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1 THE FINANCIAL SYSTEM WE WANT Aligning the Financial System with Sustainable Development
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THE FINANCIAL SYSTEM WE WANTAligning the Financial System with Sustainable Development
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[Source Inquiry, 2015]
THE PROBLEM
Annual global investmentAll needs to be green and resilient
US$16
trillion
Annual investment needed for sustainable development goals e.g. in infrastructure, energy, agriculture
US$5-7trillion
US$7 trillion
Annual environmental externalities – need to be costed into decision making
US$6 trillion
Reduction in fossil fuel and power investment need (2015-2030)
FINANCING CHALLENGES (ILLUSTRATIVE)TOO MUCH OF THIS
NOT ENOUGH OF THIS
“Finance overwhelms the real economy. The lessons of the global financial crisis have not been assimilated, and we are learning all too slowly the lessons of environmental deterioration.”
Pope Francis
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[Source Inquiry, 2015]
FINANCING CHALLENGE: aligning the system to sustainable development
[Source Inquiry, 2015 drawing on BIS. City UK.]
Banking US$135 tn
Bonds US$100 tn
EquitiesUS$60 tn
InvestorsUS$100 tn
Insurance US$29 tn
FINANCIAL ASSETS & ACTORS
Promoting innovation
Strengthening resilience
Ensuring policy coherence
RATIONALES FOR ACTION IN FINANCIAL
SYSTEMManaging riskWeak real economy
regulation & pricing
Inadequate/ inefficient public
spending
Misalignments within financial
system?
REASONS WHY MISALIGNED WITH SUSTAINABILITY?
“What is needed is not just money. What is really needed is the political will to correct market failure by rethinking parts of the financial system.” Mark Burrows, Managing Director, Credit Suisse, Asia Pacific
Market failures in the financial system can aggravate externalities: short-termism, misaligned incentives
Upgrading the standards and regulations required to catalyze investment, for example, in bond markets
Environmental factors can pose risks to assets and system stability
Ensuring coherence between financial regulation and wider goals, such as long-term investment, access to finance, environmental security.
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[Source Inquiry, 2015]
INQUIRY: Advancing policy options to improve the financial system’s effectiveness in mobilizing capital towards a green and inclusive economy
Identify policy options for aligning financial system with sustainable development
Focused on environment
Levers for change
Initial assessment of potential for impact and ease, cost and risk
Diverse starting points clusters of approaches emerging
Recommendations for national action and international collaboration
Packages of policy proposals
38 approaches in four clusters
Upgraded governance
MANDATE ANALYSIS FRAMEWORK
FRAMEWORK FOR ACTION
NEXT STEPS
FINDINGS
TOOLKIT
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[Source Inquiry, 2015]
Rachel Kyte
Group Vice President, World Bank
DavidPitt-
Watson
Co-Chair UNEPFI
Atiur Rahman
Governor, Central Bank of
Bangladesh
Murilo Portugal
President, Brazilian Bankers
Federation
Neeraj Sahaj
Former President, S&P Rating Services
Rick Samans
Managing Director
WEF
Maria Kiwanuka
Minister of Finance,
Government of Uganda
Andrew Sheng
Distinguished Fellow,
Fung Global Institute
Naina Kidwai
Group General Manager &
Country Head, HSBC India
Lord Adair Turner
Former Chair, Financial Services
Authority, UK
Jean-Pierre Landau
Former Deputy Governor, Banque de
France
John Lipsky
Former Deputy Managing
Director, IMF
Anne Stausboll
CEO, CalPERS
Nicky Newton-
KingChief
Executive, Johannesburg
Stock Exchange
Bruno Oberle
State Secretary & Director of Swiss Federal Office for the Environment
ADVISORY COUNCIL
RECEIVING WISE COUNCIL
Kathy Bardswick
CEO, The Cooperators,
Canada
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FOCUS ON PRACTICE
ChinaPeople’s Bank of ChinaDevelopment Research Centre IISD
South AfricaBankers AssociationGlobal Green Growth InstituteJohannesburg Stock Exchange
BrazilBankers FederationFundação Getulio Vargas
BangladeshBangladesh Bank, Councilon Economic Policies
US CalPERS
ColombiaMinistry of FinanceIFC
Indonesia Financial Services Authority (OJK)IFCAsia Responsible Investment Association
Kenya Bankers AssociationCentral BankIFC
IndiaFederation of Indian Chambers of Commerce & Industry, National Institute of Public Policy and Finance
Switzerland Federal Office for the Environment
Netherlands Ministry of Environment Utrecht Sustainable Finance Lab
France 2 Degrees Initiative, France Stratégie, I4CE
Canada The CooperatorsCIGI
[Source Inquiry, 2015]
UK Bank of England, Oxford University, PRI
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[Source Inquiry, 2015]
PARTNERING FOR CHANGE
The People’s Bank of China (PBC) has co-convened with the Inquiry a Green Finance Task Force to draw up proposals for a green financial system.
The Federation of Indian Chambers of Commerce and Industry (FICCI) has catalysed a high-level dialogue between the industry, government and regulators.
The Swiss Federal Office for the Environment launched a national consultation with the Swiss Sustainable Finance Initiative.
The Bank of England is working with the People’s Bank of China to identify high potential areas for international cooperation in advancing green finance.
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[Source Inquiry, 2015]
THE INQUIRY’S FRAMEWORKS
FRAMEWORK FOR ACTION
• Principles• Policy and legal
frameworks• Governance mandates• Performance
measurement
SUPPORTING ARCHITECTURE
POLICY PACKAGES
Focused on key financial assets and actors
TOOLBOX38 tools across four levers
FRAMEWORK FOR ANALYSIS
9QUIET REVOLUTION: 120+ measures globally
DIVERSE STARTING POINTS
APPROACHES IN PRACTICE CLUSTERS OF COMMON PRACTICE
Financial inclusion, greening industry
Air pollution
Rural development
Post-crisis rebuilding of trust in financial system
Black Economic Empowerment
Climate change Act
Environmental risk in banking regulation
New carbon reporting requirements
Coordinated roadmap of policies led by financial regulator
Financial sector compact
Green Investment Bank, BoE Insurance climate review
Clean energy bonds
Enhancing market practice
Harnessing the public balance sheet
Directing finance through policy
Encouraging cultural transformation
Upgrading governance “The sustainable finance program is not only intended to increase financing but also to
improve resilience and competitiveness of financial institutions….. sustainable finance is a new challenge as well as an opportunity in which financial institutions may gain benefits of growing and developing more stably”Muliaman D. Hadad, Chairman of Indonesia Financial Services Authority (OJK) Board of Commissioners
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[Source Inquiry, 2015]
KEY FINDINGS
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[Source Inquiry, 2015]
FRAMEWORK FOR ACTION: tools, policy packages and architecture
“Sustainable and responsible investing is fast becoming one of the most important investment criteria globally…Moreover, sustainability is now also an important economic driver for investment performance. The challenge is the establishment and enforcement of consistent standards for sustainability disclosure in order to properly reflect true corporate performance.” David Li, Fund Manager, Impax
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[Source Inquiry, 2015]
MAKING CHOICES: Pathways of evolving impact
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[Source Inquiry, 2015]
NEXT STEPS: Acting alone, acting together
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[Source Inquiry, 2015]
INSIGHTS
Financing for sustainable development can be delivered through measures focused on the financial system, as well as the real economy.
A growing number of policy innovations have been introduced by both developing and developed countries, demonstrating how the financial system can be better aligned with sustainable development.
Systematic national action can now be taken to shape a sustainable financial system, informed by current trends and complemented by international cooperation.
