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Positive Impact Finance Stands on Principles

BankofAfricaMadagascar

A crowd waits for a Bank of Africa branch to open in Madagascar, Oct 1, 2014 (Photo by Bruce Thomson) Creative Commons license via Flickr

By Sunny Lewis

PARIS, France, February 21, 2017 (Maximpact.com News) – Nineteen global banks and investors, worth a total of US$6.6 trillion in assets, have agreed on a set of standards for financing sustainable development framed as the first-ever Principles for Positive Impact Finance.

On the last Monday in January, the set of four unpublished Positive Impact Principles was launched to provide a global framework for financiers and investors to analyze, monitor and disclose the social, environmental and economic impacts of the financial products and services they deliver.

The Principles for Positive Impact Finance are a direct response to the challenge of financing the UN’s Sustainable Development Goals . Adopted by the world’s governments in 2015 to end poverty, protect the planet, and ensure prosperity for all, each of the 17 SDGs has specific targets to be achieved over the next 15 years.

The principles are intended to provide a global framework for impact financing that applies across different business lines, including retail and wholesale lending, corporate and investment lending, and asset management.

Principle One: Definition

This principle is simple, “It’s a good idea to make a donation.

Eric Usher, director of the United Nations Environment Program (UNEP-FI) looks at what it will cost to make the SDGs a reality. “Achieving the Sustainable Development Goals – the Global Program of Action to End the Poverty, fight climate change and protect the environment – should cost between $5 and $7 billion a year by 2030,” he said.

The Principles for Positive Impact Finance will change the situation,” said Usher. “They will allow us to direct hundreds of billions of dollars managed by banks and investors towards clean low-carbon emissions, benefiting everyone.

The scope here is broad; this first principle covers loans of all kinds – corporate, retail, municipal, sovereign, inter-bank, project-related; bonds; equity; notes and credit-linked notes.

In all these cases the positive impact of the financial activity should be defined.

Principle Two: Frameworks

Entities, whether financial or non-financial, need adequate processes, methodologies, and tools to identify and monitor the positive impact of the activities, projects, programs, and/or entities to be financed or invested in. They should implement specific processes, criteria and methodologies to identify positive impact.

The Principles do not prescribe which methodologies and key performance indicators to use to identify, analyze and verify positive impact, instead they require that there be transparency and disclosure.

Principle Three: Transparency

Entities, financial or non-financial providing Positive Impact Finance should provide transparency and disclosure on the activities, projects, programs, and/or entities financed.

The intended use of funds released via financial instruments and their positive contribution should be clearly marked on the corresponding documentation.

Methodologies, key performance indicators and achieved impacts should be identified and disclosed.

Principle Four: Assessment

The assessment of positive impact should be based on the actual impacts achieved, this principle states. The assessment can be internally processed, or undertaken by qualified third parties such as audit research institutes and rating agencies.

The principles require a holistic appraisal of positive and negative impacts on economic development, human well-being and the environment, this is what makes them innovative.

These principles are timely from the financial sector. They demonstrate the willingness of the financial resources to go beyond current practices and contribute to more sustainable development,” affirmed the French Minister of Economy and Finance Michel Sapin. “These principles should strengthen the cooperation between public and private actors in this field.

The principles were developed by the Positive Impact Working Group, a group of UN Environment Finance Initiative banking and investment members, as part of the implementation of the roadmap outlined in the Positive Impact Manifesto released in October 2015.

The Manifesto calls for a new, impact-based financing paradigm to bridge the gap in financing for sustainable development.

As of January 1, 2017, the Positive Impact initiative is made up of the following members of the United Nations Environment Programme’s Finance Initiative: Australian Ethical, 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, Westpac and YES Bank.

Séverin Cabannes, deputy CEO of Société Générale, a founding member of the group, says there is urgency pushing this initiative along – the urgency of confronting what’s happening to the planet.

With global challenges such as climate change, population growth and resource scarcity accelerating, there is an increased urgency for the finance sector both to adapt and to help bring about the necessary changes in our economic and business models,” said Cabannes.

The Principles for Positive Impact Finance provide an ambitious yet practical framework by which we can take the broader angle view we need to meet the deeply complex and interconnected challenges of our time,” he said.

Gérard Mestrallet, chairman of Paris EUROPLACE and chairman of the Board of the French multinational electric utility company ENGIE, views the principles as another tool in his problem-solving toolbox.

They are “the tool that is needed to enable the business and finance community to work and innovate together, and to address the challenge of the UN Sustainable Development Goals,” he said.

The financial sector has already moved forward in that direction,” said Mestrallet, “and we hope that the principles as well as the Paris Green and Sustainable Finance Initiative we launched last year will help marking a new stage.”

The UNEP-FI is a partnership between UN Environment and the global financial sector created after the 1992 Earth Summit in Rio de Janeiro with a mission to promote sustainable finance.

Over 200 financial institutions, including banks, insurers and fund managers, work with UN Environment to understand today’s environmental challenges, why they matter to finance, and how to actively participate in addressing them.

The need to align capital markets to a two degree world is urgent and necessary,” said Fiona Reynolds, managing director of the Principles for Responsible Investment. “The UN Environment Finance Initiative Principles for Positive Impact Finance are an important tool for investors to frame their positive contribution to the environment, the society and the economy.”


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Tropical Forests Thrive on Radical Transparency

ForestIndonesia

The Ulu Masen forest ecosystem in the northern part of Indonesia’s Aceh province forms part of the largest single forested area in Southeast Asia. (Photo by Abbie Trayler-Smith / DFID) Creative Commons license via Flickr

By Sunny Lewis

STOCKHOLM, Sweden, February 15, 2017 (Maximpact.com News) – Commodity production drives two-thirds of tropical deforestation worldwide, asserts Trase, a new online information and decision-support platform aimed at improving the transparency, clarity and accessibility of information on the commodity supply chains that drive tropical deforestation.

