Launch of our investor survey on Public Development Banks’ alignment with the SDGs

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Natixis Green & Sustainable Hub just launched a survey to capture investors' expectations regarding the ways Public Development Banks (PDBs) should address the United Nation’s Sustainable Development Goals (SDGs) within their financing strategy. 

The International Development Finance Club (IDFC)[1] has appointed Natixis CIB to develop an “SDG Alignment framework” for Public Development Banks. Under this advisory mandate (see the press release), Natixis CIB will propose a set of principles and provide guidance on the integration of the SDGs into IDFC members’ internal operations and management, and more broadly across their activities.

The survey is made of 17 questions spread across four sub-topics:

  1. Investors’ appetite for Public Development Banks’s debt instruments;
  2. Satisfaction with Credit and Sustainability Rating;
  3. Sustainable debt formats’ preferences;
  4. Alignment with the Sustainable Development Goals.

If you are an investor, you can answer this questionary by clicking on the following link: here

We want to thank in advance all respondents for their time and valuable views.

 

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Further details on this mission and preliminary views

Under this advisory mandate, announced during the second edition of the Finance in Common Summit (FICS) in Rome, hosted by the Cassa Depositi e Prestiti (CDP) and IDFC members, Natixis CIB will propose to the 27 members of the IDFC a conceptual framework as well as practical tools and implementation processes enabling them to pursue SDGs alignment. During the Summit, Natixis’ Global Head of Green & Sustainable Ms. Orith Azoulay moderated a panel[2] (replay here) on fostering a common language between PDBs and private investors to increase the public-private cooperation to achieve the SDGs.


The project team dedicated to this mission is composed of 8 sustainable finance experts, led by Cédric Merle, the Head of the Center of Expertise (CoEI) of Natixis CIB’s Green & Sustainable Hub (GSH). The CoEI also works closely with other teams from the GSH and within Natixis (see above the survey launched with our Syndication/Distribution sub-team).

 

Figure 1: Natixis’ CIB Global Team & Network

Source: Natixis GSH

Unpacking the notion of “SDG Alignment”

In 2015, all countries agreed on a collective and universal roadmap to achieve 17 Sustainable Development Goals (SDGs) before 2030. This 2030 Agenda spans on five interrelated pillars, the “5P’s”: people, planet, prosperity, peace, and partnerships. The UN Sustainable Development Goals (SDGs) are not a simple list of general themes. The second and third layers of the 2030 Agenda — the 169 targets and 232 indicators — provide quantitative guidance for measuring progress towards the goals. The 2030 Agenda can thus be seen as a “Russian Doll”: the biggest doll of the Agenda is made of a universally agreed roadmap of 17 SDGs, the medium doll is composed of internationally agreed time-bound targets and the smallest doll leads to 232 indicators for tracking progress on the SDGs.

 

Figure 2: The SDG Alignment Ecosystem

Source: Natixis GSH

The SDGs were primarily designed for countries although their implementation requires various stakeholders’ contribution. In theory, governments are the only accountable entities for implementing the SDGs. However, several notions and events recently revealed the importance of sub or side actors in supporting countries meeting their SDG targets. Firstly, the notion of “localizing the SDGs” insisted on the importance of collaborative actions between national governments and local/regional actors (governments, companies, civil society organizations, academic and research institutions) to share solutions, unlock bottlenecks and define strategies contributing to the SDGs at the local level. Secondly, the economic and social consequences of the Covid-19 slowed down the progress toward achieving the SDGs. The pandemic deepened disparities and inequalities at the expense of the most vulnerable populations and regions, resulting in higher funding needs to meet the SDGs’ targets. In this context and landscape, Public Development Banks[3] critical role has been further emphasized, especially in filling the “SDG gaps”[4].

After “aligning” with the Paris Agreement, PDBs have been called to “align on the SDGs”. But is the notion of “alignment” transposable to the multidimensional nature of the 2030 Agenda? There are some parallels between climate finance and SDG finance. However, the notion of “alignment”, understood as meeting carbon emission reduction targets or technology mix benchmark spanning over time intervals in the context of temperature scenario is not straightforwardly translatable to most of the SDGs, especially the social ones. Other proxies and approaches are required. What would “alignment” mean for a development finance institution? One defines SDG Alignment as the consistency additionality of PDBs’ efforts and policies with the fulfilment of the Agenda 2030. How can PDBs achieve such an objective?

