A crowd waits for a Bank of Africa branch to open in Madagascar, Oct 1, 2014 (Photo by Bruce Thomson) Creative Commons license via Flickr
By Sunny Lewis
PARIS, France, February 21, 2017 (Maximpact.com News) – Nineteen global banks and investors, worth a total of US$6.6 trillion in assets, have agreed on a set of standards for financing sustainable development framed as the first-ever Principles for Positive Impact Finance.
On the last Monday in January, the set of four unpublished Positive Impact Principles was launched to provide a global framework for financiers and investors to analyze, monitor and disclose the social, environmental and economic impacts of the financial products and services they deliver.
The Principles for Positive Impact Finance are a direct response to the challenge of financing the UN’s Sustainable Development Goals . Adopted by the world’s governments in 2015 to end poverty, protect the planet, and ensure prosperity for all, each of the 17 SDGs has specific targets to be achieved over the next 15 years.
The principles are intended to provide a global framework for impact financing that applies across different business lines, including retail and wholesale lending, corporate and investment lending, and asset management.
Principle One: Definition
This principle is simple, “It’s a good idea to make a donation.“
Eric Usher, director of the United Nations Environment Program (UNEP-FI) looks at what it will cost to make the SDGs a reality. “Achieving the Sustainable Development Goals – the Global Program of Action to End the Poverty, fight climate change and protect the environment – should cost between $5 and $7 billion a year by 2030,” he said.
“The Principles for Positive Impact Finance will change the situation,” said Usher. “They will allow us to direct hundreds of billions of dollars managed by banks and investors towards clean low-carbon emissions, benefiting everyone.“
The scope here is broad; this first principle covers loans of all kinds – corporate, retail, municipal, sovereign, inter-bank, project-related; bonds; equity; notes and credit-linked notes.
In all these cases the positive impact of the financial activity should be defined.
Principle Two: Frameworks
Entities, whether financial or non-financial, need adequate processes, methodologies, and tools to identify and monitor the positive impact of the activities, projects, programs, and/or entities to be financed or invested in. They should implement specific processes, criteria and methodologies to identify positive impact.
The Principles do not prescribe which methodologies and key performance indicators to use to identify, analyze and verify positive impact, instead they require that there be transparency and disclosure.
Principle Three: Transparency
Entities, financial or non-financial providing Positive Impact Finance should provide transparency and disclosure on the activities, projects, programs, and/or entities financed.
The intended use of funds released via financial instruments and their positive contribution should be clearly marked on the corresponding documentation.
Methodologies, key performance indicators and achieved impacts should be identified and disclosed.
Principle Four: Assessment
The assessment of positive impact should be based on the actual impacts achieved, this principle states. The assessment can be internally processed, or undertaken by qualified third parties such as audit research institutes and rating agencies.
The principles require a holistic appraisal of positive and negative impacts on economic development, human well-being and the environment, this is what makes them innovative.
“These principles are timely from the financial sector. They demonstrate the willingness of the financial resources to go beyond current practices and contribute to more sustainable development,” affirmed the French Minister of Economy and Finance Michel Sapin. “These principles should strengthen the cooperation between public and private actors in this field.“
The principles were developed by the Positive Impact Working Group, a group of UN Environment Finance Initiative banking and investment members, as part of the implementation of the roadmap outlined in the Positive Impact Manifesto released in October 2015.
The Manifesto calls for a new, impact-based financing paradigm to bridge the gap in financing for sustainable development.
As of January 1, 2017, the Positive Impact initiative is made up of the following members of the United Nations Environment Programme’s Finance Initiative: Australian Ethical, Banco Itaú, BNP Paribas, BMCE Bank of Africa, Caisse des Dépôts Group, Desjardins Group, First Rand, Hermes Investment Management, ING, Mirova, NedBank, Pax World, Piraeus Bank, SEB, Société Générale, Standard Bank, Triodos Bank, Westpac and YES Bank.
Séverin Cabannes, deputy CEO of Société Générale, a founding member of the group, says there is urgency pushing this initiative along – the urgency of confronting what’s happening to the planet.
“With global challenges such as climate change, population growth and resource scarcity accelerating, there is an increased urgency for the finance sector both to adapt and to help bring about the necessary changes in our economic and business models,” said Cabannes.
“The Principles for Positive Impact Finance provide an ambitious yet practical framework by which we can take the broader angle view we need to meet the deeply complex and interconnected challenges of our time,” he said.
Gérard Mestrallet, chairman of Paris EUROPLACE and chairman of the Board of the French multinational electric utility company ENGIE, views the principles as another tool in his problem-solving toolbox.
They are “the tool that is needed to enable the business and finance community to work and innovate together, and to address the challenge of the UN Sustainable Development Goals,” he said.
“The financial sector has already moved forward in that direction,” said Mestrallet, “and we hope that the principles as well as the Paris Green and Sustainable Finance Initiative we launched last year will help marking a new stage.”
The UNEP-FI is a partnership between UN Environment and the global financial sector created after the 1992 Earth Summit in Rio de Janeiro with a mission to promote sustainable finance.
Over 200 financial institutions, including banks, insurers and fund managers, work with UN Environment to understand today’s environmental challenges, why they matter to finance, and how to actively participate in addressing them.
“The need to align capital markets to a two degree world is urgent and necessary,” said Fiona Reynolds, managing director of the Principles for Responsible Investment. “The UN Environment Finance Initiative Principles for Positive Impact Finance are an important tool for investors to frame their positive contribution to the environment, the society and the economy.”