Nick Robins - Presentation - Promoting a sustainable financial system

Promoting a Sustainable Financial System

Nick Robins, 1 September 2015, Paris

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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.

[Source Inquiry, 2015]

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CHALLENGE: aligning the financial system to sustainable development US$ tn

Estimates of scale: investment flows, and needs and externalities

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FLOWS

PROVIDERS OF FUNDS

FINANCING

USERS OF FUNDS

Annual global investment – all needs to be green and resilient

Intermediaries Sources Households, business and government

Banks Insurance Investment Instruments Equities Bonds Retained capital

Investment

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Buildings, infrastructure, plant & equipment, R&D, knowledge & training Impacts from & to environment

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[Source Inquiry, 2015 drawing on G30, World Bank, UN ICESDF, Trucost and BIS]

Environmental Externalities – need to be be internalised

Working capital Cash

312 STOCKS OF FINANCIAL ASSETS & LIABILITIES

Annual investment needed in key sectors for sustainable development goals

Overall stock of financial assets vulnerable to environmental and related policy risks

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WHAT WOULD SUCCESS LOOK LIKE? Financial impacts aligned with sustainable development Financial development ďƒ economic, social and environmental impacts

Measuring success Financial system characteristics Effectiveness: Factoring sustainability into asset pricing

Impact

Social

Efficiency: Reduce the cost of capital for sustainable finance

Economic

Resilience: Reduced susceptibility to disruptions

Environment Financial developm ent Early stage

Developing

Focus on creating enabling financial foundations for development

Finance develops with alignment to social progress, green industries and safeguards

[Source Inquiry, 2015]

Developed Invest in assets that improve social and environmental outcomes, in home country and internationally

Financial system outcomes Deployment of capital to meet sustainable development needs Reduction of capital for unsustainable assets and uses Provision of critical financial services

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THE INQUIRY: A practice based approach Mandate Identify policy options for aligning financial system with sustainable development - focused on environment

Country-based exploration Framework for analysis.

Assessment of policy innovations in action – in 16+ countries

International leadership

Crystallizing options Global Report (October 2015) – including toolkit, policy packages & recommended next steps [Source Inquiry, 2015]

High level advisory group of financial policy experts, and broader knowledge networks of research partners

A NETWORK OF PARTNERS UK Bank of England, Oxford University, PRI France 2 Degrees Initiative, France Strategie, CDC Climat

Selected partners

Switzerland Federal Office of Environment, SwissRe Netherlands Ministry of Environment, Utrecht Sustainable Finance Lab China: People’s Bank of China, Development Research Centre, IISD Bangladesh: Bangladesh Bank, Centre for Economic Policies

USA CalPERS, SAIS, World Bank

India: Federation of Indian Chambers of Commerce, NIPFP

Colombia: IFC Ministry of Finance Brazil Febraban, Fundação Getulio Vargas

South Africa: Bankers Association, Global Green Growth Initiative, JSX, WWF [Source Inquiry, 2015]

Kenya: Bankers Association, Kenya Central Bank, IFC

Indonesia: Financial Services Authority (OJK), IFC, ASRIA

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FINDINGS: A QUIET REVOLUTION Diverse starting points

Approaches in practice

Air pollution

Tax breaks for clean energy bonds

Access to energy

New climate reporting requirements

Climate change

Prudential review of insurance

Economic development

Environmental risk in banking regulation

Clusters of common practice Enhancing market based practice

Leveraging public finance Legal liabilities and policy direction

Cultural transformation Financial inclusion, greening industry

Coordinated roadmap of policies led by financial regulator Upgrading governance

Post-crisis rebuilding of trust in financial system

Financial sector compact

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FRAMEWORK FOR ACTION: Tools, policies and processes Tools Enhancing market based practice – disclosure, responsibilities,product criteria Harnessing public finance - fiscal incentives, public institutions & central banks Directing finance through policy – priority sectors, regulatory calibration, liability frameworks Cultural transformationcapacity building, financial behaviour, market structure

Policy packages Banking: Extend risk based governance, improve access, enhance culture Bonds: Green bonds, infrastructure vehicles, greening credit analysis

Principles for a sustainable financial system Compacts and pathways

Equities: transparency, greening analysis, green IPOs, yieldcos

Policy and legal frameworks

Investment: Pensions governance, transparency and incentives

Regulatory mandates

Insurance: Access, prudential governance & investment role Valuing financial system externalities Managing systemic risk Promoting innovation

[Source Inquiry, 2015]

Processes

Ensuring policy coherence

Performance measurement

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NEXT STEPS: Acting nationally and internationally System developments

National compacts and action plans

Global banking standards

Principles for a sustainable financial system Sustainability stress test methodology

Performance diagnostic

Implement and learn

Code on investor duties Assess opportunities

Fiscal measures optimisation Performance framework for a sustainable financial system

[Source Inquiry, 2015]

Sector developments

Design pathway

Build coalition

Sustainability disclosure convergence Coalition for greening debt markets

Guidance for insurance regulators