Dozens of business, finance, and public policy leaders call for creation of global impact reporting standard to drive a ‘just transition’ to a more sustainable global economy
Mandatory impact accounting across business and finance could prove critical in ensuring the transition to net zero emissions is achieved in a way that is fair to people and planet, a report published this week by the G7 Impact Taskforce has warned.
The taskforce, which was formed by the UK government earlier this year and brings together 120 business, finance, and public policy leaders, has urged public and private sector players to back harmonised disclosure standards that enable company and investor impact to be effectively benchmarked.
It has backed the efforts of the newly-launched International Financial Reporting Standards Foundation’s International Sustainability Standards Board (IFRS-ISSB) to create a global reporting baseline for measuring impact, as it relates to enterprise value. The introduction of such a baseline would enable greater transparency, efficiency, and accountability, it said.
The recommendations were set out in a report published by the taskforce on Monday, which explored how private capital can work more effectively with public investment to deliver positive environmental and social benefits as the decarbonisation of the economy gathers pace.
The report stresses that all actors across the financial system must work together to ensure the UN Sustainable Development Goals are met by their 2030 deadline, and argues that G7 nations must spearhead the effort to “urgently” ramp up private financing flows to this end.
The G7 Impact Taskforce, which represents more than 100 institutions across 40 countries, also calls on larger businesses to use their expertise to guide small and medium size enterprises towards better disclosure of their impacts on people and planet.
“Investment decisions are being taken today with incomplete information,” said G7 Impact Taskforce chair and former UK minister Nick Hurd. “Our report presents an actionable pathway towards a world in which investment decisions are looked at through the triple lens of risk, return, and measured impact.”
The report identifies three elements for a ‘just transition’ that public and private actors should integrate into the design of policies and financial vehicles: to advance climate and environmental action, improve socio-economic distribution and equity, and increase community voices.
Dame Elizabeth Corley, chair of the Impact Investing Institute and chair of one of two workstreams at the G7 Impact Taskforce, said transition pathways needed to recognise local needs and capacity to secure genuine inclusion and fairness.
“The just transition elements of our report provide a practical steer on how to invest for high impact in areas that are mission critical for climate security and economic inclusion,” she said.
Elsewhere, the report notes that multilateral development banks and development finance institutions should play a major role in delivering a just net zero transition. As such, it calls on G7 members to use their power as shareholders to push institutions to be more effective in supporting the mobilisation of private investment in low carbon infrastructure and projects. Mandates for these institutions should be amended to give equal weight to mobilising private capital as investing balance sheet capital, it notes.
“Building on decades of experience and track record, particularly in emerging markets, multilateral development banks and development finance institutions can – and must – play an even greater role expanding the flow and pace of capital to people and places too often ignored by financial markets,” said Laurie Spengler, ITF member and senior advisor to one of the G7 Impact Taskforce’s workstreams. “That role is particularly important to help convert commitments from institutional capital to solutions that advance the SDGs into real and meaningful action.”
The taskforce has also called for the creation of a series of “emerging market-domiciled guarantee companies” that can help address hurdles to institutional capital investment. And it called more generally for the removal of external and internal barriers that limit the flow of institutional investors’ capital.
Elsewhere, the report urges increased public-private cooperation on efforts to advance the field of impact valuation, a drive it notes could enhance the integrity in impact accounting and disclosure processes and allow for meaningful comparison between the impacts and profits of companies.
However, it remains to be seen if the report gains traction with the governments and multilateral development banks that are set to play a critical role in the delivery of the recently agreed COP26 Climate Summit. British Chancellor Rishi Sunak tweeted this morning that he was proud of the progress delivered under the UK’s presidency of the G7 on issues such as mandatory climate-related reporting and global tax reform.
🤝 Global tax reform agreement
🌳 Mandatory Climate reporting
💻 Central Bank Digital Currencies impact report
— Rishi Sunak (@RishiSunak) December 14, 2021
But this week’s new report comes amidst an on-going row over the role of key multilateral development banks (MDBs) in helping to catalyse the trillions of dollars of investment, especially in developing economies, that is necessary to bolster climate resilience and deliver on the goals of the Paris Agreement.
There was a general consensus at the COP26 Climate Summit in Glasgow that MDBs and related institutions such as the IMF could play a key role in ramping up flows of climate finance by accessing the special drawing rights typically used in economic emergencies to enable investment in climate resilience and more generally working with the private sector to help derisk low carbon infrastructure investments in emerging economies. In an interview with Politico this week, US Climate Envoy John Kerry sketched out a vision for how public and private investors could mobilise the trillions of dollars of investment needed to help the handful of large emerging economies that are likely to determine whether the goals of the Paris Agreement are met rapidly decarbonise.
But the FT reported this week that the World Bank, under the leadership of David Malpass, stands accused of trying to undermine efforts to ramp up international climate action from MDBs and other financial institutions. The paper reported that the Wordl Bank pushed for the joint statement by development banks at the COP26 Climate Summit to be shortened and weakened, citing sources familiar with the matter. The net result was a statement that did not include any firm funding targets or deadlines.
The paper said it had seen an email to other MDBs from a World Bank Group representative, which said Malpass had made clear he had “no appetite for a long joint statement”. Consequently, references to “shift financing towards low-carbon, climate resilient development”, helping countries “align their national budget” with the goals of the Paris accord, and ensuring that “finance flows must urgently be made compatible with Paris Agreement goals” were all removed from an earlier draft of the statement.
The World Bank contested this week’s reports, highlighting how it continues to invest heavily in climate-related projects. But the influential bank was a noticeable absentee from a group of countries and financial institutions that in Glasgow pledged to end public financing for coal, oil, and gas overseas by the end of 2022, and critics maintain that it has been “missing in action” on climate change since Malpass – a Trump era apointee – took the helm.
COP26 and this week’s new report from the G7 Impact Taskforce have both served to highlight how international climate reporting rules and innovative new thinking from MDBs and other financial institutions has an outsized role to play in determining whether or not global decarbonisation efforts accelerate over the next decade. But there are also worrying signs that despite the obvious environmental and economic benefits that would result from increased flows of public-private climate finance, not everyone is on board with the reforms and mandates that are urgently needed.