An Introduction to the Impact Disclosure Guidance

Achieving the UN Sustainable Development Goals (SDGs) and addressing global challenges will require a step change in private investment in emerging markets and developing economies (EMDEs). Only a small fraction of the trillions in private assets under management are currently directed to EMDEs.

Recent cross-border investment trends only reinforce the urgency and challenges of catalyzing more private flows to EMDEs. Net financing actually flowed out of EMDEs last year: a total of $203 billion in net resources went from EMDEs to bondholders and commercial banks in 2023. Finance from international financial institutions (IFIs) is not offsetting these outflows-in fact, net transfers from IFIs were negative for non-concessional financing in 2023.

The good news is that growing numbers of private investors are interested in pursuing sustainability and achieving impact. Bloomberg estimates that the environmental, social, and governance (ESG) market could exceed $40 trillion by 2030.

But the lack of standardized and reliable impact measurement and disclosures seriously constrain the market on both the supply and demand side. Companies and sovereigns in EMDEs need to be able to make the case to investors that their financing will have tangible impact toward meeting the SDGs.

To address this gap, the Impact Disclosure Taskforce has developed voluntary guidelines for sustainable development impact disclosures. The Taskforce is a network of financial institutions and industry stakeholders (CGD is not a member) with a common interest in mobilizing more private finance for the SDGs. As outlined in this new document, their Impact Disclosure Guidance aims to help issuers and investors by establishing credible frameworks for measuring and reporting impact. Previously, CGD hosted a request for input at an earlier stage in the Taskforce's work.

The Guidance helps reporting issuers use standardized metrics with targets based on identified gaps to provide credible evidence for sustainability impact as well as efforts to mitigate harm. This transparency offers greater confidence to private investors seeking positive social and environmental returns and should help drive larger private investment flows.

Of particular importance is the Taskforce aim of creating "an impact disclosure ecosystem" with a centralized data platform that connects issuers in EMDEs with investors and that identifies service providers to support issuers and investors with analytics, benchmarking, and independent verification. This would enable a financial institution or wealth manager looking to increase exposure to sustainable investments, especially in new markets, to use disclosures and data on the platform to guide their investment decisions and to access the support of qualified service providers.

CGD's event this afternoon aims to help a broader audience learn about the Guidelines and encourage more actors to participate in building the impact disclosure ecosystem. Experts and relevant stakeholders interested in providing feedback on the impact disclosure guidance proposal can do so here before September 1, 2024.

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