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Executive Perspectives

EXECUTIVE PERSPECTIVE: Shaping a Financial System fit for the 21st Century

Achim Steiner

09 Oct 2015

Fixing the financial system in the wake of its implosion in 2008 required rapid, dramatic, unconventional actions underpinned by unprecedented international coordination. Equally ambitious and decisive action is needed to mobilize trillions of dollars annually to realize the recently launched international Sustainable Development Goals, and to realize the low carbon transformation commitments of almost 150 countries in the run up to the global climate negotiations in December. An international Inquiry, commissioned by the United Nations Environment Program, reported out at the IMF/World Bank Annual Meetings on the 8th October in Lima, Peru, providing the first comprehensive examination of how global finance can be harnessed in support of Sustainable Development.

When Bank of England Governor Mark Carney called for action on climate change, he stressed the need to connect the many decisions made daily across global financial and capital markets with what it would take to address, potentially catastrophic climate change. Financing the de-carbonization of our economy “…implies a sweeping reallocation of resources…green finance”, he concluded, “cannot conceivably remain a niche interest”. Similar calls for action have been sounded around the globe. The People`s Bank of China, for example, recently issued a report calling for the greening of China`s financial system through a series of fiscal, regulatory, legal and institutional measures, citing the need to channel hundreds of billions annually into greening China`s economy.

Fresh thinking on how to finance sustainable development is certainly needed. US$5-7 trillion a year is needed to finance the Sustainable Development Goals. Developing countries alone are facing an annual gap of US$2.5 trillion. Without addressing environmental problems, little else is likely to be achieved. UNEP estimates that current patterns of economic growth are set to erode global natural wealth further by over 10% by 2030. Globally, natural systems are severely degraded, causing considerable human harm, threatening the viability of development models and often resulting in irreversible damage to the provision of critical ecosystem services.  The economic costs of such externalities are growing. The International Monetary Fund estimates global energy subsidies to be over US$5 trillion per annum. If the true costs of fossil fuel use are not factored into our economies, climate change will be history`s greatest market failure,

UNEP`s Inquiry has for the first time mapped the many innovations across the world seeking to align the financial system with sustainable development. With country cases from China to the UK, Kenya to Brazil, and France to Bangladesh, the report describes a “quiet revolution” of growing numbers of central banks, financial regulators and standard-setters seeking to take social and environmental considerations into account in their work.

Diverse drivers have catalyzed such action. While climate change has triggered concern and action in France, air pollution has elsewhere been a critical trigger, such as in China. Financial inclusion has underpinned the mobilization for action in Kenya and Bangladesh. In developed countries, where environmental and social imperatives can seem less immediate and visible, action has been taken more often to address concerns over short-termism, perverse incentives and financial stability.

The Inquiry sets out a Framework for Action that, if built out and implemented, could enable the world`s US$300 trillion or so of financial assets to be deployed in ways that take greater account of the need to create an inclusive, sustainable economy. The Inquiry`s bottom line is that there is no reason going forward why the environment and more broadly sustainable development should not figure in financial and capital market development plans and actions. Such actions, furthermore, could catalyze the new technologies, business innovations and jobs needed to drive global growth.

While innovation may be local, international cooperation is needed to advance practice at scale. Progress is already being made. The Financial Stability Board, the club of central bankers established by the G20 in the wake of the financial crisis, met in London recently to consider for the first time the role of central banks in addressing the crisis of climate change. The Sustainable Banking Network, a coalition of two dozen banking regulators, inspired by the China Banking Regulatory Commission`s approach to green credit, has been established to advance greening the banking community`s US$135 trillion of assets. Another five of the world`s leading stock exchanges joined the Sustainable Stock Exchange initiative at a recent ceremony at the New York Stock Exchange, committing to advance sustainable development reporting requirements for all listed companies.

Over history, the international community has demonstrated its will and ability to act decisively and at scale – action in the wake of the financial crisis is a case in point. Such ambition is needed once more, to ensure that the heartland of the global economy, the financial system, can evolve to serve its core purpose of growing and sustaining the real economy. UNEP`s report opens a new chapter by setting out how such an evolution can in practice be achieved.

Achim Steiner is the Executive Director of the United Nations Environment Programme. The Inquiry`s global report, along with many underlying working papers, can be downloaded at

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