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Sustainable Development Goal Bonds

By Carol Adams - May 2020

Sustainable Development Goal Bonds: financing the SDGs with credibility, building back better post COVID-19

The UNDP’s SDG Impact Team is developing resources to facilitate the shift in investment needed to achieve the SDGs. The recent release of consultation documents on Practice Assurance Standards for SDG Bonds is timely as national governments turn their minds to building back their economies smartly in the post COVID-19 era.

SDG Bonds allow sovereign wealth funds, the largest of which is Norway’s Government Pension Fund (NGIM), to assist their national governments in fulfilling their commitment to the United Nations Sustainable Development Goals (SDGs). As NGIM note on page two of their asset manager perspective on the SDGs:

“We manage the Government Pension Fund Global on the basis of a mandate laid down by the Ministry of Finance. We consider… long term return to be dependent on sustainable development… …”

SDG Bonds issued by banks such as HSBC and ANZ allow companies to access funds for innovative projects aligned to making a positive contribution to achieving the SDGs and creating long term value for their business and its stakeholders.

The UNDP’s SDG Bond standards require issuers (such as HSBC and ANZ) to set impact goals for their SDG Bond Programmes that are linked to the issuer’s own corporate strategy. This must include human rights, avoiding harm that detracts from achieving the SDGs, contributing to solutions towards achieving the SDGs and meaningful stakeholder engagement throughout the process of measuring and managing SDG impact. The standards are centred around four themes:

  • Strategic intent and impact goal setting
  • Impact measurement and management
  • Transparency and comparability
  • Context and governance

These align with the four themes Sustainability Development Goal Disclosure (SDGD) Recommendations (published by ACCA, CAANZ, ICAS, IFAC, IIRC and WBA with support of the UNDP) aimed at companies and other organisations: strategy, performance and targets, management approach and governance.

Just as the SDGD Recommendations assist organisations in developing strategy that considers sustainable development risks and opportunities, the Practice Assurance Statement on SDG Bonds assist investors in making decisions consistent with achieving long term investment returns.

“To achieve the SDGs, companies and investors will need to move away from mapping existing activities to the goals to a more integrated practice of directing and disclosing on investment activities that create more impact and contribute to progress towards the SDGs.”Elizabeth Boggs Davidsen, Director of SDG Impact from the United Nations Development Programme.

Importantly, to add credibility to SDG Bonds and halt a propensity to SDG-washing in its tracks, the UNDP’s SDG Bond standards encourage external assurance, detail evidence that can be obtained by third-party assurance providers and set out what they should be looking for. This is where accountants, auditors, sustainability assurance providers and technical assurance experts have a role. The key questions for this stakeholder group are:

  • Would you/could you provide assurance against these standards?
  • How can they be improved to facilitate this?

NGIM’s alignment with the Norwegian government’s commitment to the SDGs hasn’t yet got into the vocabulary or thinking of some other funds. Australia’s sovereign wealth fund, the Future Fund, has an Environmental, Social and Governance (ESG) Policy that considers occupational safety, human and labour rights, climate change, sustainable supply chain, corruption and bribery. They consider whether investment managers are “effectively managing the financial and reputational risks and opportunities that may arise from ESG issues”. The UNDP’s work will support a change in focus by asset owners to recognising the need to consider sustainable development risks and opportunities directly.

The consultation documents and how to respond can be found here.

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Carol Adams is a Professor of Accounting at the School and technical expert to the UNDP’s Social Impact Team.