By Will Martindale (@WillJMartindale), Director of Policy and Research, the PRI
Four years ago, the European Commission’s ministries responsible for finance and justice hosted a roundtable on responsible investment. There were about 30 participants, mostly from the UK and France.
The European justice department subsequently commissioned a report on fiduciary duties. The report concluded that environmental factors were “compatible” with investment activities.
Today the tone is markedly different: the tone is punchy and urgent.
It follows a three-year coming-together of sustainability, finance and policy professionals: the industry-led HLEG, the commission’s action plan, and subsequent legislation. We should take a moment to recognise the progress we’ve made: from vision to legislation. ESG is no longer “compatible”, but “foundational”.
As Sylvie Goulard, Banque de France, said “climate risk is financial risk”. It seems obvious, but it wasn’t always so. The PRI’s Nathan Fabian added, bringing environmental and social issues into financial regulation would have been “heresy” only a few years ago. And in the words of Vice President Valdis Dombrovskis, “the role of finance in contributing to sustainability has been overlooked for too long. Only three years ago, sustainable finance was a small niche. Today it is becoming a transformational force.”
The role of finance in contributing to sustainability has been overlooked for too long. Only three years ago, sustainable finance was a small niche. Today it is becoming a transformational force
Valdis Dombrovskis, European Commission Vice President
Today’s conference was attended by well over 500 participants, with keynotes from Mark Carney, Dr Ma Jun and Michael Bloomberg. But the conference was more than just a rally. At times the tone was exasperated too. Exasperated that progress is slow, that we’re not doing more.
As Ashley Ian Adler, CEO of Hong Kong’s SFC said, “regulation is an incredibly powerful tool, and the problem with climate change is that we cannot wait.” Economic and social theorist Jeremy Rifkin talked of the “new revolution” to “reduce our carbon footprint”. French ecology minister Brune Poirson gave global collaboration on sustainable finance just 1 out of 10, adding, “and that’s if I’m being optimistic”. And when asked about further scaling up green capital, Hiro Mizuno, CIO at GPIF, said, “asset managers have been recruiting the ‘crème de la crème’ of MBA programmes and now they claim they can’t do anything without regulators.”
Based on today’s discussion, the progress we’ve seen so far is just the start.
The theme of today’s conference was a ‘global approach’, and included speakers from Japan, Hong Kong, Morocco, India, the US and the World Bank. On collaboration, Adler said: “on climate change, time is running out. If we try for a broad international consensus, that will take too long. We need a coalition of the willing.”
Another theme was ‘system thinking’. Sustainability is complex, the financial sector is global, and we cannot consider change in isolation. And perhaps in a sign of things to come, there was a full panel on harnessing fintech, not considering the sustainability opportunities of the financial system as it is today, but the financial system as it will be tomorrow. UNDP’s Simon Zadek said, “Mobile payment platforms are only one part of the story. Artificial intelligence, blockchain … will all be part of the process in shifting the financial markets.”
Sustainable finance policy is on the rise. Is it enough? No, evidently not. But we’ve overcome a hurdle. Policy makers, in Europe at least, accept that markets are not adequately responding to sustainability objectives, in particular climate change, and that requires a regulatory response. As Mark Carney, Bank of England Governor, said “the task is large, the window of opportunity is short, and the stakes are existential.” Progress to date is only the start.
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