ESG Topics

Key environmental, social and governance topics

International Sustainability and Responsible Investing frameworks

Sustainable Development Goals

The Sustainable Development Goals (SDGs), also known as the Global Goals, were adopted by all United Nations Member States in 2015 as a universal call to action to end poverty, protect the planet and ensure that all people enjoy peace and prosperity by 2030.

The 17 SDGs are integrated — meaning, they recognize that action in one area will affect outcomes in others, and that development must balance social, economic and environmental sustainability.

There are a number of funds that use the SDGs as the lens that informs investment decisions such as Hermes Investment Management’s SDG Engagement Equity Fund. The goals are also a good fit with thematic investing which organises stock selection in accordance with selected themes such as clean energy, healthcare and education. 

The UN Development Programme has also published a set of standards aimed at guiding bond issuance and private equity fund managers’ capital towards the SDGs. Other investor networks and initiatives  focused on incorporating the SDGs and clear targets into the investment process includes the GIIN (Global Impact Investing Network) and the Southern African Impact Investor Network. 

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Principles for Responsible Investment

The mainstreaming of RI has been accompanied by increasingly successful efforts to standardise and institutionalise RI at the international level. One of the most important developments in this regard is the United Nations-backed Principles for Responsible Investment (PRI), launched in 2006. 

An international network of asset owners, asset managers and other service providers work together to put the Principles into practice through their membership of the PRI Initiative, a not-for-profit company funded through signatory membership fees. The Initiative is managed by a Secretariat, which supports investors by sharing best practice, facilitating collaboration and managing a variety of work streams.      

As of Q2 2020, over 1,700 investment institutions had become signatories of the PRI, representing combined assets under management of approximately USD 100 trillion. 

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IFC Sustainability Framework and Performance Standards

IFC is a global standard setter for sustainable investments in emerging markets IFC has established a leading position promoting private sector investment in Africa. Over nearly six decades, IFC has invested more than $25 billion in African businesses and financial institutions as well as      mobilising      capital from other investors who invest alongside IFC in critical sectors.     

IFC’s Sustainability Performance Standards have become a global benchmark for E&S risk management used by over 100 financial institutions worldwide, including       financial institutions that have adopted the      Equator Principles. IFC’s responsible investment practices, guidance resources, and experience can therefore provide valuable information for South African pension funds and their service providers. Pension funds may wish to adapt IFC’s Sustainability Policy as the basis for their own RI policies on ESG integration and active ownership. For example its guidance and benchmarks can be applied when investing in financial institutions, private equity and infrastructure projects.  

Recognizing the importance of managing sustainability in its investments, IFC includes specific and comprehensive ESG related terms and conditions into loan and investment agreements, including clauses that tie ESG performance to conditions of disbursement, events of default, triggers for put options, etc. 

IFC also engages actively with its clients to improve sustainability performance over time. The Corporation maintains a dedicated Environmental, Social and Governance Department, together with an independent Compliance Advisor & Ombudsman (CAO) because it sees ESG performance as a key value driver for its investments. 

IFC’s Sustainability Framework is also applied to the IFC Asset Management Company (AMC), which mobilizes and manages funds on behalf of a wide variety of institutional investors—including sovereign funds, pension funds, and development finance institutions. A wholly owned subsidiary of IFC, the AMC was established in 2009 and invests alongside IFC. 

The Sustainability Framework 

The Performance Standards are directed towards clients, providing guidance on how to identify risks and impacts, and are designed to help avoid, mitigate, and manage risks and impacts as a way of doing business in a sustainable way, including stakeholder engagement and disclosure obligations of the client in relation to project-level activities. The Performance Standards are listed below. 

In order to help its clients and investee companies understand how to implement and comply with the Performance Standards, IFC also provides:

  • A set of eight Guidance notes, corresponding to each Performance Standard
  • The World Bank Group Environmental, Health and Safety Guidelines (EHS Guidelines). These are technical sector-based, reference documents with general and industry-specific examples of good international industry practice. 

Task Force on Climate-related Financial Disclosures

In 2017, the Task Force on Climate-related Financial Disclosures (TCFD),published recommendations to increase understanding of the financial risks related to climate change. It recommended to the G20 that for financial disclosure, global warming scenarios should be used to model the potential risks to companies and economic systems. Systematic and credible disclosure is needed to enable improved pricing and risk distribution and the identification of economic opportunities associated with climate risk mitigation and adaptation. 

At the Davos meeting of the World Economic Forum in 2020 the annual risk report based on the view of 750 world leaders categorised failure to act on climate-related risks, extreme weather, natural disasters, water crises and biodiversity loss amongst the top five risks facing the business community in terms of both likelihood and impact.They are also closely correlated to the conditions necessary for development and quality of life. CEOs at Davos also voted to improve consistency in disclosure and reporting through building key metrics drawn from existing reporting frameworks, such as the Global Reporting Initiative and the work of the Task Force on Climate-related Financial Disclosures and UNEP FI pilot for investors.

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