Voluntary Standards (finance)

Standards applicable to the financial sector that capture good practices and encourage the achievement and monitoring of social and environmental outcomes. They are voluntary in that there is no legal obligation to comply.

Key words: Financial markets; ESG; environmental standards; impact investment; green bonds; sustainability standards; corporate social responsibility; CSR.  

How does it work?

Despite increased interest and awareness, the financial sector remains disconnected from sustainable development. Appreciation of the importance of social and environmental dimensions in doing business remains limited and is often confined to a few organizations or units within larger firms. This has been partially counterbalanced by the emergence of new champions, leaders and markets (e.g. impact investment and green bonds) that have created new business models, evidence and tools. Environmental and social performance standards (also referred to as voluntary sustainability standards) can drive the adoption of more responsible and sustainable practices in the financial sector. They are “specifying requirements that financial service providers may be asked to meet, relating to a wide range of sustainability metrics, including respect for human rights, workers’ health and safety, decent income, environmental degradation, and others” (UNFSS). Mere technical standards that, despite being important and impactful, have no direct link to sustainability metrics are not included in this definition. Sustainability standards can focus on people (i.e. codes of ethics); products or asset classes (e.g. green bonds); processes (e.g. non-discriminatory credit assessments); organizations (e.g. ethical or community banking); and systems (e.g. systemic financial risks linked to climate change). In many instances they may cover several of the above aspects. In their most advanced formulation they should prescribe both the conduct of conformity assessments to track compliance and the accreditation of providers.

Dissatisfaction with public policies and failures in pursuing traditional command-and-control approaches have encouraged the private sector, consumers and civil society to take action. The emergence of sustainability standards is thus the response of the finance industry and interested stakeholders. These collaborative endeavours go beyond single company efforts, which are insufficient in driving wider applications of sustainable practices, and solidify the adoption of voluntary reporting and principles. Market reviews point to the willingness of financial service providers to adopt sustainability standards based on an understanding of their positive contribution to the management of financial and operational risks. Voluntary standards will necessarily complement rather than substitute for laws and regulations and should be designed not to compromise market competition. In the finance sector, sustainability standards apply both to the operations of financial companies in their entirety as well as to the project and activities that are financed, i.e. on standards developed for other sectors, for example palm oil or forest management.    

The lack of universally accepted social and environmental principles, let alone standards, is a challenge. Out of the 21,000 or more standards published by the International Organization for Standardization (ISO) only 50 relate solely to the financial sector (e.g. the Personal Identification Number–PIN) and among those, none encompass sustainability considerations. The Standard ISO-26000: Social responsibility is applicable to the financial sector but it is an exception among ISO standards as it does not offer requirements that can be certified. The ISO-26000 categorizes standards as: 1) standards derived from universal principles recognized in international declarations; 2) multi-stakeholder initiatives; 3) industry association codes; and 4) individual company codes. With specific reference to the financial sector, a number of initiatives have emerged:

The lack of provisions for enforcement (i.e. conformity assessments) and for the accreditation of verifiers differentiates most of the above initiatives from full-fledged standards of which, despite the number of declarations, the financial sector has been only a moderate developer and user. Other sectors, for example food processing or trade, have developed a large number of standards: the standards map of the International Trade Centre (ITC) lists more than 200 voluntary standards applicable to international trade. One explanation is that in the financial market, regulations have historically outweighed voluntary provisions. Despite these limited developments, microfinance and impact investment networks have become the most promising venues for introducing sustainability standards in the sector. A non-comprehensive list of sustainability standards initiatives follows:

  • Green bonds. The set of standards developed by the Climate Bond Initiative, which feature a growing number of criteria for investing in green sectors such as solar and wind power generation or low carbon transportation. Their certification process requires a conformity assessment by an approved third party certifier. The initiative–itself constituted as a NGO–has created sector-specific working groups composed of technical and industry experts.
  • Inclusive finance. The Social Performance Task Force is a NGO with more than 3,000 members from over 150 countries working on inclusive finance. In 2012 it released the Universal Standards for Social Performance Management (Universal Standards), which was updated in 2016. The formulation process is public. One application of the Universal Standards was the STAR (Socially Transparent And Responsible) mark assigned by the MIX Market, a platform providing access to the data, analysis, and tools on financial inclusion. The STAR mark is assigned to financial service providers that satisfy two requirements: alignment with the Universal Standards and green microfinance principles and sufficient documentation of social performance data. Similarly, the Smart Campaign embodies a set of core principles for the treatment of microfinance clients. The Campaign features a certification scheme with standards and licensed certifiers. Over 70 microfinance organizations were certified.
  • Ethical and social banking. The special financial institutions that put at the core of their mandate sustainability or social and environmental causes is also growing, microfinance institutions and ethical banks being an example. With the growth in numbers their associations have started to develop principles and eligibility criteria. The Global Alliance for Banking on Value (GABV) is an association of banks committed to make the banking system more transparent and supportive of support economic, social and environmental sustainability. It developed a set of principles of sustainable banking while a scorecard to measure banking impact is being considered. The public sector has sometimes supported these developments through certification schemes linked to incentives or favourable policy provisions. For example in the US the Community Development Financial Institution Fund certifies financial institutions that provide services in low-income communities and offers them access to grant programmes and benefits.
  • The standards for retail banking developed by the Fairbanking Foundation in the UK. Since its inception, the charity has certified a wide range of services, including loans, credit cards and current accounts in the UK. It ranks these services according to their contribution to the financial well-being of customers and the nation.
  • A number of studies and proposals have suggested standards for impact investment. Despite remarkable advancements and innovations none has however reached a global reach or consensus. Examples: the GIIRS Ratings offers a measurement and reporting tool for the impact performance of companies. The Impact Genome Project is developing a comprehensive dataset and algorithms that may allow an estimate of the outcomes of impact investment. The IRIS Metrics is a catalogue of performance metrics that is managed by the Global Impact Investing Network (GIIN). PRISM is a tool to score investments based on a combination of financial and impact performance. The Social Return on Investment (SROI) is a methodology to estimate the financial value of social outcomes. The Social Earnings Ratio is an attempt to define intangible non-financial values that are applicable to single financial transactions.

The principles (adapted from CISI/Long Finance/CBI) listed below are critical for the design and improvement of sustainability standards (The Equator Principles and Climate Bonds Initiative  are good examples of their application). These principals are:

  • Transparency: standards, certifications and the accreditation processes should be publicly accessible; standards should be available for inspection, complaints and violations;
  • Inclusiveness: the formulation process is open, structured, and inclusive;
  • Independence: accreditation bodies are independent from conformity assessment activities; certification agencies compete to conduct the conformity assessments;
  • Relevance: standards should be allowed to evolve along with the market; the standard-setting and/or accrediting body should help to ensure proportionality and consistency.

In addition to the above, the ISEAL Alliance published ten credibility principles for setting social and environmental standards along with a set of “standards for sustainability standards”. The document encompasses guidance on standards development and revision; standards’ structure and content and compliance criteria. ISEAL also produced codes for measuring impacts and assuring compliance. These provisions are fully applicable to standards pertaining to the financial sector.

Despite being often driven by the market (i.e. private sector participants and/or their associations), the roles of government (particularly regulators), international organizations and civil society are important. Regulators may provide the broad principles for the development of these standards, an example being the European Union's New Approach Standardisation in the Internal Markets. They may also participate in the discussions and validation of voluntary standards up to formally recognizing them. The organization that “owns” or endorses voluntary standards might be constituted in the form of an NGO. In addition NGOs, regulators and international organizations might be invited to participate in the definition and validation of the proposed standards. They might also directly or indirectly (i.e. by certification of certifiers) be selected to perform conformity assessments.

In developing countries, the role of public authorities is often stronger: the formulation of voluntary standards is often initiated or led by regulators. For example, China launched the Green Credit Policy to encourage banks to lend to energy efficient and environmentally sustainable companies (the policy referred to IFC’s Performance Standards as the international best practice). The Roadmap for Sustainable Finance in Indonesia provides a framework with regulatory provisions and incentives. The South African financial sector code for black empowerment was a Government initiative before being taken on by a coalition of business, labour and civil society. The code consists of clauses committing the sector to procure from black Small and Medium Enterprises (SMEs), provide affordable banking services to the poor and SMEs, and invest a share of profits in financial education. In parallel to the proactive role of the public sector, the number of financial institutions from emerging markets joining global pledges (see above), associations and/or international sustainability standards is growing. Examples include the above-mentioned GABV and the Equator Principles.

