Australian Ethical Investments and Westpac Bank have signed on to the newly launched Principles for Positive Impact Finance, a new set of criteria to assess the impact of sustainable investments.
Australian Ethical and Westpac are both members of the working group that developed the four principles, which are a prelude to the development of a framework to measure and create a set of guidance around environmental and social impact. They “provide guidance for financiers and investors to analyse, monitor and disclose the social, environmental and economic impacts of the financial products and services they deliver,” according to information from the United Nations Environmental Program Finance Initiative, which convened the project.
With the launch of the four principles, the signatories will now seek to apply them to projects and develop more specific processes around measurement and verification, said Stuart Palmer, head of Ethics at Australian Ethical Investor.
“I think one strength is the holistic approach it takes,” Palmer said. “It looks beyond the green/impact credentials being based around one metric. Environmental impact may be the primary focus, but you need to take into account all the social and environmental impacts to measure impact holistically. Looking ahead, we’re focusing on what could we build which is green bond like around this concept of impact investing? There is a strong element of learning by doing in this project. Rather than try to build up this infrastructure of a certain governance structure, we are focusing now on developing projects, and a number of big institutions are involved. Let’s do something and out of that let’s decide what’s workable out of standards and definitions.”
The working group has looked to the example of the development of the Green Bond market as an exemplar of a set of guidances and standards that measure environmental impact and have established metrics for verifying use of proceeds and other areas of ongoing monitoring and assessment.
“It has been useful to say, let’s think about how the green bond market has developed, what’s good about that, do we need something that’s more rigorous,” Palmer said. “There’s been a lot of discussion around additionality. Going back to, if impact investing or investing to the SDGs is about meeting unmet needs, how do you do that? Part of the discussion has been about how do we define that term, and is that a necessary condition.”
The principles are part of a broader process under the Positive Impact Manifesto, launched in 2015 with the aim of developing new financing vehicles and processes to spur investment for sustainable development. They are also linked to the Sustainable Development Goals, the UNEP FI said.
Australian Ethical will apply the principles and develop its own perspective based on application of the principle towards its own impact investing strategies, particularly around the concept of how to measure the additionality of positive impacts in their investments, Palmer said.
“Investing for positive impact is what we’re all about, but we also recognise that depending on how you define that, we positively screen, we need to see positive impact, but we also need to consider that not all investments have additionality,” he said. “We’re keen to see that investing for the SDGs can grow and contribute to making sure it’s robust and mature. We want to bring and bring the learnings to the way we measure an ongoing investment.”
The other members of the working group include Banco Itaú, BNP Paribas, BMCE Bank of Africa, Caisse des Dépôts Group, Desjardins Group, First Rand, Hermes Investment Management, ING, Mirova, NedBank, Pax World, Piraeus Bank, SEB, Société Générale, Standard Bank, Triodos Bank, and YES Bank.
Rachel Alembakis is the publisher of The Sustainability Report a weekly digital publication that provides reporting into Environmental, Social and Governance (ESG) issues related to companies listed on the Australian Stock Exchange.