- Policy and regulatory measures targeting sustainability have grown 20 per cent year on year since 2010
- Climate action has opened up initial investment opportunity of USD 22.6 trillion from 2016 to 2030
- Next 24 months crucial to build on existing initiatives and finance sustainable development
Amid growing global momentum to finance climate action and sustainable development, the UN’s top environmental body and the World Bank Group released research to help governments and the private sector design a global financial system that is fit-for-purpose.
The Roadmap for a Sustainable Financial System comes at a critical moment, when trillions of dollars need to be deployed towards sustainability each year, much of which will have to come from the world’s financial and capital markets.
Climate action alone requires major investment. A review of Nationally Determined Contributions under the Paris Agreement, and other policies in 21 developing countries that represent 48 per cent of global greenhouse gas emissions, finds an initial investment opportunity of USD 22.6 trillion from 2016 to 2030 in key sectors.
“The financial system has enormous transformative power, and has the potential to serve as an engine for the global economy’s transition to sustainable development,” said UN Environment head Erik Solheim. “The roadmap tells us who needs to do what, and when, for this to happen. Here we can see the very real potential to improve the lives of billions of people around the world.”
Released during the latest round of climate talks, the roadmap – produced by the UN Environment Inquiry into the Design of a Sustainable Financial System and the World Bank Group – sets out how to create a financial system that integrates sustainability considerations into its operations, leading to resources flowing toward more inclusive and sustainable activities.
To reach this point, the roadmap proposes an integrated approach that can be used by all financial sector stakeholders, bringing policy cohesiveness across ministries, central banks, financial regulators, and private financial sector participants.
“Sustainable growth must be the only growth option for the planet and will require sustainable financial systems that are inclusive, deep, and sound,” said Hartwig Schafer, World Bank Vice President for Global Themes.
The report finds that the transition toward a sustainable financial system is already taking place through the interaction of market-based, national and international initiatives.
Through market-based initiatives – such as the Sustainable Banking Network (SBN) and the UN Environment Finance Initiative (UNEP FI), private and public finance institutions have begun to integrate environmental and social risks and opportunities into their business models. Digital finance, or innovative financial technology (fintech) in particular has the potential to deliver environmental outcomes and support a transformation in financing for sustainable development.
Momentum has also been driven by country-level initiatives that, in many cases, arose from national planning processes to implement climate change policies or other long-term development initiatives.
Cooperative international efforts carried by the G20, the G7, the UN, and the Financial Stability Board (FSB) have all addressed different aspects of sustainable and green finance, while at the same time increasingly involving the private sector. This has been complemented by multilateral development banks and international financial institutions that continue to actively promote sustainable finance.
These combined factors have led to great strides in laying the groundwork for a sustainable financial system, some of which follow:
- Nearly 300 policy and regulatory measures targeting sustainability were in place in over 60 countries as of October 2017. Growth in measures has averaged roughly 20 per cent year on year since 2010—with an increase of roughly 30 percent since July 2016.
- According to a 2016 survey by the International Finance Corporation (IFC), over 60 per cent of 135 respondents were active in financing climate-related and green projects.
- In 2016, green bond issuances reached US$80 billion, almost double the total issuance of 2015. Ratings agency Moody’s predicts that green bonds could exceed USD 200 billion this year, driven by the Paris Agreement and reform in China.
- 11 of the world’s leading financial centres have joined forces to promote sustainable finance, in an initiative led by the UN Environment Inquiry into the Design of a Sustainable Financial System, in partnership with Casablanca Finance City and Italy’s Ministry of the Environment.
- The Sustainable Stock Exchanges (SSE) Initiative now includes over 60 stock exchanges, representing more than 70 per cent of listed equity markets and some 30,000 companies with a market capitalization of over USD 55 trillion.
To consolidate and build on this progress, however, the roadmap says that concrete and sustained action is required across the next 24 months to make best use of ongoing initiatives, and support the design and implementation of new ones.
The roadmap lays out a timetable of these step, including in the areas of products, information and technology; business models, capabilities and incentives; national public policy actions and roadmaps; global coordination principles; and results measurement.
“Mainstreaming the alignment of the global financial system with sustainable development has to move beyond marginal innovations and shape the system’s underlying architecture,” said Simon Zadek, Co-Director of the Inquiry. “The Roadmap for a Sustainable Financial System shows how to convert leading edge practice into systemic changes in the role of finance in modern society.”