By developing a “whole of bank” approach, spanning from policies to strategies and governance (see European Think Tanks Group (ETTG)’ study on the topic). PDBs could “deconstruct” and reconstruct their entities, activities, and external operations with the core objective of contributing to the 2030 Agenda and do no harm any SDGs.

[1]The IDFC is a group of 27 public development banks, created in 2011 and initially active in the field of climate and sustainable finance. Together the IDFC members are the largest provider of public development finance globally, with USD 4 trillion in combined assets. For more information, consult the website of the International Development Finance Club here.

[2] The full list of panelists included: Thierry Deau (Long Term Infrastructure Investors Association (LTIIA), Nadia Nikolova (Allianz Global Investors), Eric Usher (UN Environment Programme Finance Initiative, UNEP FI), Nathalie Lhayani (Caisse des Dépôts), Amit Bouri (Global Impact Investing Networkv) and Megumi Muto (Japan Investment and Cooperation Agency (JICA).

[3]The expressions “public development bank” or “PDB” used hereinafter include all development finance institutions achieving public policy objectives on behalf of their government and contributing to the achievement of Sustainable Development Goals (SDGs). There are core differences between Development finance institutions (DFIs) and PDBs. The authors acknowledge that the term “PDB” does not capture the variety of the nature, status, mandates, governance structures that exist in the landscape of development financial institutions with development objectives. For inclusiveness purposes, this report sought to address to all financial institutions with a development mandate.

[4] SDG gaps refer to the remaining distance to be achieved to fulfill the targets under the 17 Sustainable Development Goals. Assessing SDG gaps is intrinsically linked to having quality “SDG data”, and so, to the nature/formulation of the targets (whether it is related to “relative improvement”, “absolute improvement” or x targets, the output will be expressed differently). SDG gaps also refer to the notion “SDG localization”, as the remaining efforts to be achieved need to be assessed at the local level. Finally, understanding these SDG gaps is critical to prioritize the regions, sectors or target population most “in need”, and so, to have the most impact. This concept is related to, but should not be confused with the “SDG financing gap” notion, i.e., the funding needs to finance the SDGs and “SDG data gaps” notion, i.e., the lack of data on SDG targets due to insufficient reporting from countries. 

Natixis’ mission: developing a conceptual framework as well as practical tools

This is the first time that we are mandated to work on such a consultancy project. This mission will reinforce our expertise in the SDGs. Since 2018, we have been developing innovative financial solutions to help our clients align their operations to the SDGs. Our inaugural report on the implementation of the SDGs for issuers and investors was published also published that year. In 2020 and 2021, we supported the governments of Mexico and of the Republic of Benin as well as AFD in their issuance of SDG bonds, acting as sustainability structurer and joint bookrunner in each transaction. We have also accompanied Mexico in its SDG Bond impact Reporting (see our article this month)
 

Our final report will be released at the beginning of 2022. After identifying the rationale for SDG alignment, our study will mainly focus on two following aspects:

1. Developing a common understanding of SDG alignment for PDBs: This conceptual work will be based readings from the existing literature on the alignment of development financial institutions with the SDGs. The goal is to provide consensual, innovative, and ambitious principles that will be endorsed by all IDFC members and beyond. It will rely on the work already achieved by the Institut du développement durable et des relations internationales (IDDRI), with whom Natixis maintains regular dialogue. 

2. Guiding PDBs towards active alignment with the SDGs: Moving away from theorical grounds, our study will propose practical tools that can help PDBs operationalize alignment at their level. The tools will be inspired by our extensive discussions with relevant stakeholders (IDFC members but also think-tanks, investors, data providers, NGOs, international organizations).

So far, our work led us to several conclusions, such as:

1. Embracing holism. This notion encompasses two dimensions. Firstly, holism refers to the indivisibility of the 2030 Agenda. Yet some organizations focus only on goals and targets where their activities are de facto contributing, concealing potential negative impacts or missed opportunities on other SDGs (a practice named “cherry-picking”). This practice is problematic as it does not encourage organizations to adopt ambitious goals and engage in a transformational process of their activities or entities. Secondly, holism refers to the systemic approaches that should be adopted by PDBs: alignment to SDGs ought to be understood broadly (i.e. not be limited to PDBs’ financing activities). The definition of SDG alignment should cover the entire portfolios of PDBs and should move from a project-based alignment to an end-beneficiary approach.

