UNEP Financial Inquiry - Pathways to Scale
16th Mar 2015 by UNEP · Members
Check out the GEC's summary below for more details:
2015 could be the year for uniting financial reform and sustainable development, with immediate financial concerns easing enough that the economic narrative turns toward sustainable investment; meeting the challenges of inequality and environmental degradation.
The global economy has abundant stocks of financial assets, but the flows of investment are misaligned with long-term sustainable development due to ineffective pricing and systemic failures in the financial system itself.
Financial policies, regulations, and standards can all be better aligned with long-term sustainable development – particularly in the areas of banks, bond markets, institutional investors, central bank balance sheets, and long-term environmental risk assessment.
- Banking – Largest asset pool (US$139 trillion) but could be oriented toward ‘green credit’.
- Bonds – Largest capital market (US$100 trillion) with emerging green bonds and ‘green’ weighting in credit ratings.
- Institutional investment – US$93 trillion in assets and most progress so far, but more potential on capital allocation, investor governance, and market incentives.
- Central bank – US$24 trillion in assets and potential for, controversial, sustainability goal to supplement existing macro/price stability remit.
- Systemic risk/resilience – Environmental stress tests to address time horizon issues for natural disasters, air pollution, resource security and climate change.
Rapid scaling of sustainable finance requires attention to four key features:
Purpose (resilience etc), Asset pools (banking etc), Tools for alignment (credit guidelines etc), and Pathways for change (emerging markets etc).
Assessing whether scale is achieved requires a new performance framework for finance, with three areas critical:
Effectiveness (allocating sustainably in the real economy), Efficiency (cost of mediation, subsidies and incentives), and Resilience (exposure to systemic risks).
Several key 2015 policy milestones lay out the opportunity to influence:
- The disaster risk reduction conference (Sendai, March),
- G-7 summit (Elmau, June),
- The Financing for Development conference (Addis Ababa, July),
- The finalization of the new Sustainable Development Goals (New York, September),
- G-20 summit (Antalya, November),
- A new global agreement on climate change, COP21 (Paris, December).
The Inquiry will co-host its final round of new country convenings in Colombia, Kenya, Indonesia, and Switzerland on cross cutting topics (environmental stress testing, bond markets, insurance policy, institutional investment, and fiscal policy).
The Inquiry’s final report containing recommended policy options is due in October 2015.