Issuers Seen as Key to Overcoming “Hurdles” to SDG Impact
EMDE-focused Impact Disclosure Taskforce aims to complement sustainability and impact-focused initiatives, such as the ISSB standards.
Better disclosure guidance to issuers, especially those in developing markets, has the potential to close the widening funding gaps that are putting the UN Sustainable Development Goals (SDGs) at risk.
This is the view of a new financial institution-driven taskforce which is in the process of developing voluntary guidance that can serve as the “bedrock” for increased investment in positive sustainable impacts across emerging markets and developing economies (EMDEs).
The Impact Disclosure Taskforce aims to support corporates and sovereigns – alongside investors and other financial firms – in measuring and disclosing their efforts to reduce major gaps to achieving the SDGs. Drawing on existing resources, the guidance will detail how entities can set targets, as well as monitor and report on their progress.
Financial institutions involved in the taskforce, including Amundi, Caisse de dépôt et placement du Québec and AXA Investment Managers, first met to identify “the obstacles and hurdles” surrounding their impact-focused strategies in April of this year, noting “a shortage of meaningful data for SDG-related financing and investing”, Cédric Merle, Head of the Centre of Expertise and Innovation within Natixis Corporate & Investment Banking’s (CIB) Green and Sustainable Hub and Co-chair of the taskforce, told ESG Investor.
Firms are currently “torn” between very granular sustainability-related reporting requirements in developed jurisdictions, and an overall “lack of consensus and lack of harmonised disclosures, especially in EMDEs”, he said.
EMDE-based corporates and sovereigns with potential to substantially contribute to the SDGs face challenges, according to the initiative’s concept note.
These include receiving lower ESG scores due to a lack of voluntary non-financial disclosure, a lack of regulatory guidance on sustainability reporting, and a lack of sufficient sizeable sustainable projects for asset-level financing.
“The Impact Disclosure Taskforce wants to start by first identifying the actual needs and commitments of lenders and investors to ensure companies and sovereigns have more clarity,” Merle noted.
“What information do they actually need from the data that is already being provided? What do entities need to be prioritising to best inform investment and lending decisions? Our work is very market participant driven.”
A 2023 survey of 420 asset owners and managers, hedge funds and private equity firms found that impact investing has become increasingly important to investors as they seek to take a more holistic approach to ESG-related investing.
A 2023 report published by the UN Conference on Trade and Development (UNCTAD) noted that developing countries currently face a US$4 trillion gap in SDG-related investments.
Three steps
The Impact Disclosure Taskforce’s November concept note provides an outline of the three core components of the taskforce’s work.
Firstly, it has proposed Sustainable Development Impact Disclosure (SDID) guidance for corporates and sovereigns, which would require entities to identify their impact intentions and related sustainability metrics, prioritise metrics that are core to their operations, set targets to achieve results, disclose plans for mitigating negative impacts, and issue a comprehensive framework outlining the overall strategy.
Secondly, the Impact Disclosure Taskforce intends to establish an industry data platform to facilitate the dissemination of entity-level impact disclosure information to data issuers (corporates and sovereigns), data accessors (investors and lenders), and ancillary service providers (auditors and data providers).
“There should be no barriers to this information – it should all be accessible and retrievable – and there must be engagement and accountability based on the data and throughout the platform,” said Merle.
Finally, the concept note has outlined recommendations for how third-party services can support corporate, sovereign and financial entities in this arena, including analytics, benchmark indices, and independent evaluation and verification.
“The platform could provide the bedrock upon which ancillary services can be designed [and] blended finance mechanisms can be developed in line with [our] guidelines,” Merle added.
The guidance “complements” other initiatives, such as the climate and sustainability standards developed by the International Sustainability Standards Board (ISSB), according to Merle.
Operating in parallel
The Impact Disclosure Taskforce is not to be confused with the Group of Seven-backed Impact Taskforce that was founded in 2021, Merle from Natixis CIB said.
The Impact Taskforce was created to promote impact-driven economies and societies, designing principles and recommendations for financing impact investment vehicles that will encourage institutional investors to invest in a just transition.
“In a nutshell, we [the Impact Disclosure Taskforce] are more focused on what corporates and sovereigns should disclose to be eligible for [impact-focused] investors,” Merle explained.
He added that the new taskforce doesn’t want to “further fragment the landscape”, but rather aims to “cohesively streamline what is out there”.
Earlier this month, the Impact Taskforce published its State of Play 2023 report, which assessed global impact-related progress since the taskforce made its first recommendations in its flagship report.
It noted that the global ESG market grew by 15% in 2022 to over US$35 trillion, with over US$1 trillion intentionally invested for positive impact. However, private finance flows into EMDEs decreased by 22%, it said.
The Impact Disclosure Taskforce aims to publish its finalised guidance for public consultation in April 2024.
“Our guidance must be practical,” said Merle.
“We are going to undertake a number of pilots testing the guidelines. How can it fit into portfolio strategies? What are the loopholes? This is necessary to make sure it delivers.”
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