A policy brief from the UN Department of Economic and Social Affairs (DESA) makes the case for a common definition of sustainable development investment. A shared understanding could help ensure a meaningful contribution to the SDGs and hold companies accountable for the social and environmental behavior, the authors argue.

The policy brief released on 28 May 2020 titled, ‘How can investors move from greenwashing to SDG-enabling?,’ observes that companies must help build a sustainable world, which they need in order to preserve their long-term financial performance. However, investors may lack tools to measure activity and hold companies accountable. A common definition of Sustainable Development Investment (SDI) would establish norms and minimum thresholds to qualify as aligned with sustainable development. The authors note that the Global Investors for Sustainable Development (GISD) Alliance launched in October 2019 is working on a shared understanding of sustainable investing.

The time has come to shift from voluntary to mandatory sustainability reporting.

A common definition would need to be followed by strengthened reporting requirements. Regulatory frameworks would “enable a proper assessment of corporate contribution to the SDGs, but also penalize unsustainable practices and discourage short-term thinking in capital markets.”

The brief notes that the Financing for Sustainable Development Report 2020, prepared by over 60 international agencies from the UN system and beyond, recommended the adoption of global mandatory disclosures on climate-related financial risk like those promoted by the Task Force on Climate-related Financial Disclosures (TCFD).

The authors also identify three challenges to sustainability reporting by companies. First, its voluntary nature: “the time has come to shift from voluntary to mandatory sustainability reporting.” Second, the quality and absence of meaningful KPIs that connect to the SDGs; only 23% of multinational companies’ sustainability reports connect the SDGs to numerical performance indicators, and “without numbers, sustainability reporting quickly becomes a public relations exercise.” Third, the variety in type of information, which makes it hard to compare different companies’ data.

Finally, the brief notes that Canada has pioneered an approach in which companies receiving financial assistance for crises like the COVID-19 pandemic must commit to stricter reporting requirements on socioeconomic issues, as well as carbon reduction targets.

The brief is part of a series aimed at helping policy makers facing difficult choices during the COVID-19 pandemic. The series has also addressed the impacts of the pandemic on youth, older persons, persons with disabilities, and indigenous peoples, and how it is affecting physical activity and wellbeing; and accountability at the national level and the relationships between States and people, among other topics. [Publication: Policy Brief 77: How can investors move from greenwashing to SDG-enabling?] [DESA policy brief series]