Addressing the missing linkage in sustainable finance: the ‘SDG Finance Taxonomy’

ABSTRACT

Achieving the United Nation’s (UN) Sustainable Development Goals (SDGs) is said to require USD 5–7 trillion of investments in areas such as health, education, environmental protection, and infrastructure. While several frameworks exist to mobilize and to some extent report on sustainable finance, stakeholders have no agreement how to identify SDG-aligned projects and report on relevant impact indicators. Targeted at investors and governments to drive sustainable investment in China and across the globe, the UNDP SDG Finance Taxonomy launched in June 2020 provides a unified taxonomy of activities for sustainable finance that incorporates all 17 sustainable development goals (SDGs). In doing so, the taxonomy provides a clear pathway for identifying SDG-aligned projects for financing, reducing transaction costs, and is compatible with existing frameworks.

KEYWORDS:

• Sustainable development goals
• sustainable finance
• development finance
• financial taxonomies
• capital mobilization

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 UNDP’s project-level Social and Environmental Procedure integrate Social and Environmental Standards Overarching Principles (human rights, gender equality and environmental sustainability) to understand potential social and environmental risks and their significance and determine the social and environmental assessment and management required to address potential risks and impacts of projects. UNDP Due Diligence Policy to work with the Private Sector has defined a set of exclusionary criteria outlining those business practices considered unacceptable to the organization. The World Bank (and other multilateral development banks) Environmental and Social Framework (ESF) enables the Bank and Borrowers to better manage environmental and social risks of projects and to improve development outcomes.

2 The EU Taxonomy specifies DNSH for environmental projects, but the process was made applicable also for other SDGs.