THE FINANCIAL SYSTEM WE NEED ALIGNING THE FINANCE SYSTEM FOR SUSTAINABLE DEVELOPMENT MARCH 2016

Transcription

1 THE FINANCIAL SYSTEM WE NEED ALIGNING THE FINANCE SYSTEM FOR SUSTAINABLE DEVELOPMENT MARCH 2016 EELLIOTT HARRIS ELLIOTT HARRIS UN ASSISTANT SECRETARY-GENERAL DIRECTOR, NY OFFICE, UNEP

2 UNEP CONVENES FINANCIAL COMMUNITY IMF/WORLD BANK ANNUAL MEETINGS Lima, 8 th October 2015 Mark Carney, Governor, Bank of England Green finance cannot be a niche Atiur Rahman, Governor, Bangladesh Bank Developing economy central banks have been trying to address the risks of instabilities and imbalances at sources, by promoting sustainable financing Yi Gang, Deputy Governor, People`s Bank of China China will advance green finance during its presidency of the G20 in 2016 SLIIDE 2

3 FINANCING CHALLENGE & INQUIRY MANDATE FINANCING CHALLENGE REASONS WHY MISALIGNED WITH SUSTAINABILITY? RATIONALES FOR ACTION IN FINANCIAL SYSTEM US$16 trillion US$5-7 trillion US$7 trillion US$6 trillion [Source Inquiry, 2015] Annual global investment All needs to be green and resilient Annual investment needed for sustainable development goals Annual environmental externalities Reduction in fossil fuel and power investment need ( ) Weak real economy regulation & pricing Inadequate/ inefficient public spending Misalignments within financial system? Mandate Managing risk Market failures in the financial system can aggravate externalities: short-termism, misaligned incentives Promoting innovation Upgrading the standards and regulations required to catalyze investment, for example, in bond markets Strengthening resilience Environmental factors can pose risks to assets and system stability Ensuring policy coherence Ensuring coherence between financial regulation and wider goals, such as long-term investment, access to finance, environmental security. advance options to improve the financial system s alignment with sustainable development

4 FOCUS ON PRACTICE - 15 COUNTRY STUDIES, 70 WORKING PAPERS France 2 Degrees Initiative, France Strategie, I4CE Canada The Cooperators, CIGI US CalPERS, SAIS Colombia Ministry of Finance IFC Brazil Bankers Federation Fundação Getulio Vargas UK Bank of England, CISL, Oxford University Netherlands Ministry of Environment/DNB Utrecht Sustainable Finance Lab Switzerland Federal Office of Environment, SwissRe Kenya Bankers Association Central Bank IFC South Africa Bankers Association Global Green Growth Institute Johannesburg Stock Exchange China People s Bank of China Development Research Centre, IISD Bangladesh Bangladesh Bank, Council on Economic Policies India FICCI, NIPFP Indonesia Financial Services Authority (OJK) IFC, ASRIA [Source Inquiry, 2015] KNOWLEDGE DOWNLOAD:

5 `A QUIET REVOLUTION` Diverse starting points Measures in practice Levers for action Financial inclusion, greening industry Integration in prudential banking regulation Enhancing market practice Air pollution New investor reporting requirements on climate Harnessing the public balance sheet Infrastructure investment Coordinated roadmap led by regulator Directing finance through policy Post-crisis rebuilding of trust in finance Financial sector compact Transforming culture Climate change Incentives for clean energy bonds Upgrading governance The sustainable finance programme is not only intended to increase financing but also to improve the resilience and competitiveness of financial institutions Muliaman D. Hadad, Chairman, Indonesia Financial Services Authority (OJK) Board SLIIDE 5

6 A FRAMEWORK FOR ACTION The sustainable finance programme is not only intended to increase financing but also to improve the resilience and competitiveness of financial institutions Muliaman D. Hadad, Chairman, Indonesia Financial Services Authority (OJK) Board SLIIDE 6

7 TAKING A SYSTEMATIC APPROACH DEVELOPING COUNTRY Deepening access to finance Reducing local environmental impacts NATIONAL COMPACTS & PLANS Diagnostic & metrics DEVELOPED COUNTRY Strengthening financial culture Driving the low-carbon transition Mobilising capital for clean infrastructure Implement and learn Build coalition Assess options Supporting long-term needs of real economy Strengthening resilience of the financial system Improving market efficiency and transparency Design pathway Strengthening resilience of the financial system Improving market efficiency and transparency SLIIDE 7

8 FRANCE: Improving financial transparency ENERGY TRANSITION LAW Corporations: disclose exposure to financial risks linked to climate change, contribution to climate change and strategic actions Banks: incorporate climate factors into stress tests - end of 2016 Investors: disclose how they manage sustainability factors, carbon footprint and contribution to the energy transition It is essential that the financial system as a whole takes climate risk into account, anticipates ambitious targets and integrates this into investment decisions. Laurent Fabius, Foreign Minister, France [Source Inquiry, 2015] [Source Inquiry, 2015 drawing on IMF]

9 CHINA: Greening the financial system Green Finance Committee: over 100 private and public financial institutions convened by the People s Bank of China Green investment needs: US$400bn pa to finance green investment; only 15% from public sources. Greening a country s financial system is not an additional performance requirement but concerns the efficiency and effectiveness of the whole system Development Research Council of the State Council, China Green financial system: The People s Bank of China co-authored a set of proposals with the Inquiry on closing the gap: Information Regulatory Fiscal Institutional Advancing: green bonds, green ratings, lender liability, environmental insurance, disclosure [Source Inquiry, 2015]

10 Mandate: to explore developments in the financial system that will increase the flow of green finance. Green Finance Study Group: launched in Beijing on January, includes ALL G20 members plus all major international organizations. Co-chairs: co-chairs are China and the UK, represented by the People s Bank of China and the Bank of England. Secretariat: the United Nations Environment Program (UNEP) will manage the platform and coordinate the work program. Established within the G20 Finance Track, making it the business of finance ministers and central bank governors. Initial year of work: foundational, focused on mapping, drawing lessons and highlighting options for national action and international cooperation. Focus areas: banks, bonds and institutional investors, risk assessment and measuring progress. Greening a country s financial system is not an additional performance requirement but concerns the efficiency and effectiveness of the whole system [Source Inquiry, 2015] Development Research Council of the State Council, China

11 AN AGENDA FOR ACTION GROWING AND HARMONIZING Reallocating capital, for example, through a focus on capital market development (green bonds, green infrastructure trusts) Improving market efficiency, for example, through the FSB task force on climate-related disclosure Deepening resilience, for example, through a global forum of insurance regulators on sustainability Su Strengthening the policy architecture, for example, work on green finance during China s G20 in 2016 Tracking performance, for example, through the development of shared performance metrics

12 UNEP-IN-ACTION Mainstreaming and Catalyzing Commitment: advance financial market developments to align this keystone system with the needs of sustainable development. G20/G7: broaden political awareness and policy engagement both domestically across the G20/G7 and internationally. Country Support: extend country engagement to help in diagnostics, coalition building, planning and execution. UNEP Finance Initiative: continued work with 200 financial company members to advance awareness, practice and policy. Foresight: forward-looking analysis of implications of system changes (e.g. fintech disruptions) for alignment to sustainable development. Assessing Progress: comparative analysis of country and financial center progress in advancing alignment

13 Simon Zadek, Co-Director Nick Robins, co-director Mahenau Agha, Head of Outreach [Source Inquiry, 2015]