The first step of reinforcing is to deepen your commitment to contributing positively to the SDGs. This is an opportunity to more fully integrate your goals into the highest levels of governance of your portfolio, fund, or investment organization. The SDG standards ask that you integrate the following into your governance. Oversight to ensure that governance bodies have active oversight and accountability for SDG impact practices and performance. You'll ensure the organization operates in accordance with responsible business, human rights, and impact management policies. You'll also ensure that management is accountable for delivering on SDG strategy, including impact thesis and portfolio level goals. Stakeholder engagement, engage all key stakeholders through your governance structure. Rectify stakeholder questions or complaints in a timely and responsible manner. Allocate adequate budget to manage stakeholder involvement effectively to deliver your impact thesis and portfolio level goals. Governance competencies. Ensure that members of the governing body represent competencies in SDG focus areas and impact management. Promote a culture of learning and development. SDG incentives. Incentivize your staff to embed SDG impact considerations at all investments stages and decision-making levels to facilitate impact-centered operations. Resource allocations. Allocate adequate financial and non-financial resources to the development and implementation of a sound SDG impact management process. We have covered all of these practices in prior lessons. So if you have completed work in those three previous steps of setting strategy, integrating, and optimizing your SDG impact, you have the groundwork already well laid. The SDG impact standards specify two additional stakeholder perspectives to attend to. First, bias. Prioritize gender and other dimensions of diversity as demonstrated by composition and culture, including openness to hearing and including different voices and perspectives in decision-making and representing those most impacted. Recognize the problematic implications of low formal accountability to those most impacted. Commit to acting on the behalf of those most impacted when making your decisions. The second part of reinforcing your SDG impact strategy is to disclose progress to key stakeholders. The purpose of disclosure is to create transparency with your stakeholders about your actual positive and negative impacts, progress, and learnings around SDG impact. You should disclose at least annually to your investors, owners, and or other key stakeholders how you manage and measure your impact and contribution to the SDGs, how SDG impact is integrated into your governance and management approach, and what kind of SDG performance you are achieving. You may wish to differentiate your disclosures for private versus public stakeholders. For example, it's common for investors to treat your annular performance data as proprietary and share that only with private stakeholders while releasing a public report with a later set of summary information. According to the SDG impacts standards, there are three fundamental concepts covered in investor SDG disclosures. First, sharing data for increased transparency. The investor discloses information at the portfolio and where feasible individual investee level. The purpose is to promote SDG and ESG impact integrity, comparability, and transparency among investment stakeholders to build trust and confidence. Second, annual portfolio level disclosure of all material impacts. Disclose the portfolio level, impact thesis, and impact goals accounting for all material positive and negative, intended and unintended impacts. Show changes in outcomes relative to baselines and outcome thresholds alongside any contextual information required to fully assess the impacts. For example, using the five dimensions of impact and considering inputs from stakeholders experiencing those impacts. Last, disclosing sources of data used for integration and optimization. Disclose to investors and other relevant stakeholders, the sources of data used for ex-ante and ex-post assessment of performance. At the portfolio and individual investee level when feasible. A good internal investor impact report complies with these concepts. It should not simply list the UN SDG colored tiles that you're focusing on, that is insufficient information. Instead, your internal impact report should include more detailed information you have prepared through the previous lessons in this training. From set strategy, provide information on the impact you're trying to achieve and the rationale for your selection. This includes, which sustainable development issues have the most material positive and negative impact on stakeholders across the value chain of your investments? Based on your examinations of stakeholder materiality, which sustainable development issues have you decided to actively manage and why? Which have you decided not to actively manage at this time and why? What are the specific SDG targets your investments are focusing on for this period? What are your ABC goal classifications of the SDG targets within your portfolio? From our integrate module, explain how you set up your organization to deliver on your impact goals including what data you decided to collect to substantiate each of your SDG targets, what data you used to create ex-ante projections of SDG impact, whether you or your investees articulated suitable baselines, counterfactuals, and thresholds. What trade-offs, if any, you made between different sustainable development outcomes or stakeholder groups and how your impact management system was developed and operated. From our optimize module, share what happened and what you learned including how performance compared to targets or projections over the given time period. Remember, your performance should be communicated as a change over a certain period not as isolated odd number. For example, instead of saying we had 50 female CEOs in our portfolio last year, say something like we increased the number of female CEOs in our portfolio last year by 10 percent totaling 50. Next, share how you compared actual performance against suitable baselines, counterfactuals, and thresholds. This means you should contextualize your results with the right comparable data. You could say, for example, in the average VC fund, three percent of portfolio companies are run by women. Our 10 percent increase from last year brought us to five percent. We are performing above