2. The need for an SDG Alignment Ecosystem: Aligning on SDGs requires complementary actions stemming from multiple organizations. On one hand, PDBs need to further embrace their role as “SDG enablers” of their governments. This implies reconnecting policies and strategies to local needs and national priorities. On the other hand, PDBs should be more porous to more actors (NGOs, think tanks, SDG data providers investors, credit rating agencies) and cooperate more among themselves to exploit synergies and improve the current performances of PDBs. For instance, strategic partnerships could spur from cooperation with private or public partners to implement innovative financial mechanisms (i.e., blended finance, guarantees, SDG bonds).    
3. Mapping as a first step towards alignment: Mapping refers the practice of linking funding volumes and projects financed to the SDGs. It is a dominating practice for PDBs, when it comes to SDG alignment demonstration. However, mapping is often an after-thought, high-level and reporting exercise that ignores the actual positive and negative impacts of projects among other flaws. Our work has found that mapping could be augmented by creating granular SDG taxonomies linked to mapping practices. Thus, mapping could be “result-oriented”, by setting improvement performances as criteria.

4. Increased transparency related to ex post & ex ante impacts: While assessing contribution, a distinction must be made between intended (ex-ante) and demonstrated (ex-post) contributions. The impact of financing activities should whenever possible be analyzed at project-level with a high level of in situ details. Intrinsically to PDBs investing activities, from signing an investment contract, to disbursement to the first effects of the investment on the economy, the timeline is long. Reporting in line with SDGs can happen a year or sometimes more after the investment. Then, the outcome can be quite different from the expected one. It is therefore necessary to distinguish intended and actual contributions in reporting. A gap analysis of intended and demonstrated contributions could be made. This project-based impact measurement approach should hedge against SDG washing.       
5. Qualitative data: the lifeblood of progress towards the completion of the 2030 Agenda: The objectives of the 2030 Agenda aim at “Leaving No One Behind” (LNOB). However, targeting vulnerable populations[5] requires local, accurate, recent data. But more extensively, timely and disaggregated data is at the core of efficient decisions.   PDBs should implement more “data-driven” policies to make more informed decisions and be more accountable. This implies creating robust and systemic data collection processes at the core of PDBs organizations and partner with organizations specialized in collecting data in challenging environments.

 

Striking a balance between universality and tailor-made recommendations

Natixis’ GSH is honored to have been appointed to work on this challenging, yet fascinating mission. The relevance of our framework will revolve around the creation of progressive principles, processes and tools that could be applicable to each PDB while acknowledging that PDBs share different mandates/priorities, operate in various geographies, and have heterogeneous levels of maturity on Sustainable Development Goals.

[5]Features leading to inequalities and empower people suffering from discriminations can relate to (non-exhaustive list): gender, age, income situation, employment situation, educational background, disability, living/working location, household composition, literacy, digital literacy, health situation, criminal record, migration status, race/ethnicity, sexual orientation, religion/beliefs, political views, dietary habits, solvency, transportation means.

To go further:

 

  • European Think Tang Group’s Report “Financing the 2030 Agenda: An SDG alignment framework for Public Development Banks”, October 2021 – available here.
  • AFD’s Report “Scaling Up Public Development Banks Transformative Alignment with the 2030 Agenda for Sustainable Development”, October 2020 – available here.
  • IDFC’s “SDG Framework Report: Towards SDG Alignment” – available here.
  • Center for Global Development’s Report “The international development finance club and the SDG – impact, opportunities and challenges”, October 2018 – available here.
  • Center for Global Development’s Report “Rising to the SDG Challenge: The Unique Contribution of the International Development Finance Club”, October 2018 – available here.
  • OECD’s Report “Proposed Impact Standards for Financing Sustainable Development”, March 2021 – available here.
  • OECD’s Report “Framework for SDG Aligned Finance”, 2020 – available here.