The coronavirus COVID-19 pandemic has unleashed disruption and devastation around the globe, bringing into sharp focus our global connectedness and the interdependencies between economic, social and environmental outcomes. Economies have slowed to a trickle; daily routines are suspended; enterprises are in hibernation; millions of people are unemployed; and more than a hundred thousand lives have been lost. As is often the case, the most disadvantaged are expected to be the most affected. This international health crisis is only the latest in a series of events to expose how vulnerable poor and marginalized communities are and how fragile our planet’s ecosystem is.
Against this backdrop, stock market volatility is setting new records and trillions of dollars in value has been wiped from exchanges. The size of the world’s capital markets relative to global GDP makes the links between financial performance and economic, social and environmental outcomes increasingly unavoidable, especially as we start to bump up against the boundaries of the world’s natural systems.
What is clear is the path we were on was not sustainable. The pandemic has exposed our weaknesses. It has reminded us about how interconnected all our fortunes are. We now have the opportunity to create a better, stronger, more sustainable, resilient and inclusive future for all. As the world looks forward to emerging from this crisis and moving into recovery, what should our new normal look like? And in this new normal, what is the role and purpose of capital in our society?
A pandemic raises the stakes, but gives permission for change
A decade ago, the United Nations set out the Sustainable Development Goals (SDGs), 17 high level goals supported by 169 specific targets that will create a better world for all. Even before this pandemic, progress against the SDGs was stalling. With the pandemic we find ourselves at a fork in the road. We cannot afford to take the path that leads us even further away from delivering on the SDGs. We must forge a new path that drives us towards that better future. And rather than assume that the pandemic makes this task harder, we should capitalize on the opportunity and space it provides to challenge conventional wisdom.
UNDP established SDG Impact, to direct private capital toward the SDGs in meaningful, measurable ways. We believe a common framework is needed, so investors and enterprises have parameters to measure, manage and communicate their SDG contributions in a consistent and transparent manner. Typically, investors focus more on how environmental, social and governance factors can affect the financial valuation of their enterprise or investments, rather than on how the activities of their enterprise or investments impact on the SDGs or the economic, social and environmental outcomes. Too often the SDGs are used as just another reporting lens to communicate existing activities differently, rather than to make different decisions.
We are developing practice assurance standards for various asset classes, including SDG bonds (now available for public consultation), private equity funds and enterprises, to provide enterprises and investors with the tools to confidently make more targeted investments and more informed decisions towards achievement of the SDGs. They are an open-source public good aimed at promoting consistency, transparency and efficiency, and provide a competitively neutral platform that can be used by practitioners, analysts and assurers alike. We believe they are needed now more than ever as we come out of the pandemic and look to recovery with depleted resources, which will need to be deployed as effectively as possible.
Translating intention into impact
While interest in the SDGs has been building, business leaders tell us that they still do not have all the tools and information they need to support decisions on investments. UNDP’s new SDG Bond Standards will help issuers and investors be confident about how their activities and capital are being directed. The standards guide users through their SDG goals – including linking these to in-country SDG priorities and (for issuers) the SDGs that are most relevant to their business. There are six standards, each with practice indicators, evidence relating to each indicator, and guidance notes and resources to inform consistent application. This allows users to verify compliance and communicate their progress.
The standards can also be used to help map out internal impact measurement and management practices (and design impact management systems) that then support both internal reporting and decision-making and external reporting requirements under multiple frameworks. This promotes a more systematic and efficient approach to managing non-financial information. These practical guidelines target a gap in the developing impact management toolkit between high level principles of practice and impact performance reporting and benchmarking. They inform how decisions get made, whose voices get heard, and what gets done, prioritized and communicated, and most importantly, provide a shared language.
Standardization, transparency and assurance are necessary preconditions for market development at scale. The standards provide a more rigorous and transparent framework than intention and belief for designing and evaluating SDG-benefiting initiatives. They make it possible to translate a sincere desire to achieve SDG-enabling investment into examples of success.
Chanelling resources to the SDGs
UNDP is leveraging its SDG-stewardship role and its convening power to influence change. There are several global initiatives aimed at improving reporting about impact investment. UNDP is uniquely placed to foster connections between these various initiatives. With a clear and common framework in place, UNDP sees an opportunity to mobilize significant resources and make real progress. The stakeholder capitalism model will also be increasingly important as the world recovers from the pandemic, as enterprises and investors that are in tune with the needs of their communities will be best placed to succeed.
UNDP Administrator Achim Steiner, recently said, explaining why the SDGs are more important than ever in this time of COVID-19, “As we work through response and recovery from the shocks of the pandemic, the SDGs need to be designed into the DNA of global recovery. They provide a blueprint for a more equitable and sustainable future.”
Bond issuers seeking to maximize their SDG impact might think of the new UNDP Practice Assurance Standards for SDG Bonds as a blueprint to the blueprint, guiding them through design, execution, and measurement, providing a greater sense of confidence in an uncertain time, and ultimately improving our resilience and helping reduce the frequency and severity of future natural and man-made disasters.