Governance

Establish oversight and accountability for impact management.

Last updated: August 9, 2022

Overview

Establishing oversight and accountability

Investors and financial institutions need to establish clear lines of oversight and accountability to ensure they can deliver on their strategy for managing positive and negative impacts.

Resources in this area typically recommend that governance for sustainability issues is part of overall governance, and that an investor or financial institution’s highest governing body should be accountable for the management of positive and negative impacts.

This can be enabled by ensuring that appropriate operational procedures and information systems are put in place across the business. Investors and financial institutions are often large and complex, meaning they need to consider the procedures and lines of authority at the institutional, portfolio, and single asset or client levels.

Creating incentives

Increasingly, resources that codify best practice in impact management recommend that those with responsibility for overseeing a financial institution’s impact management strategy should have their remuneration linked to its successful implementation and resulting performance.

Seeking assurance of practices

Investors and financial institutions can seek third-party assurance that their policies, management systems and incentives are suitable and meet best practices for their type of organisation. The governing body may engage a third-party early on to help them design and implement best practices, or assure their practices once set up.

Investors and financial institutions of all kinds can embed impact management into their business strategy and policy. The degree to which sustainability impacts are integrated may vary, depending on a range of external or internal factors such as: beneficiaries’ preferences, regulation, investor mandates, risk management strategy and business model choices.


Resources

An Introduction to Responsible Investment: Policy, Structure and Process

Last updated: 2019

Guidance on how an investor can develop a responsible investment policy.

Use this resource to:

  • Governance: Develop investment policies and incorporate sustainability considerations into the investment process.

Due Diligence for Responsible Corporate Lending and Securities Underwriting

Last updated: 2019

The overall objective of the Initiative is to advance human rights and positive outcomes for people through investor stewardship. The Initiative will primarily seek change through investors’ use of influence with a global framework for financial institutions to identify, respond to and publicly communicate on environmental and social risks associated with their clients.

Use this resource to:

  • Governance: Embed responsible business conduct into policies and management systems.
  • Identify: Understand the expectations of responsible business conduct, including a discussion of key considerations when identifying negative impacts and risks.
  • Assess: Understand the key considerations in carrying out due diligence as recommended by the OECD Guidelines for Multinational Enterprises (OECD Guidelines). This helps to prevent and address adverse impacts related to human and labour rights, the environment, and corruption caused by financial institutions in the context of their corporate lending and underwriting activities.
  • Monitor: Monitor due diligence processes to prevent and address adverse impacts related to human and labour rights, the environment, and corruption caused by companies.

Guiding Principles on Business and Human Rights

Last updated: 2012

The UN Guiding Principles on Business and Human Rights are a set of guidelines for States and companies to prevent, address and remedy human rights abuses committed in business operations.

Use this resource to:

  • Strategy: Adopt the standards and practices with regard to business and human rights so as to achieve tangible results for affected individuals and communities, and thereby also contribute to a socially sustainable globalisation.
  • Governance: Embed the human rights policy throughout a business’ functions.
  • Identify: Understand the responsibility of enterprises to respect human rights, depending on their scale and scope.
  • Assess: Implement human rights due diligence.
  • Set Targets: Design targets based on human rights due diligence assessment.
  • Act: Learn how states and companies can prevent and address negative impacts on human rights by business.
  • Monitor: Set up continued human rights due diligence for monitoring purposes.
  • Disclose: Make publicly available human rights commitments and processes.

Impact Standards for Financing Sustainable Development (IS-FSD)

Last updated: 2021

Practice standards to support donors in the deployment of public resources through DFIs and private asset managers, in a way that maximises the positive contribution towards the SDGs. The Standards are harmonised in approach with the UNDP SDG Impact Standards suite, the IS-FSD constitute a framework, ensuring that collectively (with the SDG Impact Standards for PE Funds, Bond Issuers and Enterprises) they help to connect actors across the system using a common language and approach for integrating SDG impacts in the investment strategy and throughout the investment process and governance structures.

Use this resource to:

  • Governance: Set up processes and embed practices that are aligned with the SDG Impact Standards.
  • Assess: Understand whether all relevant information is being actioned to understand impact. The Standards outline how baselines, social/ ecological thresholds and other contextual information should be included in assessment of whether an underlying asset is contributing to the SDGs.

Multilateral Development Banks’ Harmonized Framework For Additionality In Private Sector Operations

Last updated: 2018

Guidance summarises Multilateral Development Banks’ approach to the topic of investor contribution (which they term “additionality”).

Use this resource to:

  • Strategy: Understand the common approaches to additionality, which allows for multilateral development banks to substantiate additionality in projects.
  • Governance: Learn about the common approaches to the governance of additionality.