  • Financial sector: professionals working for financial sector associations, alliances and companies. They provide leadership, knowledge and expertise, and facilitate coalition-building and advocacy. They form the panels advising the standard-setting bodies. They promote dialogue within and beyond the sector in order to build confidence and encourage participation. The coalition behind the development of the natural capital protocol offers an example of such constituencies. Ultimately, the financial sector’s firms are the ones committing to apply the standards.
  • Standard-setting organizations: organizations that determine, validate and endorse standards at the national or international level. They operate in the legal form of semi-public institutions or private institutions. The British Standards Institution (BSI) and the Institut Algérien de Normalisation (IANOR) are quasi-public institutions operating in the UK and Algeria. They are typical members of ISO, which, with members from 162 countries, is the world's largest developer of voluntary international standards. Other standard setting organizations are established as industry coalitions and legally registered in the form of an NGO or a foundation. Examples include the Social Performance Task Force, the SASB and the Climate Bond Initiative.
  • Accreditation organizations: ensure the competence and integrity of the agencies offering conformity assessment services (e.g. testing, certification and inspection) by ascertaining that the minimum requirements are met. They might be independent from standard setting organizations or staffed as independent units.
  • Certification agencies: carry out conformity assessments. They are usually private companies or NGOs operating in a competitive environment. Examples include the BSI Group and the Société Générale de Surveillance.
  • Government, including financial sector regulators: can play multiple roles usually via the financial sector regulators. Regulators may provide the broad principles or legal frameworks for voluntary standards. They may also validate voluntary standards or even formally recognize them. Stock exchanges and stock exchange commissions might also facilitate the implementation of voluntary standards (e.g. Sustainable Stock Exchanges Initiative).
  • Investors: individual investors providing (or investing) money with the expectation of obtaining a financial gain. They play a key role in demanding the financial industry to develop or adapt to voluntary standards. They may decide to align their investment decisions only to products and operators that meet certain standards.
  • Consumer groups: consumers and their representative organizations bring a unique perspective that is different from the financial industry. Similarly to investors, consumer organizations can also pressure the financial industry to adopt sustainability standards.
  • Sponsors and supporters: think-tanks, foundations and international organizations (e.g. UNEP, ITC and IFC) can offer expertise, knowledge, convening power and seed funding to initiatives aimed at producing voluntary standards.

Potential in monetary terms (revenues, realignment or savings)

The monetary benefits are indirect and linked to (1) cost savings in the Government due to reduced spending on environmental and social programmes; (2) increased private investment in projects that promote or (do not harm) sustainable development; (3) improved operational performance and better management of risks at the company and industry level (e.g. improved payment systems allowing for greater financial inclusion). It should be noted however, that unlike some other sustainability standards (e.g. fair trade) there is currently no expectation of a price mark-up benefiting the financial sector.

The economic and financial benefits of standards can be sizable, but there is no consensus on how they can be estimated. Attempts were made to estimate the macroeconomic benefits of technical standards, with results in the range of 0.2 to 1 per cent of GDP in Germany, United Kingdom, France, Canada and Australia (DIN). The German Institute for Standardization estimated the economic contribution of standards at EUR16.77 billion in the period 2002-2006. The Department of Trade and Industry of the UK found that standards published from 1948 to 2002 contributed to about 13 per cent of the growth in labour productivity in the country.

There is less evidence on the benefits pertaining to sustainability standards. The methodology developed by ISO to quantify the microeconomic benefits of standards, i.e. the impact the use of standards makes on companies’ profits, might be applied for the purpose. Studies using this methodology point to gross profit contributions of up to 30 per cent of companies' annual revenue that are attributable to the utilization of certain standards. A few case studies also highlight the benefits of social and environmental standards. Beyond profitability the monetary potential for the financial sector can also be investigated by looking at how the application of sustainability standards can impact the performance of an investment portfolio. Research results are scant but they suggest that financial portfolios comprising firms with strong sustainability ratings are outperforming other portfolios. For example evidence has emerged by testing the performance of investment portfolios built on a materiality sustainability index developed on the basis of Environmental, Social and Governance (ESG) standards by SABS.

