This paper describes the structural barriers to sustainable development finance commensurate with climate change and development goals, arguing that interventions are needed to transition to sustainable finance.
Geographic Scope
Global
Sectors
General
Detail
Focus Areas
Economic diversification/restructuring > Other
Government intervention > Regulation
Inequality and/or poverty > Other
Investment > ESG and corporate engagement, Private finance
Keywords
sustainable development finance
structural financial barriers
systems change
By
Simon Zadek, Nick Robins
Publishing Organization
United Nations Environment Program (UNEP)
Inter-governmental/international organization
Summary
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.
This paper suggests that rules and norms governing the finance system must be changed in order for it to respond to climate and sustainable development imperatives.
Geographic Scope
Global
Sectors
General
Detail
Focus Areas
Economic diversification/restructuring > Economic development plans, Infrastructure investment
Government intervention > Public finance
Investment > Private finance
Keywords
climate finance
green bonds
social bonds
financial innovation
By
Simon Zadek
Publishing Organization
Organization & Environment
Academic/research institution or journal
Summary
“This short paper outlines why the financial system has been unresponsive to climate and sustainable development imperatives. The author suggests that climate change is the ultimate market failure and outlines the toll in terms of climate-related displacement and migration, the cost of climate catastrophes, and the cost of adaptations. The author also points out the small amount of funding already committed to climate mitigation relative to the scale of this challenge, suggesting that finance needs a new “purpose” before it can align with climate finance needs.
Some positive steps have included the issuance of carbon-linked bonds, green bonds, and sustainable bonds, but the author argues that direct intervention in finance is required in order to account for negative externalities, encourage innovation, account for systemic risks, and ensure policy coherence.
Private sector-led interventions include the Task Force on Climate-Related Financial Disclosures (TFCD). But public, non-market interventions should include financial regulations, including requiring greater disclosure; judicial interventions, including shifts in fiduciary responsibility; direct financing for joint ventures and subsidies; and stronger public procurement rules that would account for climate risks and liabilities. The author argues these more forceful interventions are required in order to incentivize the finance system to fund sustainable development.”
