSB) in 2015, the Taskforce on Climate-Related Financial Disclosure (TCFD) issued a voluntary series of recommendations in June 2017.  Its recommendations are clustered under four categories of climate-related disclosures: governance, strategy, risk management, and metrics. Unlike other reporting frameworks, the TCFD also asks companies to disclose forecasts, through scenario analysis, on how climate change may impact their business.
 
Participants: 700+
 
Tools: 
  • Annex: Implementing the TCFD Recommendations
  • Technical Supplement: The Use of Scenario Analysis in Disclosure of Climate-Related Risks and Opportunities
  • TCFD Knowledge Hub: Resources to understand and implement the TCFD recommendations

Core Elements of Recommended Climate-Related Financial Disclosure:

  • Governance: Disclose the organization’s governance around climate-related risks and opportunities.
  • Strategy: Disclose the actual and potential impacts of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning where such information is material (taking into consideration different climate-related scenarios)
  • Risk Management: Disclose how the organization identifies, assesses, and manages climate-related risks.
  • Metrics and Targets: Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material. The companies can decide what metrics to disclose – no standardization (TCFD only explicitly mentioned greenhouse gas (GHG) emissions scope 1 and 2 and if appropriate scope 3)
 
Climate Disclosure Standards Board
Objective: Offering companies a framework to report environmental information with the same rigor as financial information and integrate such information into mainstream reports (e.g. annual reports, 10-K filings and integrated reports). In doing so, it helps SDI-aligned investors make investment decisions based on robust and comparable information on environmental risks and opportunities.
 
Methodology: Focus is primarily on the risks and opportunities that climate change presents to an organisation’s strategy, financial performance and condition. There is close alignment between the guiding principles of the CDSB Framework, the SASB Conceptual Framework, and the TCFD Recommendations for effective disclosure.
 
Tools: 
  • CDSB Framework
  • CDSB & SASB have published an implementation guide to report in line with the TCFD

Guiding Principles for Framework:

  1. Prepared applying the principles of relevance and materiality: environmental impacts expected to have a significant positive or negative impact on the organization's financial condition and operational results
  2. Faithfully represented: ensure that disclosures are complete, neutral and free from error in order to be useful
  3. Connected with other information: explain the links between the organization's governance, strategy, risk management and environmental performance
  4. Consistent and comparable: so as to enable a level of comparability between similar organizations, reporting periods and sectors.
  5. Clear and understandable: ensuring that disclosures are easy to navigate, read and research
  6. Be verifiable: characterized by supporting evidence that provides a clear and sufficient trail from monitored data to the presentation of environmental information
  7. Be forward-looking: ensure that current and historic information in the mainstream report is complemented with a narrative on the future impact of environmental information.
 
International Integrated Reporting Framework
Objective: Promoting the adoption of integrated reporting on an international basis as a means to improve communication about value creation and make a lasting contribution to financial stability and sustainable development. While its scope is broader than sustainable reporting, the strategic considerations under it can help SDI-aligned investors understand a corporation's approach to ESG risks and opportunities.
 
Methodology: The International Integrated Reporting Framework is a principles-based approach. It was developed, and continues to be updated, through extensive consultation with corporations and investors under the leadership of the International Integrated Reporting Council (IIRC). In 2020, an industry consultation was initiated that will result in a revision of the principles by the end of the year.
 
Tools: 
  • International Integrated Reporting Framework

An integrated report includes the following content:

  1. Organizational overview and external environment: What does the organization do and what are the circumstances under which it operates?
  2. Governance: How does the organization’s governance structure support its ability to create value in the short, medium and long term?
  3. Business model: What is the organization’s business model?
  4. Risks and opportunities: What are the specific risks and opportunities that affect the organization’s ability to create value over the short, medium and long term, and how is the organization dealing with them?
  5. Strategy and resource allocation: Where does the organization want to go and how does it intend to get there?
  6. Performance: To what extent has the organization achieved its strategic objectives for the period and what are its outcomes in terms of effects on the capitals?
  7. Outlook: What challenges and uncertainties is the organization likely to encounter in pursuing its strategy, and what are the potential implications for its business model and future performance?
  8. Basis of presentation: How does the organization determine what matters to include in the integrated report and how are such matters quantified or evaluated?

