Conference on Financing Sustainable Development: The Role of Financial Governance in Greening Financial Systems
German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE) & UNEP Inquiry
Governments all over the world are devising green growth strategies, aiming to reconcile economic growth with low carbon emissions as well as trying to limit other forms of environmental degradation such as soil, water, and air pollution. What is needed is no less than a “green transformation” to put green growth at the heart of development. To achieve such a green transformation, a large mobilisation of investments will be needed in areas such as renewable energy generation, energy efficiency and smart transportation networks that will help the shift toward sustainable patterns of production and consumption.
As the recent debate on Financing for Development has acknowledged, a large part of the necessary financial resources must come from private investors. The financial sector will have to play a key role in allocating green finance for sustainable investment and development. Furthermore, policy makers are increasingly recognising that weaknesses and failures within the financial system may be constraining its ability to respond to risks and opportunities for viable, resilient investments. The United Nations Environment Program’s two-year Inquiry into Design Options for a Sustainable Financial System has undertaken the first comprehensive, international mapping of whether and how central banks, and also regulators and standard-setters, stock exchanges, credit rating agencies and ministries of finance are taking steps to connect social and environmental considerations with the workings of financial and capital markets. The Inquiry’s findings are contained in its global report, “The Financial System We Want”, to be released on 8th October at the IMF/World Bank Annual Meetings in Lima. Highlighted by the Inquiry’s work is that central banks and financial regulators from Bangladesh to Brazil and from China to South Africa are experimenting with ways of explicitly incorporating sustainability considerations into rules governing financial markets, providing clear policy signals for the financial sector towards long-term sustainability. Financial market standard-setters, including credit rating agencies, are advancing standards that increasingly factor in environmental risk and create opportunities for low-carbon investments.
Against this backdrop, the conference, which was co-hosted by the German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE) and the UNEP Inquiry, addressed central challenges for the financial sector of contributing to the new paradigm of sustainable development as agreed upon by heads of states at the United Nations Sustainable Development Summit in September 2015. The conference discussed the progress and challenges in two major areas:
- How to drive the banking sector towards sustainability considerations? While public banks have traditionally considered sustainability principles in their lending policies, pioneering commercial banks are also on a pathway towards incorporating environmental and social factors into parts of their lending operations
- How to mobilise capital markets for investments in sustainable development? Bond and equities markets are developing rapidly in developing countries, but there is often a lack of investment opportunities for long-term investors. Green bonds are emerging as a new asset class. Infrastructure investment vehicles are of rising importance for financing sustainable investments in infrastructure. Institutional investors increasingly consider the long-term impact of their actions and favour investment strategies that create long-term, sustainable value for society.
A growing number of developing country regulators and central banks are supplementing this dynamic with their own guidelines and requirements to ensure that financial systems are aligned with their country’s social and environmental priorities. The conference provided a platform for debating the challenges and the way forward towards mobilising financial systems for sustainable development.
You can download the presentation slides:
Annette Detken: Development Banks as facilitators for Green Banking
Timothée Jaulin: Investors Tackling Climate Change. A Risk Management Approach
Ilmi Granoff: Greening investment, greening markets
Rong Zhang: Sustainable Banking Network
Corli le Roux: JSE and Sustainability