Last month, the Finance Initiative of the UN Environment Program (UNEP Fi) launched new tools to help companies and financial institutions better assess the impact of their activities: the UNEP FI Corporate Impact Analysis Tool and the UNEP FI The Portfolio Impact Analysis Tool for Banks. Both tools have been designed in line with the Sustainable Development Goals (SDGs) which is now the most widely accepted set of sustainability objectives.
A few weeks earlier, Danish public pension fund LD Pensions, working in collaboration with London-based charity Future-Fit Foundation and using its “Business Benchmark” methodology, had announced that all its new actively managed mandates would now require asset managers to push investee companies to reduce their negative impacts and align with “planetary boundaries”.
Supporting progress against SDGs and more broadly assessing impact of investment or funding, be it a positive contribution or a negative impact has become one of the main objectives of the sustainable finance industry. However, quantifying impact at portfolio level remains challenging. Several methodologies are competing to address this key issue, while the two most frequently used reporting standards, such as GRI and SASB, also aim at increasingly address impact reporting to some extent.
We take the opportunity of these two initiatives to introduce the most recognised and existing tools, sorting them into 3 categories :
- Main sustainability reporting standards currently used by corporates and investors (GRI Standards and SASB)
- Recognized international instruments for responsible business behavior, including: UN Guiding Principles on Business and Human Rights, the ILO conventions, and the OECD Guidelines for Multinational Enterprises, UN Sustainable Development Goals and the Planetary Boundaries (the latter two are compared in a specific section)
- Impact measurement methodologies with four of the most promising ones:
- The UNEP FI Corporate Impact Analysis Tool and Portfolio Impact Analysis Tool for Banks
- The Stockholm Resilience Centre’s Planetary Boundaries
- The Investment Impact Framework of the Cambridge Institute for Sustainability Leadership
- The Impact Goals of the Impact Management Project
Launched in 1997, the GRI Standards is certainly the first global standards for sustainability reporting. The GRI Standards offer disclosures on a wide range of sustainability topics. They are based on a modular, interrelated structure, aiming to capture the global best practice for reporting on a range of economic, environmental and social impacts. Organizations select from among these to report on their significant impacts. From anti-corruption to water, biodiversity to occupational health and safety, the Standards cover all relevant topics across the economic, environmental and social dimensions. GRI states that 63% of the largest 100 companies in 49 countries reporting on sustainability use GRI.
Organizations can use the GRI Standards in combination with other reporting frameworks, including the International Integrated Reporting Framework, the Climate Disclosure Project (CDP) climate change and water questionnaires, and the SASB industry standards. The GRI Standards are aligned with widely recognized international instruments for responsible business behavior. These include instruments such as the UN Guiding Principles on Business and Human Rights, the ILO conventions, and the OECD Guidelines for Multinational Enterprises. Using the GRI Standards, organizations can be transparent about how they apply these instruments. Organizations can also use the Standards to report on their impacts and progress on the UN Sustainable Development Goals.
SASB has developed a complete set of 77 industry standards published in November 2018. They aim at providing a complete set of globally applicable industry-specific standards which identify the minimal set of financially material sustainability topics and their associated metrics for the typical company in an industry. According to SASB, its standards rely on the 3 following pillars:
- Financially Material: SASB’s mission is to help businesses around the world identify, manage and report on the sustainability topics that matter most to their investors.
- Market Informed: SASB standards are developed based on extensive feedback from companies, investors, and other market participants as part of a transparent, publicly-documented process.
- Industry Specific: SASB standards differ by industry, enabling investors and companies to compare performance from company to company within an industry.
These standards are explained graphically through a Materiality Map, are available for individual sector download and may be viewed through the complete Standards Navigator database (it currently includes 400+ Sustainability Topics and covers more than 4,000 Corporate public filings). As of mid 2019, 113 unique corporations have reported with SASB standards since late 2017, of which, over one third are based outside the United States.
SASB also provides an Engagement Guide for investors to consider questions to discuss with companies regarding financially material issues as well as an Implementation Guide (update in early 2019) for companies which explains issues and approaches to consider when implementing SASB standards.
The Planetary Boundaries
The planetary boundaries concept presents a set of nine planetary boundaries within which humanity can continue to develop and thrive for generations to come
In 2009, the Stockholm Resilience Centre of Stockholm University led a group of 28 internationally renowned scientists to identify the nine processes that regulate the stability and resilience of the Earth system. The scientists proposed quantitative planetary boundaries within which humanity can continue to develop and thrive for generations to come. Crossing these boundaries increases the risk of generating large-scale abrupt or irreversible environmental changes. Since then the planetary boundaries framework has generated enormous interest within science, policy, and practice. In the sustainable finance sphere, they can be used as a framework to identify on a science-based approach the most critical environmental risks to be addressed by companies of a portfolio. The approach, adopted by Swiss asset manager Pictet several years ago within its Global Environmental Opportunities Fund, is the bedrock of the recent announcement of Danish LD Pensions (see above).