Core indicators

Limited number of core indicators have been identified to help create a common baseline for companies to report on their sustainability across a variety of sectors.

 
ISAR SDG Indicators

Objective: Strengthen the capacities of governments to measure and monitor the private sector contribution to the 2030 Agenda based on data provided by companies as part of their reporting cycle.

Methodology: UNCTAD is a co-custodian of SDG indicator 12.6.1, which encourages reporting entities to publish sustainability reports. The International Standards on Accounting and Reporting (ISAR), convened by UNCTAD, has proposed a list of core SDG indicators for usage in corporate reporting in areas such as water, energy, land; emissions and waste reduction; and good governance, human resource development and gender equality. UNCTAD also developed guidance to assist companies in collecting the underlying accounting data for the indicators, in a manner consistent with financial reporting requirements.

Tools:

  • Core SDG Indicators
  • UNCTAD Guidance for Implementation
 
WEF-IBC Core Indicators

Objective: Propose a common, core set of metrics and recommended disclosures that corporations can use to align their mainstream reporting.

Methodology: At the 2017 World Economic Forum (WEF) meeting, CEOs adopted the SDGs as a roadmap for aligning corporate interests with those of society. Since then, the WEF International Business Council (IBC) has worked on aligning on core metrics and recommended disclosures to reduce fragmentation of reporting across businesses and sectors. Indicators are drawn as much as possible from existing frameworks, including the Global Reporting Initiative. This resulting reporting framework is composed of:

  • Core metrics: 21 primarily quantitative metrics for which information is already being reported by many firms or can be obtained with reasonable effort
  • Expanded metrics: represent a more advanced way of measuring and communicating sustainable value creation, and companies are encouraged to report against them as well, when material and appropriate

Tools:

  • Reporting framework

 

WEF-IBC Pillars of Reporting

Principles of Governance

The definition of governance is evolving as organizations are increasingly expected to define and embed their purpose at the centre of their business. But the principles of agency, accountability and stewardship continue to be vital for truly “good governance”.

Planet

An ambition to protect the planet from degradation, including through sustainable consumption and production, sustainably managing its natural resources and taking urgent action on climate change, so that it can support the needs of the present and future generations.

People

An ambition to end poverty and hunger, in all their forms and dimensions, and to ensure that all human beings can fulfil their potential in dignity and equality and in a healthy environment. 

Prosperity

An ambition to ensure that all human beings can enjoy prosperous and fulfilling lives and that economic, social and technological progress occurs in harmony with nature.

Sustainability questionnaires

Companies also provide sustainability information by responding to surveys and questionnaires, including from investors, data aggregators, indices, and ratings agencies. Large companies may receive 100+ of such queries each year. A few selected examples are presented below.

 
Carbon Disclosure Project

Objective: Creating an environmental disclosure system that assesses corporates and cities on behalf of investors. While not explicitly anchored in the Paris Agreement or the SDGs, SDI-aligned investors can consider the resulting scores as part of their environmental assessment. 

Methodology: Voluntary disclosure through questionnaires sent to companies and cities in the following 3 areas: climate change, water security, and forests. Companies are rated based on A – D scoring band and failure to respond when requested results in an F grade. Scores assesses the extent of disclosure, not the impact of companies on the topic disclosed. Data disclosed by companies is behind a paywall while data disclosed by cities is public.

CDP produces an annual “A List” with the names the world's businesses leading on environmental performance.

Participants: Over 8,400 companies and 800 cities reported through CDP on their impact on climate change, water security, and forests.

Tools:

  • Band rating
  • "A" list of leading companies and cities

Impact areas assessed

Climate Change: respondents must disclose management of carbon and climate change risks. The questionnaire is being aligned with TCFD recommendations. Focus Areas: 

•    Governance – Board level accountability
•    Strategy – assess whether companies are integrating climate change in business strategies
•    Risk Management – integrating climate change in overall risk management
•    Metrics and Targets – scope 1 emissions for Carbon

Water Security: respondents must disclose information on  existing and future water risk, water strategy and water use. Focus areas:

•    Transparency
•    Governance – Board level accountability
•    Measuring & Monitoring
•    Risk Assessment
•    Targets and Goals
•    Supply Chain Engagement

Forests: Focus areas of deforestation through four agricultural commodities: Timber - Palm oil – Soy - Cattle

 
SAM Corporate Sustainability Assessment

Objective: Help companies benchmark their sustainability performance against peers, and investors integrate financially material sustainability information into investment decisions. While the questions are not grounded in the SDGs, SDI-aligned companies and investors benefit from data with a strong presence across 61 industries to assess their alignment with the SDGs.

Methodology: SAM's Corporate Sustainability Assessment (CSA) uses a questionnaire to evaluate the management and performance potential of companies on sustainability issues. The questionnaire encompasses 80-100 cross-industry and industry specific questions, with the weighing of questions varying based on the financial materiality of the criterion to the sector. Standards from the Global Reporting Initiative (GRI) are referenced to aid completion. SAM also performs a media and stakeholder analysis, using the RepRisk platform, to verify the consistency of self-reporting with actual behavior.

Tools:

  • Corporate Sustainability Assessment
  • ESG Indices based on the questionnaire
  • Industry rankings and benchmarks

Tools based on the CSA

Benchmarking - The CSA converts intangible aspects of a company's sustainability performance into tangible scores. Companies can request an assessment, which provides access to a benchmarking database. The database facilitates a detailed assessment of a company’s performance and the easy identification key areas for improvement.

Indices – The Dow Jones Sustainability Indices (DJSI) family of indices, the S&P ESG index family as well as indices that use scores at criteria level like the S&P Long-Term Value Creation Index or the JPX/S&P CAPEX & Human Capital Index. 

DJSI component lists – Many stakeholders use the DJSI component lists to identify leading companies and make sustainability-focused investment decisions.

SAM Sustainability Yearbook – The related yearbook online database provides the ranking of over 2,000 assessed companies.

Industry Leader Reports - Industry leaders are the top performing companies in each of the 61 industries represented in the CSA. These reports provide an overview of the industry leader’s performance relative to other companies in the industry.

Finance Institutions

Adopt sustainable banking principles

SDI-aligned finance institutions need to incorporate SDG issues into their lending decision-making and operations. These sustainable banking principles provide a blueprint that finance institutions can adopt.

Industry-specific principles

 
Principles for Responsible Banking

Objectives: Providing framework for a sustainable banking system. As the principles are in line with society’s goals as expressed in the SDGs and the Paris Climate Agreement, they are of value to SDI-aligned banking corporations.

Principles: The Principles for Responsible Banking help banks embed sustainability at the strategic, portfolio and transactional levels. Signatory banks commit to analyzing their current impact on people and planet, setting targets where they have the most significant impact, and implementing them. Eighteen months after signing, signatory banks must report on impact and progress; within four years, signatory banks must have met all these requirements.

Participants: 185+ banks
 

Principles for Responsible Banking

  1. Alignment: align business strategy to be consistent with and contribute to individuals’ needs and society’s goals. 
  2. Impact & Target Setting: increase positive impacts while reducing the negative impacts on the environment.
  3. Clients & Customers: work responsibly with clients to encourage sustainable practices. 
  4. Stakeholders: consult, engage and partner with relevant stakeholders
  5. Governance & Culture: implement commitment to these Principles through effective governance. 
  6. Transparency & Accountability: periodically review implementation of and be accountable for positive and negative impacts. 
     
 
Equator Principles

Objective: Offer a minimum standard for determining, assessing and managing environmental and social risk in project finance. SDI-aligned project financiers can benefit from its guidance when conducting due diligence on sustainable infrastructure projects.

Methodology: The Equator Principles are intended to provide a minimum standard for due diligence and monitoring to support responsible risk decision-making. The principles apply globally to all industry sectors. In addition to project finance transactions with capital costs in excess of US$10 million, the principles apply to project finance advisory services, project-related corporate loans, bridge loans, and project-related refinance and acquisition finance. Participating financial institutions must report annually on transactions that fall under the scope of the principles. 

Users: 110 public and private financial institutions have adopted the principles

Tools:

  • Equator Principles

Equator Principles

The principles span the following ten topics:

  1. Review and categorization
  2. Environmental and social assessment
  3. Applicable environmental and social standards
  4. Environmental and social management system
  5. Stakeholder engagement
  6. Grievance mechanism
  7. Independent review
  8. Covenants
  9. Independent monitoring and reporting
  10. Reporting and transparency
 
Finance for Biodiversity Pledge

Objective: Provide a pathway for financial institutions to make a positive contribution to biodiversity and reverse nature loss. SDI-aligned financial institutions can make the pledge or adhere to its broad principles.