When is it feasible?

Legal and/or other feasibility requirements

Because they are voluntary, there is no legal requirement attached to voluntary standards. However, their credibility and reputation and the quality and openness of the formulation process is likely to determine their success and use. The establishment of independent organizations such as NGOs to oversee the standards’ formulation, accreditation and monitoring is ruled by national laws. Even for international voluntary standards, the standard-setting and accreditation bodies usually take the form of a NGO registered in the country hosting the headquarters.

Minimum investment required and running costs

Public sector investment is limited, with most of the costs related to design and communication being covered by the private sector or NGOs. For the latter group, the most significant cost items are the ones connected to promotional and consensus-building activities. Experts’ participation in working groups is mostly provided on pro-bono basis. Part of these costs may be recovered thanks to accreditation and certification fees. Anecdotal evidence from the Fairbanking Foundation and the Climate Bond Initiative suggest that running their standards operations implied annual costs ranging from as little as US$500,000 to several million.

There are costs related to the application of voluntary standards by the financial sector which might or might not be recovered by additional profits or mitigated risks. Economic research (see above) provides large evidence of the economic and financial benefits of applying standards at the company level. Sunk investment costs for compliance are company-specific and mostly related to the establishment, within the company, of transparent compliance and monitoring mechanisms. Companies are also expected to pay for conformity assessments, the cost of which varies depending on the scope, asset class, number of markets etc. For example the costs of certifying a green bond with a third party verification usually range from US$5,000 to US$50,000.

The cost of certification is not the same everywhere. It can become prohibitively high in certain contexts and particularly in least developed countries where qualified service providers may not be available. This problem is not unique to standards and it is related to the availability and affordability of services to local companies.

In what context it is more appropriate

Despite the limited use of sustainability standards in the financial sector, successful initiatives in green finance, inclusive finance and impact investment put forward a case for their use in more traditional capital markets, including by financial firms offering wholesale, retail and corporate products. There is no country-specific contextual barrier to the adoption of sustainability standards.

What are the main risks and challenges?


  • The financial crisis and numerous scandals have damaged the credibility of financial markets and institutions. Committing to ambitious sustainability standards can help to restore confidence and trust.
  • Standards will increase the awareness of service providers and consumers of ethical considerations, workers’ well-being, environment conservation and corporate accountability, even if standards might not be applied in full.
  • Facilitate the dissemination of innovations and the adoption of best practices in environmental and social performance within and beyond the financial sector.  
  • Voluntary standards may offer a cost-effective alternative to regulation. The advantage lies in the responsiveness of market-led standards to the sector's needs.
  • Voluntary standards will increase the value and attractiveness of sustainability labels/marks and help to increase transparency in financial markets.
  • Competition among certifiers has the advantage of keeping certification costs low.


  • Enforcement of voluntary standards is challenging if compared to legal provisions. Response strategies include peer and consumer pressure, awareness raising, and advocacy campaigns.
  • Over-reliance on standards might incentivize formal compliance versus the achievement of actual impacts.
  • Standards may hinder innovation when they are too many, costly, or complex. Standards that are introduced too early in young markets may also negatively impact innovation. 
  • The measurement of social and environmental performance that is usually attached to sustainability standards may require an initial investment. Data quality and availability remain a challenge for many companies.
  • The data provided to demonstrate adherence to voluntary standards are often not audited, raising questions about credibility. This reality is counterbalanced by advances in the standardization of metrics and reporting mechanisms. Data providers and rating agencies are important stakeholders, who can help strengthen the credibility of sustainability standards.
  • The uptake by financial institutions of new voluntary standards may be affected by the fact that financial institutions may find it difficult to navigate among many sustainable standards.