average for our peer funds. With this data within context, you can easily start to tell a story about whether you are meeting in A, B or C level goal. Provide explanations for performance both to plan and deviations, the decisions and actions you took to improve performance and why, the buy, hold, and engage or sell decisions that were informed by your SDG impact performance, the most important risks to future performance and how you will mitigate them and if necessary, how you re-calibrated your ABC goals based on data and performance. A good place to look for the examples of public investor impact reports is the IFC operating principles for impact management website which hosts a library of reports filed by its signatories. Note that as public filings, these reports are much less likely to include all of the elements we outlined for a good internal investor SDG impact report. Now that you've done the work to build a strong impact management practice, you may consider the last step in reinforcing your impact which is to seek verification of your impact management practice and our performance by an independent third party. Why engage a third party? Having an independent third party verification can build an additional layer of confidence in what you report about your SDG-related practices and results. It can help your stakeholders compare your commitments and performance to your peers. It can help them make purchasing, partnering or investment decisions. There are many impact in ESG related credentials, verifier seals and certifications available for investors and we have listed some in our additional resources. The SDG impact standards ask that you consider third party validation or assurance of the key processes of your SDG impact management system and the management and government practices that support SDG impact performance or explain why you did not do so. How should I prepare? Well, what will an independent verifier ask for? Most verifications concentrate on governance, strategy, management approach, and performance. Many will ask you for documentation, survey you online about your practices or interview you to understand how well you're creating and managing impact. They'll be looking for evidence to support your impact claims in terms of both practice and performance. Blue Mark, an impact investment verification agency released a report called Making the Mark: The Benchmark for Impact Investing Practice in May 2021 to share insights from their first 30 independent verifications of alignment with the IFC operating principles for impact management. The report identifies median impact management practices, best practices, and advanced approaches that investors can work towards, as well as common areas for improvement for those with lagging practices. This visual from the report shows ratings segmented across three categories: practice learners, practice leaders, and median. The practice learners were doing relatively well at setting impact objectives and doing portfolio-level impact management. But they had room for improvement in defining their investor contribution, integrating impact due diligence, monitoring their impact, and especially considering impact at exits. Practice leaders, on the other hand, had integrated all of the practice guidance we have described throughout this course to a greater degree. As you can see, we have aligned our training steps with the nine IFC operating principles for impact management. If you follow our steps, you will have achieved a leadership level on the IFC principles and will have gone deeper in the set strategy and reinforced areas in ways required by the SDG impact standards. How do you react to what you learn? If you engage with a third-party verifier, you will likely receive a report of what you're doing well and what you can improve on. Sometimes this takes the form of a numerical score, a letter grade like a credit score, or a low, medium, or high rating. Review what you learned about your strengths and weaknesses from the report, and take the information to relevant decision-makers within your organization. Which insights are new? What can you learn from this analysis? What actions will you take to refine your impact management practices going forward? If you're being asked to share your third-party verifications with stakeholders and you're not happy with the analysis, you may ask if there's a redress period during which you can make improvements and then resubmit for another analysis. You may also choose to feature the analysis as part of your regular reporting or marketing. We highly recommend that if you do feature it, you try to avoid selecting just the most positive parts to include, but instead include an overall summary and articulate where you may be making changes for improvement. At the very least, try to contextualize your performance by comparing it to the performance of peers. Here's an example, Leapfrog is an impact asset manager that makes equity investments in essential services, including health care and financial tools in Asia and Africa. In their public 2020 annual report, they included their ranking by the 2020 UN Principles for Responsible Investment alongside information that shows how their ranking compares to relevant peers. Making it real. Here is a summary checklist of ways you can reinforce your SDG impact commitments. Reflect on and make changes to any existing policies or practices that may hinder or impede your commitment to SDG impact. Disclose at least annually, a public portfolio level disclosure of your performance on all material SDG impacts. Disclose to your stakeholders more information about your SDG targets, management and performance, including sources of data used for ex-ante and ex-post assessment of performance at the portfolio and individual investee level when feasible, and consider engaging with an independent third party to validate or assure your impact process performance and or governance. Then take the recommendations of that process into account as you refine your impact plans for the next period or year. At the end of this lesson, you should have your SDG commitments integrated at the highest levels and among key stakeholders of the investment organization, an annual public and perhaps other private SDG impact reports that disclose your performance and impact management practices, and if you decide to engage a third-party verifier, more detailed information about how your SDG impact management practices and performance compare to peers with areas for improvement.