Methodology: Under the Finance for Biodiversity Pledge, financial institutions commit to making a positive contribution to biodiversity through their activities and investments, asking other financial institutions to join, and calling upon world leaders to reverse nature loss this decade. The initiative was announced during the Biodiversity Summit of the 2020 United Nations General Assembly.

Signatories: 26+ signatories from 10+ countries

 

Finance for Biodiversity Pledge

Signatory financial institutions commit to accomplishing the following by 2024:

  1. Collaboration and knowledge sharing. Signatories will collaborate and share knowledge on assessment methodologies, biodiversity-related metrics, targets and financing approaches for positive impact.
  2. Engaging with companies. Signatories will incorporate criteria for biodiversity in ESG policies, while engaging with companies to reduce their negative and increase positive impacts on biodiversity.
  3. Assessing impact. Signatories will assess their financing activities and investments for significant positive and negative impacts on biodiversity and identify drivers of its loss.
  4. Setting targets. Signatories will set and disclose targets based on the best available science to increase significant positive and reduce significant negative impacts on biodiversity.
  5. Reporting publicly. Signatories will report annually and be transparent about the significant positive and negative contribution to global biodiversity goals linked to their financing activities and investments in their portfolios.
 
Principles of Values-Based Banking

Objective: Driving change in the banking system so it supports sustainable economic, social and environmental development, with a focus on helping individuals fulfill their potential and build stronger communities.

Methodology: Definition of values-based banking that independent banks and non-bank financial institutions can adopt when they become members of the network.

Signatories: 63+

5+1 Principles of Values-Based Banking

  1. Social and environmental impact and sustainability are at the heart of the business model
  2. Grounded in communities, serving the real economy, and enabling new business models to meet the needs of people
  3. Long-term relationships with clients and a direct understanding of their economic activities and the risks involved
  4. Long-term, self-sustaining, and resilient to outside disruptions
  5. Transparent and inclusive governance

All of these principles embedded in the leadership and the culture of Global Alliance for Banking on Values (GABV)'s member financial institutions.

Assess impact and set targets

SDI-aligned finance institutions can use these tools to set specific impact targets and assess their performance towards them.

Guidelines and tools

 
Portfolio Impact Analysis for Banks

Objective: Guiding banks through an impact analysis of their portfolios. SDI-aligned financiers can use this tool to understand the baseline impact of their portfolio and identify opportunities for improvement.

Methodology: Developed jointly with signatories of the Principles for Responsible Banking and UNEP FI Member Banks, the Portfolio Impact Analysis Tool helps banks analyze the impacts associated with their retail and wholesale banking portfolios. As such, it is intended to aid banks in setting targets to increase their positive impacts and decrease their negative impacts. 

It consists of an Excel sheet workflow over four steps:

  1. Bank cartography: Gather data on the bank's business lines, geographic presence, sectoral exposure, and level of financing
  2. Impact assessment: Understand the positive and negative impacts that are associated with the bank's cartography, using an impact radar of 22 impact areas derived from the SDGs
  3. Significant impact areas: Determine which impact areas are most significant for the bank
  4. Priority impact areas: Assess current performance in these impact areas to ultimately determine the impact areas that the bank should prioritize

Tools:

Definition of significant impact areas

Where your bank identifies impact areas that (i) are on a large scale, (ii) are salient or intense, and (iii) have an effect on critical national or regional challenges and objectives, these impact areas will be your bank’s areas of most significant impact.

For example: The bank is a major financier of agriculture, which can use a large amount of water. In the country in which the bank finances agricultural activities, water scarcity is a key challenge. Hence, access to or availability of water is a significant area of impact, which the bank should focus on. Through working with its clients and customers it can drive a significant improvement in impact, e.g. through more efficient irrigation practices, switch to less water-intensive crops, relocation of production to more water-abundant regions, etc.

 

 
Science Based Targets - Financial Sector

Objective: Help financial institutions – including banks, investors, insurance companies, pension funds and others – set science-based targets to align their lending and investment activities with the Paris Agreement. SDI-aligned financial institutions benefit from a robust methodology for setting climate targets.

