
SDG impact standards: Private equity funds
This paper outlines a set of standards for private equity, debt and venture capital fund managers to align their funds with the Sustainable Development Goals (SDGs). The report provides a practical, detailed, and comprehensive framework for fund managers to align their activities with the SDGs.
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OVERVIEW
The purpose of the SDG Impact Standards for Private Equity Funds (the Standards) is to construct a framework for integrating the Sustainable Development Goals (SDGs) with business and investment decision making. The SDGs outline 17 global objectives that the United Nations Development Programme (UNDP) has identified as significant development objectives for the world to achieve by 2030. Among these include reducing poverty to a minimum, reducing inequalities and increasing action on climate change.The objective for the Standards is to inform private equity fund managers on impact measurement and management that directs investment activities towards achieving the SDGs.
There are four Standards that are framed across interconnected and interdependent themes. Each standard includes practice indicators to demonstrate what achieving each outcome looks like.
The Standards:
1. Strategy: the fund contributes positively to sustainable development and achieving the SDGs in its purpose and strategy. This includes developing an impact thesis, setting realistic yet ambitious portfolio level impact goals and periodically reviewing and refining the impact thesis.
2. Management approach: the fund integrates impact management and contributes positively to sustainable development and achieving the SDGs into its operations and management approach. This includes establishing criteria and pre-screening potential investments to assess strategic alignment with the funds’ purpose and engaging openly with partners and potential investees during the due diligence and investment structuring phase.
3. Transparency: the fund discloses how it integrates contributing positively to sustainable development and achieving the SDGs into its purpose, strategy, management approach, governance and decision-making, and reports (at least annually) on its performance.
4. Governance: the fund’s commitment to contributing positively to sustainable development and achieving the SDGs is reinforced through governance practices and the fund manager. The fund should have active oversight from its governing bodies of matters relating to human rights policies, organisational culture, stakeholder identification, impact related disclosures and more.
The Standards are designed to:
- Encourage funds to start and/or accelerate activities that measure and manage progress towards addressing pressing economic, social and environmental challenges
- Reinforce respect for human rights and other responsible business practices
- Generate trusted, credible and actionable impact information that informs investment decisions
- Promote impact integrity and avoid impact washing
- Embed review and feedback loops to support continuous improvement and learning
Fund managers can use the standards to:
- Put sustainable development and contributing to the SDGs at the heart of the fund’s purpose, strategy, and investment decision-making
- Map and design their fund’s internal impact management systems to support both internal decision-making and external reporting requirements
- Undertake self-assessment and gap analysis, or engage consultants to guide them through that process
- Design and develop private equity funds in line with the Standards to optimise their contribution to sustainable development and achieving the SDGs
KEY INSIGHTS
- UNDP SDG Impact Standards for private equity funds are a practical contribution to provide a common language and a clear system to fully integrate the SDGs into all business and investment decision making processes.
- The Standards are help to reimagine the role of business and investments in our society. No longer can the world be driven by a zero-sum game of economy versus environment, or health versus economy, for instance. Rather, impact must be at the core of every consumption, employment, business, and investment decision that we make.
- The Standards are voluntary and freely available for all to use as best practice standards and a self-assessment tool.
- The Standards are founded on contributing positively to sustainable development and achieving the SDGs. This cannot be done without demonstrating respect for human rights and other responsible investment practices, and is realised through effective impact management and decision-making.
- Material impacts include significant actual and potential, positive and negative, intended and unintended impacts on the economy, environment and people, including impacts on human rights. They relate to the fund’s own activities and those of its supply and value chains, or that are otherwise relevant to the Fund’s (and its Investees’) organisational and sustainable development context.
- Investors can use the Standards to frame their investment guidelines, identify questions for funds and fund managers about the SDG-enabling attributes of their funds, or otherwise manage their internal work. Alternatively, they can use the Standards to push for greater standardisation of practice and external assessment of funds making SDG and other sustainability related claims.
- Investees can use the Standards to design their responsible business and impact management practices to improve their impact performance and differentiate themselves with capital providers.
- Analysts, advisors and research houses can use the Standards to map and determine the robustness of the responsible business and impact management practices of funds; benchmark and compare those practices across funds; and/or provide guidance on sustainable development and impact management practices.
- Government and policymakers can use the Standards to align policy and regulations with the Standards. They can also support their adoption in line with policy priorities to promote sustainable development and achieving the SDGs by 2030.
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