Impact Certification and Communication
By Tamayo Efrain, Hitachi Europe Ltd., European R&D Centre
Innovative financial instruments are expected to play a key role to support the efforts of public and private sectors to achieve the SDGs. For example, green bonds, social bonds, green ABS and wider ESG and SDGs oriented financial instruments are growing. These financial instruments raise capital to fund projects with verifiable environmental and social impacts. In aggregate, they represent a historical mobilisation of capital, an opportunity for industry sectors to engage and innovate solutions and products aligned with sustainability, and a way to build new infrastructure or to replace aging infrastructure in a sustainable manner.
As the market grows, the trust and accountability for these financial instruments increase together with investor’s commitment with SDGs and the evidence of superior performance and risk mitigation that these financial instruments offer. However, multiple barriers can hinder this process such as adequate transparent reporting of environmental and social impacts, optimal disclosure of climate and financial related risks, the right asset taxonomy definitions, the clear visualisation and comparability of outcomes using standardised metrics, the aggregation mechanisms for projects, etc.
To overcome the above barriers, agreement among multiple stakeholders is required in the selection criteria of projects and frameworks, the portfolio transparency and reporting, the metrics to assess the use of proceeds and evaluate risks and impacts, the verification and audit, the technologies for each project and for handling the associated data, etc. To achieve it, a global approach and the collaboration of multiple and diverse stakeholders is needed to define, in a holistic manner, what ‘attractive and future-proof sustainable assets’ could be, while developing the required technologies to improve each of the phases of financial instrument’s value chain and lifetime such as project evaluation and selection, issuance, allocation of proceeds, management of proceeds, monitoring, reporting and verification of impacts and risks, and payments to investors. Some of the specific technological innovations need to address the acquisition, communication and treatment of data about the funded projects, protocols and devices interoperability, automation of transactions and settlements, cybersecurity measures, optimization of the overall impact of the mobilised funds, ensuring the transparency in the use of proceeds, the analysis of benefits in longer and broader terms, minimization of costs and risks, etc.
At IFGS 2019, Hitachi will introduce the prototype of a platform aiming to create a space to enhance the interactions among stakeholders to incentivise the mobilisation of capital towards innovative financial instruments and to accelerate technological innovations.