Sustainable investing

What is sustainable investing?

Sustainable investing is an investment approach that takes into account social and environmental performance when making an investment decision. This approach has gained momentum across the whole investment ecosystem, especially since the formulation of the Sustainable Development Goals (SDGs) as they provide a useful roadmap toward achieving quantified development impact.

Based on how much emphasis investors put on financial, social or environmental performance of their investments, they can be classified from “financial only” to “impact only”. Those investors covering responsible, sustainable and impact investments all consider non-financial performance and thus have the potential to positively contribute to the decent work agenda.

Source: “Allocating for impact”. Social Impact Investment Taskforce, 2014

The growth of sustainable investing in recent years goes hand in hand with a growing perception and evidence-base of not only societal benefits but also of the business-case for such an approach. However, there is consensus that not enough capital is being channelled into solutions for global problems, as shown by the estimated gap to achieve the SDGs of between US$5-7 trillion per year. While public investment is a key driver for achieving the SDGs, the achievement of such goals is also dependent on the redirection of private investment.

A major challenge for investors applying sustainable investing strategies is how to incorporate Decent Work in their decision-making processes. Incorporating such aspects increases investment performance as well as allows investors to make informed decisions about where their money is deployed and work with investee companies to improve their quality of employment.

What do we do?

At the ILO's Social Finance Programme, we collaborate with stakeholders across the investment ecosystem. Our objective is to reorient capital towards achieving decent work and economic inclusion, as envision by the UN’s SDG 8. In our collaborations, we aim at shaping standards and promoting good practices that facilitate integrating decent work considerations into investment strategies. We conduct research and build the capacity of investors for better social and environmental risk and impact management.

We work at three levels of the investment ecosystem:

1. Investors
We provide advisory, capacity building and technical assistance to investors as well as investee companies. Examples of this work include our role as Sustainability Advisor to the AATIF, an impact investment fund initiated by the German government, to measure and manage the social impact of agricultural investments, and our support to the development of a Sustainability Management System for the Common Fund for Commodities, a UN-backed intergovernmental financial institution. We also explore innovative finance mechanisms, by, among other initiatives, supporting a feasibility study on an impact bond to reduce child labour in the cocoa value chain in Côte d’Ivoire, as part of the ACCEL Africa Programme.

2. Industry and support organizations
Our work with networks and platforms is critical to scale up and share with the broader investment community the knowledge created through working with investors. Our engagement and contributions to central industry organizations like the Global Impact Investing Network (developing Quality Jobs impact investing strategies) or the Smallholder and Agri-SME Finance and Investment Network create opportunities to improve industry-wide practices related to sustainability in investments, particularly on decent work. By partnering with regional development finance associations, we conducted studies on the social dimensions of development finance in in Asia and the Pacific and in Africa.

3. Policy and enabling environment
An enabling environment, which incentivizes impactful investments but also prevents negative impacts and greenwashing, is critical to achieving the SDGs. With this objective in mind, we work at the policy and enabling environment level, including with the UN system. One example are our contributions to the UN Joint SDG Fund, which we provide with advise in the assessment of proposals aiming at increasing SDG Financing. We also build capacity within the ILO, its constituents and the broader UN-system through courses, webinars and events. A central area of work for our constituents and the financial sector is Just Transition Finance, where we work seeks to increase financing that addresses the climate crisis while fostering inclusive, job-rich growth and leaving no one behind.