IIF Proposes Alignment Around Fewer, Simpler Sustainable Investment Terms to Enhance Transparency and Bolster Confidence in the Integrity of the Market
November 06, 2019
Washington D.C. — Today, the Institute of International Finance (IIF) released a set of recommendations to simplify sustainable investment terminology. These recommendations are based on a survey of the IIF’s Sustainable Finance Working Group, which represents more than 150 commercial and investment banks, asset managers, and insurance companies from more than 20 countries.
“Simplification and standardization of sustainable investment terminology is a crucial part of the plumbing needed to grow sustainable finance. As the IIF paper shows, this is equally important for both private individual and institutional investors, and is not limited to one geography or market,” said Dr. Axel Weber, IIF Chairman and Chairman of the Board of Directors of UBS Group AG.
Governments around the world have committed themselves to an ambitious set of targets outlined in the Paris Agreement on Climate Change and the UN Sustainable Development Goals. However, reaching these targets will require leveraging the more than USD 300 trillion of global wealth available. To date, a key obstacle to unleashing this pool of capital has been confusion over terminology.
“Taking sustainable investing mainstream will require a more durable framework for how the market labels these investment strategies. Some sustainable investors are looking to use ESG factors to maximize long-term returns, while others are looking to avoid certain exposures or advance a specific outcome. Clearly articulating where an investment sits on the spectrum of sustainable investments will help all types of investors better align their capital with their goals,” said Laurence D. Fink, Chairman and CEO of BlackRock, Inc.
With the support of the Sustainable Finance Working Group, the IIF proposes the following categories of investments:
- Exclusion Investments: Those actively avoiding investing in unsustainable corporates or countries based on screens or other ways to identify particular issues or out-comes of concern.
- Inclusion Investments: Those actively investing in sustainable corporates and countries based on consideration of underlying data about issues or outcomes.
- Impactful Investments: Those seeking to have a direct, positive, measurable impact on society and/or the environment while targeting market, or better, financial returns.
“Simplifying industry terminology may not be the silver bullet to achieving the Sustainable Development Goals, but it is an essential and necessary step that will help channel resources in order to meet the ambitious targets,” said IIF President and CEO, Timothy D. Adams. “The IIF looks forward to working with our members, regulators, and relevant initiatives to codify a more common language around sustainable investing.”
The full report, "The Case for Simplifying Sustainable Investment Terminology," and an appendix of categorized terms can be found here.
The Institute of International Finance is the global association of the financial industry, with more than 450 members from more than 70 countries. Its mission is to support the financial industry in the prudent management of risks; to develop sound industry practices; and to advocate for regulatory, financial and economic policies that are in the broad interests of its members and foster global financial stability and sustainable economic growth. IIF members include commercial and investment banks, asset managers, insurance companies, sovereign wealth funds, hedge funds, central banks and development banks.