A new report published by the United Nations Environmental Programme, the third progress report from their Inquiry into the Design of a Sustainable Financial System, highlights several potential and critical innovations which could help close the widening sustainable development investment gap.
The report, Pathways to Scale, draws on work across 12 countries and a range of critical sectors, finding that a key problem affecting the future of a sustainable financial system is that, currently, financial markets do not effectively or even accurately price environmental resources, resulting in the falling values of natural stocks such as clean air, productive soils, and abundant water in 116 out of 140 countries worldwide.
“If we are to generate truly inclusive wealth then we need a financial system that can efficiently invest in the human, productive and natural capital on which we all depend,” said UN Under-Secretary-General and UNEP Executive Director, Achim Steine. “What is heartening is the increasing evidence that central bank governors, finance ministries, and major investment funds recognize that new ‘rules of the game’ are not just necessary and possible, but can deliver real benefits.”
Writing in the introduction to the report, Achim Steiner hopes for “the finalisation of a universally applicable set of sustainable development goals in September and the completion of a global climate agreement in December.” He continues, adding:
“Just as important is the tangible evidence in communities and nations across the world that a strategic approach integrating economic, social, and environmental factors in decision-making brings lasting benefits.”
Specifically, the report identifies “a growing number of innovations in financial policy, regulation, and standards that have transformational potential.” The report profiles five of these: banking, bond markets, institutional investment, central bank balance sheets, and resilience and systematic risk.
While not comprehensive, the five profiles “provide a sense of direction about the changes that a sustainable financial system could involve.
Of particular interest are issues that we have covered here at CleanTechnica, including banking — which UNEP sees as migrating into a “new phase” in international banking standards due to the leadership of developing countries such as Bangladesh, Brazil, and China in “green credit” regulations.
Also, the UNEP report highlights the tripling of the green bonds market in 2014.
“For too long, a myth has been allowed to take root in India that sustainability and finance are at odds – that taking account of environmental, social and governance (ESG) factors raises costs, reduces returns and impedes development,” said Advisory Council member, Naina Lal Kidwai, country head of HSBC India. “Actual practice suggests the reverse.”
We have seen over and over the importance of sustainable investment and development — especially in light of fears that fossil fuel energy investments will become stranded over the coming decades. More than that, however, there is a slow-growing desire for ‘moral investments’ — the desire to invest in companies and projects that are environmentally, socially, and sustainably healthy.
“As we start the year, we see an array of initiatives from governments, financial institutions and social movements seeking to find new ways of integrating social and environmental considerations into financial decision-making,” wrote Steiner in the report’s introduction. “It is this sense of the emergence of new partnerships for change that gives me confidence that 2015 will live up to its potential of shaping the future of sustainable development—including in the financial arena—and not signal a ‘return to the past’.”
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