  • Insufficient or weak acceptance by the financial sector or stakeholders, particularly consumers. If consumers do not value certified financial services, being certified will become a responsibility of private firms alone.
  • Reputational risks. Trust in the standards and accreditation/certification processes is essential and it can be damaged in several ways. In the design phase standards set too low can become too easy to obtain and reported as meaningless, while standards set too high can exclude the majority of firms. A “greenwashing effect may also emerge if there is no mechanism to guarantee compliance. Standards might be used for greenwashing by companies wishing to hide harmful business practices.
  • Proliferation risks. Private standards are proliferating and creating confusion among enterprises that might need to comply with multiple standards. Furthermore, while many standards cover similar issues, they often lack interoperability.
  • Certification benefits may favour larger and well-off producers in countries that have more developed markets. Capacity development programmes might be necessary for SMEs.
  • The lack of service providers offering conformity assessments can raise their cost, particularly in small economies or in Least Developed Countries.
  • A few critics have found that voluntary standards may potentially undermine governmental regulatory efforts, though there is limited evidence.

How can the design be ameliorated to improve the impact?

There is insufficient information to account for the impact of sustainability standards in the financial sector due to the low penetration rate and the lack of evaluation studies. The social and environmental impact can be determined both by the quality of the standards and their direct impact on economic, social and environmental variables. The application of voluntary standards may also improve the systemic efficiency, effectiveness and resilience of the financial sector, which in turn might have a positive economic impact.

The penetration rate of a standard, i.e. the percentage of companies applying the standard out of the total, is a key success factor for producing social and environmental impact. This penetration rate is still very low in the financial sector. To provide a comparison, certified coffee production makes circa 40 per cent of global production while green bonds count far less than 1 per cent of total bond emissions. The simple adoption of a standard does not guarantee a positive impact, which is more difficult to assess. Even in mature markets for sustainability standards (e.g. coffee or cocoa), the degree to which adoption has led to economic, social and environmental impacts remains unclear. Studies have highlighted moderate impacts on the economy, society and the environment: for example, the Cocoa Barometer reports that the value added for cocoa-certified is circa 6.6 per cent for farmers, 35.2 for processors per cent and 44.2 per cent for retailers.

It is expected that additional resources will be invested in conducting evaluations. The ISEAL Alliance maintains a database of impact evaluations connected to sustainability standards’ adoption. It also elaborated an Impacts Code to define general requirements for monitoring and evaluation systems related to the impact of sustainability standards.

A technically sound and inclusive design is essential to improve the impact and penetration rate. Industry stakeholders, standard-setting bodies, regulators and firms could foster higher impacts by pursuing:

  •  Alignment with best practices in standard development. The ISEAL Code of Good Practice for Setting Social and Environmental Standards defines principles and best practices for standard-setting processes, thereby increasing the credibility of the standards. The ISEAL codes on impact and assurance are similarly relevant.
  • Harmonization and interoperability: coordination in developing standards favours interoperability, which in turn can reduce costs and increase the penetration rate. For the financial sector the interoperability of standards applicable to economic sectors is particularly important as their social and environmental impact often depends on the projects financed. For example, HSBC’s own company standards are encouraging and recently requiring certain sector customers (e.g. in forest and agriculture commodities) to become certified, including from the Forest Stewardship Council (FSC) and the Roundtable on Sustainable Palm Oil.
  • Convergence of social and environmental considerations: the FSC originally covered only the environmental performance in the forestry sector, but later it required certified companies to also adhere to the ILO fundamental labour standards. Similarly the organizations that facilitate the emergence of the green bonds market are adapting by releasing guidance material on social performances.
  • Graduation from companies’ codes and declaration of principles into clear commitments towards the adoption of sustainability standards that can be certified through conformity assessments by accredited certifiers. An intermediate step is an independent audit of a company’s sustainability reports.
  • Alignment with public policies: the impact of voluntary standards will be amplified when the connection with public policies is stronger. This alignment can greatly expand visibility and outreach and even include access to economic incentives for companies wishing to adopt sustainability standards.
  • Representation of consumer and vulnerable groups in the standards’ formulation and validation: their participation can favour stronger checks and balances between the industry needs and consumers and people's needs. Similarly, the participation of vulnerable groups or their associations is to be encouraged even if it might require funding for capacity development and travel.
  • Targeted capacity development programmes in support of standards’ adoption. Root causes for undertaking unsustainable social and environmental practices are often linked to lack of knowledge or evidence. This is also valid for firms operating in the financial sector.