As the world struggles to emerge from the COVID-19 pandemic, the realization that we can no longer seek profit without considering the environmental and social impacts generated by investments is increasingly clear.

S&P Analysis found that funds incorporating environmental, social and governance factors outperformed the S&P 500 average by 27.1%, increasing between 27.3% and 55% in the year following the official declaration of a pandemic by the World Health Organization. At the same time, the United States, the world’s largest economy, suffered $ 95 billion damage caused by climate-related disasters alone in 2020.

Before the pandemic, companies and investors were already starting to integrate ESG factors into their decision-making processes. In 2017, McKinsey reported that more than a quarter of assets under management around the world were invested on the premise that ESG factors can significantly affect a company’s performance and market value.

Today’s economic system must go beyond. If we want to build back better and more environmentally in low-income countries, reducing financial risks is no longer enough.

All organizations that deploy resources for the Sustainable Development Goals must go beyond risk mitigation and manage development impact. This involves integrating impact into the investment strategy, management system and governance system, as well as being transparent about decision-making processes and development results achieved.

After ten months of intense debate and consultation, the Development Assistance Committee of the Organization for Economic Co-operation and Development has approved the OECD-UNDP project Impact standards for financing sustainable development March 26. Their decision is not only an important milestone for the CAD, but also indicative of the seismic changes underway in the world of sustainable finance.

The standards are designed to help donors, development finance institutions and asset managers integrate impact considerations into investment practices and decision-making, in order to assess positive and negative effects on people and the planet, as well as transparent reporting of impacts.

The standards aim to respond to a growing wave of criticism from civil society organizations and experts regarding the use of development finance.

The first challenge is the need to stay focused on the development mandate. The main mandate of development finance, whether private or public, is to generate positive results for those who need them most in the partner country.

Likewise, DFIs have a dual mandate that includes creating financial returns alongside tangible development results. However, due to the lack of incentives and control systems, the development pillar of this dual mandate is sometimes sidelined and investments are made more according to their risk-return profile than their potential for impact. on development.

The standards aim to tackle this problem, by including ambitious provisions to integrate human rights considerations and local development needs into decision-making, as part of the overarching central imperative of leave no one behind when deploying resources for the SDGs.

The second key issue for the development sector is transparency. Society is asking more and more more transparent reports on how development resources are used and the development impacts they generate. Transparency in reporting is a major missing piece of the puzzle.

Reporting standards are emerging, but still need to be harmonized, while reporting remains largely at the discretion of the companies themselves. However, just reporting the ESG and ODD impact is not enough.

We need detailed, verified and comparable impact information that investors can analyze with earnings. Harvard Business School Impact Weighted Accounts Initiative shows the way forward. He put in place impact accounting frameworks and quantified the impacts of thousands of companies in dollars. The approach can help investors to better link their decisions to the achievement of the SDGs.

The adoption of the standards is a demonstration of the public sector taking a stand to improve transparency and accountability in how resources are invested to achieve the SDGs. While we know that impact performance and financial performance are inextricably linked, companies and investors around the world are not yet obligated to transparently report on social and environmental impacts.

Regulation across Europe and around the world is moving towards full transparency and accountability. Initiatives such as the new EU Sustainable Finance Disclosure Regulation and the revised Non-Financial Reporting Directive show that investors and businesses will increasingly be held accountable for the positive and negative impacts they claim to have over people and the planet.

The standards push public and private investors to be more transparent both on their internal decision-making processes and on the development results they have achieved, pushing for a transparent reporting system.

The standards are freely accessible to public and private investors seeking to improve their impact strategy and management process, on the one hand, and their transparency and impact governance, on the other. Detailed implementation guidance – being developed to support practical implementation of the standards – addresses the challenges and provides examples of best practice.

The advice will also be invaluable for investors seeking independent verification of their practices. Verification is crucial – impact reports without independent verification are simply marketing.

ESG and SDGs impact transparency and accountability is the only way to achieve SDGs. The approval of standards by the DAC is an important first step. The ability of these standards to improve transparency and prevent washing down of the SDGs depends on their widespread implementation, which we should be able to assess in about a year.

In turn, achieving widespread implementation depends on incentives. We call on donors, DFIs and asset managers to urgently implement standards, share practices and inspire each other to improve life and the planet through their impact.