Methodology: On the back of a tool developed for corporates, the Science Based Targets initiative has released a tool to help financial institutions set targets for carbon reduction emissions. It focuses on the impact of a financial institution's lending and investment portfolio on climate change by linking it to climate stabilization pathways. In addition, financial institutions are required to set targets for their operations consistent with a well below 2°C pathway. Subscribing financial institutions must submit targets for validation and communicate them publicly.

Users: 50+ commitments to use it

Tools:

  • Science Based Target setting tool (in Excel)
  • Practical guidance
  • Tool for temperature scoring and portfolio coverage
  • Target validation criteria and recommendations

Linking portfolios to pathways

The Science Based Targets initiative has selected three methods that link financial institutions’ investment and lending portfolios with climate stabilization pathways, each of which can be used for one or more asset classes:

  • Sectoral Decarbonization Approach (SDA): Emissions-based physical intensity targets are set for real estate and mortgage–related investments and loans, as well as for the power generation, cement, pulp and paper, transport, iron and steel, and buildings sectors within corporate instruments.
  • SBTi Portfolio Coverage Approach: Engagement targets are set by financial institutions to have a portion of their investees set their own  science-based targets such that the financial institution is on a linear path to 100 percent portfolio coverage by 2040.
  • The Temperature Rating Approach: Financial institutions can use this approach to determine the current temperature rating of their portfolios and take actions to align their portfolios to ambitious long-term temperature goals by engaging with portfolio companies to set ambitious targets
 
Partnership for Carbon Accounting Financials

Objective: Create an open-source global carbon accounting standard covering various asset classes. Once the first version is released late 2020, SDI-aligned financial institutions can use it to harmonize their disclosure of financed emissions. 

Methodology: The Partnership for Carbon Accounting Financials (PCAF) is developing a global carbon accounting standard for financial institutions that will cover all major asset classes (e.g. mortgages, commercial real estate, listed equity, business loans, project finance) by providing detailed methodological guidance for each asset class. PCAF's standard intends to follow the financial chain as far as possible to account for carbon impact in the real economy. Publication of the first edition is expected in 2020 and the second edition with updates from implementation in 2022. PCAF builds on work that fourteen Dutch financial institutions commenced in 2015 and subsequently expanded to North America.

Regional implementation

Regional implementation teams, with their own governance structures, have been convened to inform the development of the global carbon accounting standard. Lessons learned through the regional implementation of the standard will feed into the refinement of the global carbon accounting standard in the second edition.

The regions are the following:

  • PCAF Africa
  • PCAF Asia-Pacific
  • PCAF Europe
  • PCAF North America
  • PCAF Latin America

Design new products

When developing and issuing sustainability-linked financial products, SDI-aligned investors can use these initiatives to attain a minimum impact standard.

Standards for sustainability-related loans

 
Green Loan Principles

Objective: Promoting the development and integrity of green loan products. SDI-aligned financial institutions can subscribe to the guidelines in their green loan operations.

Methodology: The Green Loan Principles (GLP) are voluntary guidelines that seek to promote integrity in the development of the green loan market, by clarifying instances in which a loan may be categorized as “green”. Market participants are expected to adopt the GLP on a deal-by-deal basis depending on the underlying characteristics of the transaction. To promote consistency across financial markets, the guidelines build on and refer to the Green Bond Principles administered by the International Capital Market Association. 

Tools:

  • Green Loan Principles
  • Indicative categories of eligibility for green projects

 

Green Loan Principles

The principles are built around four core components:

  1. Use of proceeds. The proceeds of green loans must be utilized for "green projects". Green projects are defined as providing clear environmental benefits that are to be assessed, and where possible, quantified, measured, and reported. Specific guidance is provided for refinancing and tranched financing facilities.
  2. Process for project evaluation and selection. The lender must evaluate the environmental sustainability objectives reported by the borrower, as well as the evaluation process and eligibility criteria used by the borrower. Green standards and certification can facilitate selection and borrowers are encouraged to disclose these.
  3. Management of proceeds. Borrower are required to uphold integrity and transparency by crediting the proceeds of a green loan to a dedicated account or otherwise tracking the proceeds in an appropriate manner. Borrowers are encouraged to define an internal governance process.
  4. Reporting. Borrowers must report, at least annually, on the use of proceeds. Reporting should cover the list of green projects financed by the proceeds, the amounts allocated to each project, and their expected impact. Impact should be assessed through qualitative, and where possible, quantitative performance metrics.
 
