This paper describes the significant increase in the financial community’s willingness to engage in sustainable development and the accompanying increase in sustainable development policy and regulatory measures over recent years. Despite this momentum, the authors argue that the current system and levels of commitment are insufficient to provide the financing needed to meet the 2030 Agenda and the Paris Agreement. They attribute this to misalignment and barriers in the financial system.
Based on this argument, the authors provide reasons to intervene in the financial system to mobilize finance for sustainable development. Chief among them are eliminating pricing externalities, promoting innovation, ensuring financial stability, and ensuring policy coherence. The authors also identify the “essential parts” of a financial system that can support these goals and explore the necessary components and risks of the transition to sustainable finance.
These components highlight the need to alter the design and function of the financial system itself through policy or regulatory interventions. This multidimensional and nonlinear process will also require new performance metrics to embed sustainability in the financial system and its outcomes.