Figure shows estimates of how the different control variables for seven planetary boundaries have changed from 1950 to present. The green shaded polygon represents the safe operating space. Source: Steffen et al. 2015
The UN Sustainable Development Goals (SDGs)
Launched by the UN in 2015, the Sustainable Development Goals have soon become the blueprint to achieve a better and more sustainable future for all. They address the global challenges we face, including those related to poverty, inequality, climate change, environmental degradation, peace and justice. The 17 Goals are all interconnected, and in order to leave no one behind, it is important that we achieve them all by 2030. The 17 goals are developed into 169 targets that provide practical needs that any impact-oriented project or investment can follow. Initially designed for governments and public institutions, the SDGs have been widely adopted by private organizations, starting with companies soon followed by main international responsible investors in their quest to qualify investment impact.
Impact assessment methodologies
Future-Fit Business Benchmark
Developed by UK based non-profit Future Fit, the Business Benchmark aims to steer companies into alignment with planetary boundaries by reducing their negative impacts across 23 ‘break-even goals’, covering a range of environmental and social topics. The framework enables companies to assess their progress toward a complete suite of cause-no-harm / break-even goals that best-available science says any company must meet in order to be a truly sustainable and fit-for-the-future. Its structure of 23 social and environmental goals together identify the extra-financial break-even point every business must eventually reach to ensure it protects people and the planet. The framework comes with free, open-source Sustainability Assessment Toolkit (SAT) for Large Corps and distinctly for SMES, based on the Future-Fit Progress Calculators.
The toolkits contain three sustainability assessment tools:
1. A 2-part generic ESG assessment tool composed of "Break-Even Scores" and "Positive Pursuits" worksheets
2. An "SDGs Scores" tool
3. A "Capitals Scores" tool
Impact Management Project (IMP)
Launched in 2016, and supported by several responsible or impact investment networks including the GIIN, the PRI as well as standards providers likes the GRI and SASB, and international organizations like B Lab, IFC, OECD and UNDP, the Impact Management Project (IMP) is a forum for building global consensus on how to measure and manage impact. It convenes a Practitioner Community of over 2,000 organizations ranging from leading institutional investors to aid agencies, to debate and seek consensus on technical topics and to share best practices. As of today, is has defined a large database of Impact measurement KPIs that are primary designed for small impact business project management or investment.
CISL Investment Impact Framework
Launched in 2019 by the Investment Leaders Group, convened by the University of Cambridge Institute for Sustainability Leadership (CISL), the Investment Impact Framework offers a new approach for the investment community to measure how this progress is being achieved, using the UN Sustainable Development Goals as measures of performance. The set of science-based metrics works at both corporate and fund level and is aimed to be computed using ESG and publicly available data.
The Investment Impact Framework provides investors with a simple dashboard to check their alignment with an otherwise complex web of SDGs. The dashboard comprises six core themes which are themselves derived from CISL’s Rewiring the Economy plan.
Source: University of Cambridge Institute for Sustainability Leadership (CISL). (2019, January). In search of impact: Measuring the full value of capital. Update: The Investment Impact Framework.
UNEP FI impact measurement tools
Last month, UNEP FI launched a pair of tools to help the private sector better measure and manage the impact of its financing and business activities, in line with the SDGs.
The open-source tools, which consists of The Corporate Impact Analysis Tool & The Portfolio Impact Analysis Tool for Banks, aim to enhance risk management and the identification of corporate opportunities to help close the $2.5 trillion funding gap for the UN SDGs
UNEP FI also published a separate guidance document for signatories to the Principles for Responsible Banking, which includes information on how they can use the tool for banks to meet the impact analysis requirement of the initiative. UNEP FI’s methodology for both tools is divided into three parts, with data to be drawn from a combination of public sources and corporate engagement:
- Identification of ‘significant impact areas’, based on company type, geography and sectors of activity. This is referred to in the tool as the cartography of the corporate. It is used to map out an individual company’s significant impact areas, such as water, climate, soil, biodiversity and resource efficiency.
- Assessment of the company's impact performance and impact management capabilities, within these ‘significant impact areas’. This can be done via a combination of qualitative and quantitative data, which users are invited, where possible, to benchmark vis a vis the company’s peers and/or policy or regulatory targets.
- Monitoring of the company's significant impact areas, performance and management capabilities over time.
Both tools are based on UNEP FI’s ‘Impact Radar’, which was published in 2018, to identify areas of impact. They also build on model frameworks published by the initiative in the same year, which were designed for the analysis of impact across different financing products and asset classes.
The impact analysis tools, the Impact Radar and the model frameworks are all part of UNEP FI’s Positive Impact Initiative to close the annual SDG financing gap.
Most information comes from the standards and methodologies websites, to know more, you can find them here: