Activating Alignment : Applying the G-20 Principles for Sustainable Finance Alignment with a Focus on Climate Change Mitigation

The first action in the G-20 Sustainable Finance Roadmap proposes six high-level principles for the development and global coordination of approaches to align investments with sustainability goals. "Alignment approaches" are national and international frameworks for the financial sector that aim to monitor global sustainable finance flows and ensure that they are contributing to the temperature goals of the Paris Agreement, the Sustainable Development Goals (SDGs), and other international sustainable finance objectives. These approaches increasingly leverage "alignment tools," which include but are not limited to (a) taxonomies (or classifications) of private sector activities that can be labeled as achieving environmental and social objectives; (b) certifications and labels that confirm that products or services have met environmental, social, and governance (ESG) standards; (c) disclosure frameworks that guide private sector entities to manage and report on their ESG performance; and (d) transition frameworks that help the private sector design a credible shift to low-carbon technologies and practices. The tools can then be applied in different ways-ranging from national-level regulations to voluntary private sector-led initiatives, to corporate-level practices. The tools can be applied by investors and finance providers for different purposes at different levels: at the "asset level" (as in determining whether a project or activity is compatible with a relevant sustainable finance taxonomy or due diligence framework); the "entity level" (as inwhether a corporate or financial institution has a robust low-carbon transition plan and adheres to the International Labour Organization (ILO) Declaration on Fundamental Principles and Rights at Work); or "portfolio level" (as in whether an index is aligned with a credible temperature objective or supports poverty reduction). The G-20 Voluntary Principles for Developing Alignment Approaches provide a common foundation for ensuring these alignment approaches are robust and consistent