The G20 and other nations have taken huge strides over the last year towards mobilising the trillions of dollars of public and private capital needed to make sustainable development and climate action a reality, according to new UN Environment (UNEP) research released recently.
UN Conference on Trade and Development research from 2015 showed that the investment required to bring sustainable development in developing countries was short $2.5 trillion each year, with as much as 10 times that needed globally in the years to come – mainly from private sources.
However, the UN Environment Inquiry into the Design of a Sustainable Financial System’s “Green Finance Progress Report” – a contribution to the G20’s Green Finance Study Group (GFSG) – finds dozens of encouraging policies and financial product developments that show the public and private sectors are serious about changing this trend.
“The world has committed to creating a better future for people and planet. But we will not be able to achieve our sustainable vision without the global financial system using its capital to fuel the transformation,” said Erik Solheim, head of UNEP.
“This new research from UN Environment, a contribution to the G20 Green Finance Study Group, shows encouraging progress in this regard. From a record number of new green finance measures to ambitious plans for green finance hubs, we are seeing the smart money move to green financing.”
Highlights from the report
Green financing at scale will be critical to achieve the G20’s goal of securing balanced and sustained growth. Establishing the GFSG during China’s G20 Presidency last year showed the G20 understood this – reinforced by Germany’s decision to continue the work during its G20 Presidency this year.
The G20 Green Finance Synthesis Report, adopted at the G20 Leaders’ Summit in Hangzhou in September 2016, set out seven options identified by the GFSG to accelerate the mobilization of green finance.
Over the last year, considerable progress has been made against these seven options by all G20 members, and the international community, in increasingly systemic national action, greater international cooperation, and increased market leadership.
More measures related to green finance have been introduced since June 2016 compared with any other one-year period since 2000. The trends and measures have resulted in increased flows of green finance, most notably in the issuance of green bonds, which grew by around 100 per cent to $81 billion in 2016.
Examples of specific country action include:
- India: The Securities and Exchange Board of India (SEBI) issued disclosure requirements for the issuing and listing of green debt securities.
- Germany: The federal state of Hesse has announced the intention to make the city of Frankfurt a green finance hub.
- China: In June 2017, the State Council announced five pilot areas for green finance.
- France: In January 2017, France issued a landmark €7 billion long-dated 22-year sovereign green bond, with a view to promoting best market practices (especially in terms of evaluation and impact reporting) and support the development of the green bond market.
- South Africa: The Johannesburg Stock Exchange (JSE) is developing green bond listing requirements in line with international best practice.
- Brazil: The Central Bank issued guidelines on integrated risk management including environmental risk at the end of March 2017.
- US: The California State Insurance Commissioner launched the Climate Risk Carbon Initiative online database in January 2017 providing information on high-carbon investments of large insurance companies.
These changes to the financial rules of the game have helped drive the reallocation of capital in financial and capital markets. A comprehensive review looking beyond green finance to assess sustainable finance more broadly indicates that global sustainably managed assets under management have increased by 25 per cent compared to the last survey undertaken in 2014.
Encouraging positive feedback loops are emerging. Increases in green bond primary market issuance have improved secondary market liquidity, allowing new funds to open and operate within existing liquidity and credit-worthiness constraints. Four new green bond funds were launched in the first quarter of 2017.
According to the report, the progress made nationally, internationally and in financial and capital markets shows that financial system is reshaping itself to align with the sustainable development imperatives of the 21st century.
“The challenge now is to rapidly increase capital flows to investments that will support our sustainable development objectives and create commercially viable green businesses for decades to come,” said Solheim. “The G20 and others have set the wheels in motion. Now is the time to press hard on the accelerator.”