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Financing for sustainable development

Impact Standards for Financing Sustainable Development

 

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A decision-making framework for donors, development finance institutions (DFIs) & investors to deliver sustainable investments with integrity.

The OECD-UNDP Impact Standards for Financing Sustainable Development (IS-FSD) are a best-practice guide and self-assessment tool for public and private investors seeking to optimise their positive contribution to the sustainable development goals (SDGs).

The Standards facilitate transparency in investment reporting and will contribute to the reduction of “impact washing” - a process in which investors claim to align with and contribute to development objectives without providing meaningful supporting evidence.

The OECD Development Assistance Committee (DAC) approved the standards in March 2021. This marks an important step towards greater public accountability amongst the organisations involved in financing sustainable development.

 

How do the Standards add value to existing impact management principles, frameworks and tools?


For a full list of resources, click on the image above.

The Standards address donor priorities overlooked by existing impact management systems, such as greater transparency, human rights considerations and local development needs.

They also address a gap between management principles and measurement tools. They do so by making high-level principles actionable, embedding the impact management project (IMP) shared norms and providing guidance for the application of existing tools and frameworks.

The Standards are aligned with the SDG Impact Standards of the United Nations Development Programme (UNDP).

The Four Standards

STANDARD 1
STRATEGY

The partner sets development impact objectives, framed in terms of the SDGs, with particular attention to the overarching commitment to “leave no one behind”. Objectives are aligned with donor and partner country priorities and are embedded in the impact-centred investment strategy.

The partner optimises the integration of Environmental, Social and Governance (ESG) factors in the investment strategy and throughout the investment process.

  • Sub-standards
    • 1.1 The partner articulates both quantitative and qualitative development impact objectives that positively contribute to the SDGs, and cross-sectoral donor priorities. The goals are realistic but ambitious, and are aligned with the partner size and resource availability.
    • 1.2 The partner defines investment objectives that are coherent with local and democratically determined development priorities and grounded in local development needs, with a focus on creating decent work, investment objectives that respect human rights, as well as other social and environmental safeguards
    • 1.3 The partner develops and implements a policy for assessing financial and development additionality, aligned with its size and resources availability.
    • 1. 4 The partner optimises the integration of Environmental, Social and Governance (ESG) factors in the investment strategy and throughout the investment process

STANDARD 2
MANAGEMENT

The partner adopts an impact management approach that integrates development impact, human rights safeguards, the SDGs and Environment Social and Governance (ESG) into the design and management of its operations.

  • Sub-standards
    • 2.1 The partner assesses the investment’s compliance with local and international legal frameworks, including international human rights frameworks, when conducting both the due-diligence and ex-post impact assessment of investments. The partner also establishes criteria for investees’ integration of ESG factors and compliance with responsible business conduct (RBC) standards. The partner ensures that an independent functioning grievance and reparation mechanism is in place.
    • 2.2 The partner has effective processes to identify stakeholders affected (or likely to be affected) by its operations and implements a plan to conduct Meaningful Stakeholder Engagement ex ante, throughout the investment cycle (when circumstances change or when needed) and ex post.
    • 2.3 The partner has a monitoring and evaluation system in place that is used to assess progress against impact targets and portfolio level impact goals, identify the partner’s contribution, and identify areas for improvement. Adequate resources are provided for monitoring and evaluation, proportionate to the size of the investment.
    • 2.4 The partner manages its exits from investments in a manner that optimizes sustained effects on development impact and contributions towards the SDGs post-exit.
    • 2.5 The partner periodically reviews and refines its impact-centred investment strategy and impact goals based on the learnings and evidence collected through monitoring and evaluation to guarantee that they remain fit-for-purpose in the changing development context.

STANDARD 3
TRANSPARENCY AND ACCOUNTABILITY

The partner discloses, towards donors and beneficiaries, how it manages and measures the development impact and contribution to the SDGs of private sector operations deploying public resources. The partner also discloses how development impact is integrated in its management approach and governance practices.

  • Sub-standards
    • 3.1 The partner discloses information at the portfolio and, where feasible, individual operation level, that promotes SDG and ESG impact integrity, comparability and transparency towards the donors and relevant investment stakeholders with a view to building trust and confidence.
    • 3.2 The partner discloses to donors and other relevant stakeholders, at the portfolio and, where feasible, individual operation level, the sources of data used for both the ex-ante and ex-post assessment of development results and for monitoring.

STANDARD 4
GOVERNANCE

The partner’s commitment to contributing positively to the SDGs is reflected in its governance practices and arrangements

  • Sub-standards
    • 4.1 The partner actively engages its shareholders, based on its governance structure.
    • 4.2 The partner ensures the presence of impact management competences in its governing bodies, promoting a culture of learning and development.
    • 4.3 The partner incentivises its staff to embed impact considerations at all investment stages and decision-making levels, to facilitate the adoption of the impact-centred strategy and approach.
    • 4.4 The partner allocates adequate (financial and non-financial) resources to the development and implementation of a sound impact management process.

 

For the purpose of these Standards, “partner” refers to any organisation deploying public or public/private capital through debt, equity or mezzanine instruments, as well as guarantees and other unfunded contingent liabilities for investments contributing to the SDGs. When a donor is investing directly, the “partner” is the donor itself.

OECD-UNDP Impact Standards for Financing Sustainable Development

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The OECD-UNDP Impact Standards for Financing Sustainable Development (IS-FSD) provide an investment decision-making framework for all organisations seeking to demonstrate public accountability regarding their measurement and management of impact. In addition to guidance on using the Standards, readers can find out more about why they have been developed and the rigorous consultation process that informed them.

Forthcoming IS-FSD guidance and pilot studies

Detailed implementation guidance for the IS-FSD are forthcoming and will show

  1. how to implement the Standards in practice
  2. what “compliance” to the Standards means
  3. best practice examples

Pilot studies will show how the standards work in different geographies (i.e. low vs. middle-income countries), in different sectors (i.e. energy vs. healthcare) and for different investment types and sizes (i.e. SME investing vs. large infrastructure projects).

 

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