A new United Nations Environment Programme (UNEP) report released at the International Monetary Fund (IMF)/World Bank Annual Meetings holding in Lima, Peru shows how to harness the assets of the world’s financial system for sustainability.
The key findings are that:
- A ‘quiet revolution’ is underway as financial policymakers and regulators take steps to integrate sustainable development considerations into financial systems to make them fit for the 21st century.
- Momentum is building and is largely driven by developing and emerging nations including Bangladesh, Brazil, China, Kenya, and Peru, with developed country champions including France and the UK.
- Amplifying these experiences through national and international action could channel private capital to finance the transition to an inclusive, green economy and support the realisation of the Sustainable Development Goals.
These are the core findings of a two-year Inquiry by the United Nations Environment Programme, summarised in a new report, The Financial System We Need. Commenting on the release:
Achim Steiner, UN Under-Secretary-General and Executive Director of UNEP, said: “UNEP’s Inquiry has for the first time compiled and analysed inspiring initiatives from across the world that seek to better align the financial system with sustainable development, showing that there is much to be learnt from the developing world.
“We now need to raise the level of ambition and cooperation to ensure that the heartland of the global economy, the financial system, can evolve to serve its core purpose of growing and sustaining the real economy. UNEP’s report opens a new chapter by setting out how such an evolution can be achieved.”
Also speaking at the launch, Yi Gang, Deputy Governor of the People’s Bank of China, said the UNEP Inquiry report “delivers a vision of embedding sustainable development into the core of financial and capital markets. It should be a very useful guide and reference for many governments, financial institutions and international organisations in thinking about how to advance green finance.”
Yi praised UNEP’s contribution to the joint study with China’s central bank on the country’s green financial system, and said that “we have benefited significantly from UNEP’s vision of sustainable finance as well as its analysis on international experience,” and “are looking forward to continuing this partnership with UNEP in the future.”
Dr Atiur Rahman, Governor of the Bangladesh Bank, and a member of the Inquiry`s Advisory Council, speaking at the launch, said: “For the first time, the Inquiry has mapped the many innovations around the world seeking to ensure that the financial systems serves its purpose of financing inclusive, green development.”
John Lipsky, former first Deputy Managing Director of the IMF and a member of the Inquiry`s Advisory Council, said: “Reforming the financial system remains unfinished business – we have stabilised the system, but have a long way to go in designing a financial system that meets the needs of sustainable development.”
Murilo Portugal, the President of Brazil`s banking association, FEBRABAN, and a member of the Inquiry`s Advisory Council, “The Inquiry has catalysed awareness of the need to align financial markets to sustainable development, and highlighted practical pathways to improving such an alignment.”
Naina Kidwai, who is Chairman, HSBC India, Director, HSBC Asia Pacific, and a member of the Inquiry’s Advisory Council, said: “Too often the financial system and sustainable development have been tackled in separate silos. The Inquiry has shown for the first time how to systematically connect the dots, demonstrating practical ways in which we can mobilise the scale of capital needed in emerging markets, particularly for clean energy and clean water.”
Sharan Burrow, General Secretary of the International Trade Union Confederation (ITUC), noted: “The UNEP Inquiry is a valuable contribution to help reframe the financial system which is essential for a socially just transition to a low carbon economy.”
Henri de Castries, Chief Executive of AXA, one of over 40 partners of the Inquiry, stressed: “I welcome the Inquiry, as only a financial system with a sustainability orientation serves the economy and society, and so provides a sound foundation for fostering the long-term orientation of finance.”
Rachel Kyte, Vice President and Special Climate Envoy, World Bank Group: “The UNEP Inquiry has uncovered a new generation of policy innovations that aim to ensure the financial system serves the needs of inclusive, environmentally-sustainable, economic development. Its findings are an important input in advancing a new generation of financial system reform and support the delivery of our most important sustainability goals, and could play an important role for implementing the results of the forthcoming Paris climate talks.”
Highlights from ‘The Financial System We Need’ report from the UNEP Inquiry
The UNEP Inquiry into the Design of a Sustainable Financial System was established in January 2014 with a mandate to advance policy options that would improve the effectiveness of the financial system in supporting sustainable development.
Supported by a high-level Advisory Council of financial leaders, the Inquiry has looked in-depth at practice in more than 15 countries as well as across key segments of the financial system, such as banking, bond and equity markets, institutional investment, insurance as well as monetary policy. To reach its findings, the Inquiry has worked with central banks, environment ministries, international financial institutions as well as major banks, stock exchanges, pension funds and insurance companies.
The Inquiry has identified five types of measures that are being introduced by financial rule-makers:
- Enhancing market practice through better disclosure, clearer responsibilities and improved product criteria.
- Harnessing the public balance sheet, through fiscal incentives, public financial institutions and central bank action
- Directing finance through policy measures, such as priority sector lending, legal requirements and liability regimes
- Transforming financial culture, through capacity building, reformed incentives and market structure
- Upgrading system governance, through guiding principles, regulatory mandates and performance measurement.
In total, the Inquiry found over 100 measures that are already in place, including:
- China, a portfolio of 14 distinct recommendations to advance China`s green financial system, covering information, legal, institutional and fiscal measures
- France, new disclosure requirements on climate change have been introduced for institutional investors as part of the country’s energy transition legislation
- Kenya, has advanced financial inclusion through scaling of mobile based payment services, which is now also supporting green financing
- Peru, new due diligence requirements have been introduced for banks to help reduce social and environmental externalities.
- USA, emphasises fiscal measures to accelerate green finance, and had made significant advances in disclosure and investor action.
The Inquiry`s report presents a Framework for Action that includes a toolbox of nearly 40 different measures, a set of five policy packages across banking, bond and equity markets, institutional investors and insurance, and a prioritised set of 10 next steps to promote international financial cooperation.