SBN IDA members could leverage sustainable finance frameworks to attract the finance flows needed to address social issues, similar to the way green finance can be used to address environmental issues.
Financing solutions for addressing social issues typically fall under the impact investment umbrella. Three guiding principles are used to differentiate impact investment: (UNDP, 2019)
• the expectation of a financial return;
• the intention to tackle social or environmental challenges; and
• a commitment to measuring and reporting against the intended social and environmental impact.
Impact investment is not limited to a specific asset class or sector, and can include venture capital, private equity, and other types.
One instrument used for impact investment is social and development impact bonds. These are public-private partnerships that allow private investors to front capital for public projects that deliver social outcomes. If the project succeeds, the investors are repaid. Social and sustainability bonds are also growing in popularity, building on the success of green bonds. These bonds are similar to traditional bonds, except that they promise to achieve social and sustainability impacts, often aligned with the sustainable development goals (SDGs).
To support the flow of sustainable development finance, SBN IDA members can help build the credibility of green and social impact instruments, for example by developing clear definitions and taxonomies and promoting integrity standards to prevent ‘impact-washing.’