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8 April 202110 minute read

Credibly incorporating the UN Sustainable Development Goals into bond issues

On 1 April 2021, the SDG Impact initiative published the final version of its SDG Impact Standards for Bond Issuers, part of a body of work intended to improve use of the UN Sustainable Development Goals (SDGs) across private equity, bond issues and enterprises, including to combat perceptions of “rainbow washing” or “impact washing.”

Key takeaways
  • The Standards have been designed to be capable of complementing green, social and sustainability-linked principles. They are also intended to be consistent with emerging regulatory frameworks, including the EU Taxonomy and the EU Green Bond Standard. In doing so, they provide a robust framework for responding to investor and regulator calls for (a) increased rigour in governance and management, (b) higher levels of ambition for impact, and (c) more transparent evidence of the impact of green, social and sustainability-linked issues. We expect the Standards will be increasingly incorporated in green, social and sustainability-linked issues.
  • The Standards emphasise the need to take into account negative, as well as positive, contributions toward the SDGs, and to assess impacts throughout the value chain. This tackles a common criticism of corporate adoption of the SDGs – that the focus is too often only on the positive – and other critiques focusing only on supply chains to the exclusion of value chains. In both respects, the Standards are consistent with emerging regulatory approaches, such as the “do no significant harm” principle embedded in the EU Taxonomy and EU due diligence proposals focusing on value chains.
  • The Standards incorporate governance, management, risk and reporting measures consistent with best practices. With the SDG Impact Standards for Private Equity Funds and the forthcoming SDG Impact Standards for Enterprises (a second draft of which is currently out for public consultation until the end of May 2021), they provide a useful set of tools for enhancing corporate governance, conducting due diligence and testing claims of green, rainbow and impact washing.

The UN Sustainable Development Goals are a key component of the 2030 Agenda for Sustainable Development adopted by the UN General Assembly in 2015. The 17 SDGs – covering topics including poverty, hunger, health, clean water, affordable and clean energy, responsible consumption and production, climate action and peace, justice and strong institutions – are broken down into a series of targets and detailed indicators, and together establish a vision for more sustainable societies and economies by the end of the decade.

The colourful palette of the SDGs has become a familiar feature of corporate sustainability strategies and reporting, with businesses eager to demonstrate the ways their activities can and do contribute to the SDGs.

In some settings, however, corporate support for the SDGs has been criticised as “rainbow washing” or “impact washing,” particularly where claimed alignment of business activities with the SDGs is not substantiated with evidence of impact.

The SDG Impact initiative of the UN Development Programme seeks to improve business use of the SDGs, including across private equity, bond issues and enterprises. On 1 April 2021, SDG Impact published the final version of its SDG Impact Standards for Bond Issuers, its framework for the incorporation of the SDGs into bond issues.


The Standards are intended to be capable of application by all bond issuers, including sovereigns and corporates, regardless of size, geography or sector. The Standards complement both existing market frameworks, including the use of proceeds-focused Green Bond Principles and Social Bond Principles, and the KPI-driven Sustainability-Linked Bond Principles, published by the International Capital Market Association, and emerging regulatory frameworks, including the EU Taxonomy and the EU Green Bond Standard.

Accordingly, the Standards can enhance the rigour and ambition attached to overarching green, social or sustainability objectives by providing a framework to determine, measure and report on SDG-aligned impact.

The Standards are grounded in:

The Standards emphasise the need for impact and that engagement with the SDGs goes beyond simply rebadging business as usual.

The Standards also recognise the need to identify and address negative impacts – including impacts that might detract from the SDGs – as much as positive impacts, addressing a common criticism that corporate adoption of the SDGs too often focuses only on the positive.

The Standards are broken down into four separate elements, each with associated performance indicators:

  • strategy
  • management approach
  • transparency
  • governance
Key requirements: Impact strategy and SDG Bond Program

The Standards articulate two key requirements: the development of an “impact strategy” and an associated “SDG Bond Program.” The Standards make clear that an “SDG Bond” is part of a “broad category” that includes use of proceeds, SDG-linked and general-purpose bonds, which allows for integration with programs that adopt green or social use of proceeds frameworks or sustainability-linked KPIs.