Formally known as Transparency for Sustainable Economies, Trase is led by the Stockholm Environment Institute and the Global Canopy Programme.

Trase draws on deep untapped sets of data tracking the flows of globally-traded commodities, such as palm oil, soy, beef and timber, responsible for tropical deforestation.

Trase responds to the urgent need for a breakthrough in assessing and monitoring sustainability triggered by the ambitious commitments made by government leaders to achieve deforestation-free supply chains by 2020.

In Morocco last November, a Trase-led side event at the 22nd Conference of the Parties to the UN Framework Convention on Climate Change (COP22), attracted experts in environmental policy, data analysis and commodity supply chains who strategized on upgrading supply-chain transparency to achieve trade that is free of deforestation.

The side event was hosted by the EU REDD Facility, which supports partner countries in improving land use governance as part of their effort to slow, halt and reverse deforestation.

REDD stands for “reducing emissions from deforestation and degradation,” a mechanism that has been under negotiation by the UNFCCC since 2005. The goal is to mitigate climate change by protecting forests, which absorb the greenhouse gas carbon dioxide from the atmosphere.

Participants discussed how to bring about step changes in the capacity of supply-chain actors to meet zero deforestation and sustainability commitments. They examined incentives for encouraging governments in consumer and producer countries to cooperate.

Tools such as the platforms launched by Trase to collect and analyze data and information can help purchasers to develop better sourcing strategies and governments to develop policies in the forestry sector and commodity trade.

The international trade in commodities such as soy, palm oil and beef is valued at billions of dollars. These commodities trade along complex supply chains that often have adverse social and environmental impacts, especially in developing countries.

Over the past 10 years, participants acknowledged, agricultural expansion has caused two-thirds of tropical deforestation, which in turn has accelerated climate change and threatened the rights and livelihoods of indigenous peoples and communities that depend on forests.

Participants agreed that consumers and markets around the world are demanding greater sustainability in producing and trading agricultural commodities.

Nowhere is this demand greater than in the European Union, which has set a goal of halting global forest cover loss by 2030 at the latest, and reducing gross tropical deforestation by at least 50 percent by 2020.

The EU and several EU Member States have endorsed the 2014 New York Declaration on Forests .

In 2015, several EU Member States signed the Amsterdam Declaration , which recognizes the need to eliminate deforestation related to trade in agricultural commodities and supports private and public sector initiatives to halt deforestation no later than 2020.

The EU is also conducting a feasibility study for a EU Action Plan on deforestation.

Some of the most interesting deforestation transparency work is being done in Brazil.

Pedro Moura Costa, founder and CEO, BVRio Environmental Exchange, says his organization and Trase are piloting a program to bring more transparency to Brazilian timber supply chains, to assess the causes of illegally harvested timber and to find solutions to minimize risks.

Through the partnership, BVRio will upload data to the platform on the legal status of forest operations in Brazil. This will enable Trase to track legally and illegally harvested timber from sources to buyers at the end of supply chains.

On the banks of the Tapajós River, in Brazil’s Pará state, is a community forestry project that works with sustainable timber extraction in the Amazon.

Since 2003, Cooperativa Mista da Flona Tapajós (Coomflona) has been operating in the region and today employs 150 managers, as workers in this sector are known. The yearly production is around 42,000 cubic meters of timber, which Costa says could be fully commercialized if not for the competition with illegal timber products.

The issue of legality in supply chains is rarely considered in transparency initiatives, but is vitally important, Costa points out.

Legality is at the core of the EU Forest Law Enforcement, Governance and Trade (FLEGT) Action Plan issued in 2003. The Action Plan sets forth a range of measures available to the EU and its member states to tackle illegal logging in the world’s forests by engaging with national governments on illegal logging.

BVRio Environmental Exchange in 2016 launched a Responsible Timber Exchange, a trading platform to assist traders and buyers of timber in sourcing legal or certified products from all over the world.

The platform is integrated with BVRio’s Due Diligence and Risk Assessment tools, designed to assist traders and buyers of tropical timber in verifying the legality status of the products purchased and their supply chains. The system is based on big data analysis and conducts more than two billion crosschecks of data daily.

Since their release in 2015, the tools have been used by traders and environmental agencies worldwide to screen thousands of timber shipments.

Costa says, “Compliance with local legislation is an essential requirement of any initiative to promote good land-use governance and, ultimately, to achieve zero deforestation supply chains.

Companies too are engaged.

Trase can help us move away from the blame game, to start a practical discussion around issues and solutions,” says Lucas Urbano, project management officer for climate strategy with the Danone, based in Paris, one of the world’s largest dairy and packaged food companies.

Danone has committed to eliminating deforestation from its supply chains by 2020. The company is a signatory of the New York Declaration on Forests as well as a member of the Consumer Goods Forum.

For a company like Danone, transparency and better information about the impacts and conditions in jurisdictions where its supplies originate from are hugely important, Urbano recognizes.

Transparency is the first major step in eliminating deforestation from Danone’s value chains, because supply-chain complexity and opacity are barriers to action, he says.

Transparency initiatives such as Trase help Danone to understand who to convene and engage with in strategic supply chains. At the same time,” Urbano says, “transparency will make it impossible for companies to hide behind the complexity and opacity of supply chains.

Trase is made possible through the financial support of the European Union, the Nature Conservancy, the Gordon and Betty Moore Foundation, the Swedish Research Council FORMAS and the UK Department for International Development.


Featured Image: In Brazil, forest managers with the Cooperativa Mista da Flona Tapajós mark a tree for legal logging. (Photo courtesy BVRio Environmental Exchange) posted for media use

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