OECD Due Diligence Guidance for Responsible Business Conduct

Last updated: 2018

Guidance that provides practical support to enterprises on the implementation of the OECD Guidelines for Multinational Enterprises by providing plain language explanations of its due diligence recommendations and associated provisions.

For organisations

Use this resource to:

  • Governance, strategy, and management approach: Assist enterprises with developing and strengthening their due diligence system, as well as processes related to impacts in operations, supply chains, and business relationships.

For investors and financial institutions

Use this resource to:

  • Governance: Embed responsible business conduct into policies and management systems.
  • Identify: Use guidance for expectations of responsible business conduct, including a discussion of key considerations when identifying negative impacts and risks.
  • Assess: Understand the key considerations in carrying out due diligence, as recommended by the OECD Guidelines for Multinational Enterprises (OECD Guidelines). This helps to prevent and address adverse impacts related to human and labour rights, the environment and corruption caused by companies.
  • Monitor: Monitor due diligence processes to prevent and address adverse impacts related to human and labour rights, the environment, and corruption caused by companies.

Operating Principles for Impact Management

Principles describe essential features of managing investments into companies or other organisations with the intent to contribute to measurable positive social or environmental impact alongside financial returns.

This resource has mandatory requirements for signatories.

Use this resource to:

  • Strategy: Define strategic impact objectives consistent with the investment strategy alongside managing strategic impact on a portfolio basis.
  • Governance: Commit to following the principles and periodically having progress of adoption independently verified. The Principles can be applied to an entire investing organisation or an individual fund.
  • Monitor: Use criteria for which investor’s impact management practices can be monitored. The principles require these disclosures to be independently verified.
  • Disclose: Use Principle 9 to enable public disclosure of alignment with the Principles.

Responsible Business Conduct for Institutional Investors

Last updated: 2017

Guidance that explains the application of the OECD Guidelines for Multinational Enterprises in the context of institutional investors. The report highlights key considerations for institutional investors in carrying out due diligence that will help to identify and respond to environmental and social risks.

Use this resource to:

  • Governance: Embed responsible business conduct into policies and management systems.
  • Identify: Understand the responsible business conduct expectations for institutional investors, including a discussion of key considerations when identifying negative impacts and risks.
  • Assess: Understand the key considerations for institutional investors in carrying out due diligence as recommended by the OECD Guidelines for Multinational Enterprises (OECD Guidelines). This helps institutional investors to prevent and address adverse impacts related to human and labour rights, the environment, and corruption caused by companies in their investment portfolios.
  • Monitor: Monitor due diligence processes to prevent and address adverse impacts related to human and labour rights, the environment, and corruption caused by companies in their investment portfolios. 

SDG Impact Standards for Bond Issuers

Last updated: 2020

Practice standards that provide a common language and a system for integrating sustainable development issues, the Sustainable Development Goals and impact management into business and investment decision-making.

Use this resource to:

  • Strategy: Use the standards to inform internal decision-making. The standards are designed to transform how enterprises and investors think about value creation, and integrate impact management and contributing positively to the SDGs in their strategy.
  • Governance: Learn how to integrate impact management into the management approach, disclosure and governance practices.

SDG Impact Standards for Private Equity Funds

Last updated: 2020

Practice standards that provide a common language and a system for integrating sustainable development issues, the Sustainable Development Goals and impact management into business and investment decision-making.

Use this resource to:

  • Strategy: Use the standards to inform internal decision-making. The standards are designed to transform how enterprises and investors think about value creation, and integrate impact management and contributing positively to the SDGs in their strategy.
  • Governance: Learn how to integrate impact management into the management approach, disclosure and governance practices.

Definitions

Investor

A person, organisation, or country that puts money into an business or other organisation.

Source: Cambridge English Dictionary

Strategy

A plan for achieving something or reaching a goal.

Source: Cambridge English Dictionary

Impact

A change in an aspect of people’s well-being or the condition of the natural environment caused by an organisation.

Source: Impact Management Platform; Well-being defined as in OECD Well-being Framework

Governance

The system of rules, practices and processes by which a company is directed and controlled.

Source: Institute of Chartered Accountants in England and Wales (ICAEW)

Asset

Used on this site to refer to a security such as debt or equity issued by an organisation, or a physical asset such as land or a building.

Source: Adapted from Investopedia (definitions of ‘financial asset’ and ‘real asset’)

Practice

A way of doing something that is the usual or expected way in a particular organisation or situation.

Source: Oxford English Dictionary

Assurance

The methods and processes employed to evaluate an organisation’s disclosures about its performance, as well as its underlying systems, data and processes, against suitable criteria and standards in order to increase confidence in the information for use in decision-making. The results are shared in a written conclusion called an assurance statement.

Source: Adapted from AccountAbility

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