Sustainability Linked Loan Principles

Objective: Promoting the development and preserving the integrity of sustainability linked loan products. SDI-aligned financial institutions can adopt these guidelines in their sustainable finance operations.

Methodology: The Sustainability Linked Loan Principles (SLLP) are voluntary guidelines that capture the fundamental characteristics of these loans. Sustainability linked loans are defined as loan instruments or contingent facilities which incentivize the borrower’s achievement of predetermined sustainability performance targets. In contrast to the Green Loan Principles, the use of proceeds is not a determinant in the categorization; in most instances, sustainability linked loans will be used for general corporate purposes.

Tools:

  • Sustainability Linked Loan Principles
  • Indicative list of sustainability performance targets

Sustainability Linked Loan Principles

The principles are built around four core components:

  1. Relationship to borrower's sustainability strategy. Sustainability linked loans are intended to improve the borrower’s sustainability profile. The borrower must therefore communicate its sustainability objectives, as set out in a sustainability strategy, and proposed sustainability performance targets.
  2. Target setting. The borrower and lender must negotiate specific sustainability performance targets. Targets should be ambitious, meaningful to the borrower’s business, and tied to a sustainability improvement. Loan terms (e.g. margin) should be tied to the borrower’s performance against these targets.
  3. Reporting. Borrower must maintain information relating to their targets (e.g. external ESG ratings) and report on it at least annually. Borrowers are encouraged to report on this information publicly.
  4. Review. An external review is not required but recommended in some cases. For instance, when there is no public disclosure of sustainability performance, lenders should stipulate an external review by an auditor, environmental consultant, or rating agency.
 
SDG Impact Standards for SDG Bonds

Objective: Establishing a voluntary global standard for a decision making and impact management system that supports positive contribution to sustainable development and achieving the SDGs. Part of a broader harmonized set, these standards apply specifically to SDG Bonds.

Methodology: The SDG Impact Standards for SDG Bonds, convened by UNDP, encourage activities that measure and manage progress towards addressing pressing economic, social and environmental challenges to catalyze activity and investment and close gaps in current market practice to achieving SDGs by 2030. The Standards promote a shift from reporting current activities differently (i.e. using the SDGs as a reporting filter) to doing things differently. The Standards apply to defined SDG Bond Programs, including those issued under the use-of-proceeds guidance released by ICMA or certified by the Climate Bonds Institute. The first draft Standards were subject to an initial public consultation period of three months (May – July 2020); the second consultation draft will be shared later in 2020.

Tools:

  • Standards
  • Practical guidance
  • Assurance framework

SDG Impact Standards

Businesses and investors are increasingly seeking opportunities to make a positive contribution towards sustainable development and achieving the SDGs by 2030 – and looking for guidance to help translate that intent to action. The SDG Impact Standards have been designed to meet that need. They provide a common language and best practice guidance for integrating impact management into business and investment practices and decision-making – including focusing on both positive and negative impacts on people and the planet.  They are grounded in existing high-level principles of practice and provide necessary context for applying other tools and frameworks, including metrics, taxonomies and reporting frameworks.  The Standards can be used by anyone – they are voluntary and freely available public good.  

The foundation for the Standards is:

  • Contributing positively to sustainable development and achieving the SDGs
  • which cannot be achieved without demonstrating respect for human rights and other responsible business practices
  • and is realized through effective impact management and decision making

The SDG Impact Standards operationalize these foundations through four Standards:

  • Standard 1 (Strategy): Embeds contributing positively to sustainable development and achieving the SDGs into purposes and strategic decision making
  • Standard 2 (Management Approach): Integrates impact management and contributing positively to sustainable development and achieving the SDGs into operations and management decision making
  • Standard 3 (Transparency): Discloses how it integrates contributing positively to sustainable development and achieving the SDGs into its investment strategy, management approach, governance and decision making, and reports (at least annually) on its performance
  • Standard 4 (Governance): Reinforces commitment to contributing positively to sustainable development and achieving the SDGs through governance practices