SHIFTING MARKETS
AND MINDSETS
SUMMARY
The financial sector must be part of making life on this planet sustainable. It already plays a role in channelling investments into green technologies, energy-efficient buildings, and climate-friendly transport. Now governments and financial institutions must pick up the pace and ensure investments are delivering across the entire agenda set out by the Sustainable Development Goals and across all geographies whether in the most developed economies or in rapidly growing emerging markets.
A SILICON VALLEY FOR SUSTAINABLE FINANCE
Since the Paris Agreement on climate change was adopted in 2015 and with less than twelve years left to achieve the Sustainable Development Goals (SDGs), mobilizing action is urgent, and no more so than in the finance sector. To help make this happen, the Swedish government, together with the Stockholm Environment Institute (SEI) and the Stockholm School of Economics, launched the Stockholm Sustainable Finance Centre (SSFC) in December 2017, a ‘Silicon Valley’ for research, innovation and education on sustainable finance.
The implementation of the Paris Agreement and the SDGs is expected to require tens of trillions of dollars of investments in sustainable infrastructure over the next two decades. It is estimated that two thirds of this will be in developing countries. Investors and financial institutions have a crucial role to play in shifting the global economy to a low-carbon, sustainable path, the only viable path for the future.
To achieve this transformation, while maintaining growth, boosting productivity and competitiveness, we need to reboot the financial system and refocus it on sustainable investments. The ultimate goal is not just to shift existing financial markets towards green investments, but to direct significant new capital flows towards projects that transform the lives of the most vulnerable.
Yet sustainable finance is still in its infancy. Less than 1% of global bonds are green, and less than 1% of the holdings by global institutional investors are green infrastructure assets. Options to address some of the challenges to scale up green finance are emerging fast, as highlighted by the latest G20 Green Finance Synthesis Report. There is also momentum to promote voluntary principles for green finance, develop green bond guidelines, adopt environmental disclosure requirements, and strongly encourage the sharing of knowledge and best practices.
The Centre will carry out research into the risks and opportunities of sustainable finance, developing an evidence base for financial institutions and policy makers to maximise returns for investors and for sustainable development. It will work closely with financial stakeholders to identify solutions that shift capital allocation to support the transition to sustainable societies, particularly in developing countries. It will work to improve and expand existing solutions and help develop nascent ideas, including exploring the potential of green fintech solutions.
Financial News
London
“Though it remains a tiny subset of the international bond markets, many companies have taken up the new source of finance with enthusiasm.”
LEADERSHIP ON SUSTAINABLE FINANCE
Swedish financial institutions have shown real leadership on sustainable finance in recent years. The Swedish bank SEB, helped the World Bank issue the first-ever green bond in 2007, and remains one of the top green bond issuers in the world. Kommuninvest, a municipality investment body, has been developing a green bonds framework for local government, an initiative which recently received the prestigious Momentum for Change Award from the UN Climate Change Secretariat. It has also started a dedicated green loan book and by early March 2016, had built funds up to 3.1 billion USD, committing funds to 130 investment projects in 75 Swedish municipalities and counties.
These Swedish examples are a good start, but sustainable finance needs to grow significantly to achieve the scale of change and financing needed. This will require a concerted effort that includes regulatory action, new policies and governance frameworks, public investments, changes in business practices and bold innovation. Stakeholders across all these areas need to be involved to fully harness the international capital markets and the global financial system to unlock sustainable growth.
The Stockholm Sustainable Finance Centre will provide the knowledge and, in collaboration with the financial sector, the know-how to direct financial investments towards a sustainable and prosperous future for all. It aims to build human capital in the current and next generation of finance professionals.
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Luca De Lorenzo
Program Director, SSFC