An impact strategy requires an issuer:

  • to use evidence and relevant social and scientific data from reputable agencies;
  • to implement a formal approach to determine the materiality of sustainable development issues;
  • to develop a formal stakeholder engagement plan;
  • to incorporate sustainable development risks and opportunities into its formal risk management approach;to use sensitivity and scenario analysis to test resilience of the strategy;
  • to implement a formal approach to ensure the strategy and goals remain fit for purpose as contexts change; and
  • to determine the resources to be allocated toward implementing the strategy, including budget, capability and leadership.

A number of these elements will be familiar to issuers well-versed in sustainability management and reporting and should not require wholesale changes to existing approaches. Instead, consistent with the overarching intent of the Standards, what will likely be required by prospective issuers will be to revisit existing sustainability frameworks and consider what additional measures might be required to plan for, action, and substantiate both the mitigation of negative, and the enhancement of positive, impacts on the SDGs.

An issuer’s SDG Bond Program must:

  • set out impact goals that are ambitious;
  • specify the relevant SDG targets;
  • be linked to identified material issues;
  • address all material negative impacts in direct operations and throughout value chains; and
  • be expressed in terms of expected change in outcome levels and consider the potential for unintended consequences.

The Standards also require the issuer to include clear consequences if impact goals are not met.

Management’s role in delivering impact

The Standards emphasise the need for management measures to deliver on the impact strategy and the SDG Bond Program, including:

  • to embed respect for human rights in line with the UNGPs, planetary boundaries and other responsible business practices in organisation-wide policies and practices;
  • to implement formal approaches to stakeholder engagement, collection of data, and integration of accountability for impact management into day-to-day operations;
  • for decision-making frameworks that provide for assessment and comparison of material positive and negative impacts associated with its products, services and operations and to make choices to optimise its contribution to sustainable development and the SDGs; and
  • for systems to monitor and manage ongoing impacts and to act to optimise its contribution to sustainable development and the SDGs.

The focus on both negative impacts and the need for assessment throughout the value chain reflects recent regulatory developments, particularly in the EU (for example, the EU Taxonomy’s “do no significant harm” principle and the emerging approach to ESG due diligence).


Like green, social and sustainability-linked frameworks, the Standards emphasise the need for disclosure, including annual reporting.

The Standards specifically contemplate that an issuer will:

  • disclose relevant information about itself, the impact strategy and the SDG Bond Program, including by making public relevant policies and other information on how it implements and manages performance and compliance, including compliance with relevant laws and regulations;
  • report publicly at least annually on the performance of its SDG Bond Program, including against the SDGs themselves and the ABC Impact Classifications; and
  • have its external impact reporting assured by an independent person, or explain why it has not done so, and “follow up findings with suitable rectification measures in a timely way.”

The last point reflects the increasing emphasis on the role of assurance in sustainability reporting, as voluntary frameworks continue to converge and articulate a shared vision and as the pathway to a form of parity with financial reporting becomes clearer (see, for example, the recent announcements of the Trustees of the IFRS Foundation on sustainability reporting).

The role of the board

The Standards also require that the board or other governing body of the issuer:

  • has “active oversight” of policies relating to respect of human rights in line with the UNGPs, planetary boundaries and other responsible business practices, stakeholder complaints and remedial actions, organisational culture, the impact strategy, the SDG Bond Program, the impact goals and disclosure; and
  • meets applicable minimum corporate governance standards, has competencies concerning sustainable development issues and impact management, prioritises gender and other aspects of diversity, recognises the implications of low accountability and holds the appropriate leaders accountable for the impact strategy and the SDG Bond Program.

Where applicable, the Standards also require the parent or holding company of the issuer, including any ultimate holding company, to have policies, practices and performance relating to corporate governance, and respect for human rights in line with the UNGPs, planetary boundaries and other responsible business practices that are consistent with the Standards.

Embedding impact terms into associated facilities 

The Standards include measures relating to scenarios where the issuer is not the end user of the proceeds of the bond, attempting to ensure that the end user is held to the same standards.

Specifically, the Standards expressly require the issuer, where it is not the end user of the proceeds of the bond, to embed impact terms in the facility legal documentation so:

  • obligors are held to the same standard as direct issuers under the Standards; and
  • the issuer is provided sufficient information to assess the effectiveness of the impact strategy and manage its performance against the impact goals of the SDG Bond Program.

The Standards also provide that the issuer monitors end users’ impact performance and adherence to impact terms and engages proactively with end users to share resources and lessons so they can continuously improve their own performance.

The emphasis on information sharing demonstrates the critical role of data collection integrity by end users and at the asset level, a lesson most recently reinforced by the EU Sustainable Finance Disclosure Regulation.