The Sustainable Development Analysis & Opinion Mechanism

Adopted in 2014, the sustainable development analysis and opinion mechanism is integral to AFD’s corporate social responsibility approach. From its inception, this innovative mechanism was designed to be scalable within a continuous improvement process, in line with evolving global challenges (adoption of the Sustainable Development Goals, rising inequalities, rapid deterioration of biodiversity) and the strategic framework of AFD Group. Since its adoption, the mechanism has undergone two methodological revisions, in 2018 and 2022. 

The sustainable development mechanism is a useful dialogue tool for AFD’s financing appraisal process. The aim is to serve as a basis for questions and encourage consideration of each project’s impact on sustainable development at as early a stage as possible. In this way, it promotes dialogue with AFD’s partners on the anticipated effects of the projects with which they are involved. 

All projects financed by AFD are subject to a sustainable development analysis. Comprising six cross-cutting dimensions (biodiversity, climate, social ties, gender, governance and economy), the analysis covers all 17 of the Sustainable Development Goals (SDGs).

The mechanism includes:

• The performance of an analysis of the anticipated project impacts on each of the six dimensions of sustainable development by the teams responsible for financing appraisal. The questions are designed to guide strategic thinking about the potential impacts of the project and how to improve in these areas by systematically asking this question: to what extent does the project, in its particular context, best meet the challenges of sustainable development? 
• The provision of a “sustainable development opinion”, given by an organization independent to the operational departments and used to inform the decision-making of AFD’s governing bodies. The “sustainable development opinion” team is present at key stages in the appraisal process to ask questions from the identification committee stage and provide formal independent advice when the financing decision is made. This advisory opinion, which may be favorable, favorable with recommendations, reserved or negative, is given for all AFD operations with the exception of global budgetary aid, small-scale operations (less than €1.5 million in grants and €5 million in loans), guarantees and projects financed via AFD’s NGO (FISONG) and local authority (FICOL) windows.

Sustainability development analysis is performed using detailed analysis grids for each of the six dimensions of sustainable development reviewed: biodiversity, climate, social ties, gender, governance and economy. The climate dimension is subdivided into two components: “contribution to the low-carbon trajectory” and “resilience to climate change”, ensuring that both the mitigation and adaptation issues relating to the project, in line with the Paris Agreement on Climate, are considered. 

These grids provide a reference framework for the systematic questioning of each project’s impacts. They can be used as a tool to initiate dialogue on the project’s sustainable development challenges, both with partners and internally at AFD. The grids are applicable to all sectors and all types of projects and financing. Their purpose is to identify strategies for promoting transformational projects that best address sustainable development challenges, as well as to apply a “do no harm” approach, ensuring that no AFD project has a negative impact on sustainable development (the role of “sustainable development watchdog”). 

The analysis methodology applies a qualitative approach based on a review of the project’s operational rationale and monitoring/evaluation indicators as defined in the logical framework. Projects are rated according to a grading scale ranging from -2 “significant negative impacts” to +3 “strategic positive impacts” for all six dimensions.

The sustainable development analysis and opinion mechanism helps to guide projects towards greater sustainability from the design stage. One of the mechanism’s key strengths is that the process facilitates the identification of sustainable development issues and promotes debate on these anticipated impacts. To complement the analysis performed by the operational teams, an opinion is given by an independent team which reviews this analysis and provides constructive criticism during the project appraisal stage, through to the identification and granting of financing, in order to improve the project’s impacts.

The analyses and opinion are used to conduct internal capitalization exercises for learning purposes. Such capitalization activities are a way to take stock of the main sustainable development challenges at sectoral or regional level, and then to reflect on solutions which better address local sustainable development issues.

This continuous learning approach is also carried through to sustainable development training. These training courses are offered to AFD employees to improve their knowledge of the approach fundamentals and to promote better dialogue with partners.
 

The sustainable development mechanism is a tool that aims to enhance dialogue with AFD’s partners and co-financiers on the impacts of the operations being financed. The adoption of the Sustainable Development Goals (SDGs) in 2015 provided a roadmap for every government, as well as every organization involved in sustainable development, and the sustainable development analysis has been developed to contribute to this process.

Today, there are more than 200 existing methodologies to guide sustainable development investment. There is a collective momentum behind climate-oriented financing but discussions on financing compatible with the Sustainable Development Goals are still in their infancy. Supporting both public and private financial players to meet the commitments of the SDGs and the Paris Agreement remains a major challenge. 

The sustainable development mechanism, as an ex-ante project analysis tool to guide projects towards greater sustainability, represents the cornerstone of sustainable finance. As a means of aligning AFD’s strategy with the SDGs, the sustainable development mechanism is linked to the eligibility criteria for assets contained in the SDG bond issue framework formalized by AFD in 2020. Only loans considered to have a positive or neutral impact on each of the six dimensions of the sustainability analysis are eligible for refinancing via the SDG bond framework.