IDFC Alignment of Finance with SDGs

Since 2019, IDFC has placed at the center of its activities the alignment of finance with the Sustainable Development Goals (SDGs). Given their unique positioning in their ecosystem, IDFC members can play a catalytic role to make all financial flows consistent with SDGs. Building on its achievements on the climate sphere and as echoed in IDFC Contribution to the UN Climate Action Summit in September 2019, IDFC is willing to progress towards the 2030 Agenda.

Unleash the potential of Public Development Banks in achieving SDGs

To do so, IDFC has investigated and studied all fields to unleash the potential of its members and Public Development Banks (PDBs) in achieving the SDGs, and has focused more specifically on the Mandate, the Regulation and the Business Models of Development Banks, the Characterization of SDG-compatible Investment and the International Development Finance Architecture. In this analysis, the Club has benefited from the inputs of a network of renowned researchers and academics led by the Institute of Structural Economics from Peking University, and Stephany Griffith-Jones from Columbia University.

The analysis has shown that the explicit mention of climate and sustainable development considerations in the mandates of development banks and the design of SDG-related incentivizing mechanisms for national and regional development banks can support their country’s long-term SDG and climate strategies and action plans.

Regulatory framework could facilitate development banks’ unique role in the promotion of SDGs, allowing for flexibility when warranted as well as rapid and effective response to crises. While heterogeneous regulatory regimes mirrors the diversity of PDBs, the regulatory frameworks of national institutions should be more closely oriented to multinationals’ ones in order to allow them to fulfill their mandate in an equally manner and to foster cooperation between them.

New investment strategies & innovative tools to tackle SDGs

Members have conducted an in-depth analysis of their business models and found out that new investment strategies and innovative tools are needed to tackle SDGs. The use of the credit line and technical assistance is a very frequent combination of tools which has proven its effectiveness in tackling SDGs. Credit enhancement products and de-risking mechanisms (eg. guarantee for thematic bonds, first-loss mechanism), equity investments and concessional resources in local currency aligned with local needs and capacities are also needed. Members have also explored non-financial products, including technical assistance for project preparation and monitoring to generate deeper impacts and ensure their sustainability on the ground. They are also well positioned to increase the mobilization of the private sector, for instance through blended finance to reach the SDGs.

IDFC SDG Framework Report

As improved accountability and standardized tools to characterized SDG aligned investments are more and more needed, IDFC members have shared their own institutional SDG framework and taxonomy methodologies. They have also drawn substantially on work realized by the OECD through its SDG Financing Lab algorithm. This knowledge sharing experience between members have confirmed that beyond mapping, they are willing to build compatible SDG frameworks covering the entire financing and investment portfolios, consistent with the multi-dimensional impacts of the SDGs. These frameworks should also reflect the positive or negative balance of a project or an investment, and therefore facilitating and influencing the final Board decision. This requires an ex-ante assessment tool, beyond environmental and social safeguards. On the other way around, ex-post assessment tools are also extremely useful, to assess actual impacts, to fine-tune parameters used in ex-ante assessments.

This substantial work has been captured in a report by which IDFC stands ready to pursue this work with the finance community towards the elaboration of basic principles characterizing the alignment of finance with the SDGs, to improve global knowledge and accountability.

Promoting Cooperation & Partnership among the Development Finance Actors

Finally, IDFC has been historically promoting reinforced cooperation and partnership in the international development finance architecture as key approach to address SDGs and maximize the impact of development banks. Beyond bilateral cooperation between IDFC members, the Club acknowledges that alliances with other national and multilateral development banks, international organisations and with the private sector are essential. Particularly in the context of COVID and of its economic impacts, collaboration by resources pooling and risk sharing can be critical when a single institution cannot act alone.

 

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