By Margarita Pirovska, Head of Fiduciary Duty in the 21st Century, PRI/UNEP FI in Geneva
Multilaterals, like the OECD, G7 and G20, represent a missing piece of the jigsaw in sustainable finance policy. While national policies promoting sustainable finance and investment have developed at an unprecedented rate, at a multilateral level, this topic has been mostly led by environment or development departments. To reinforce national progress and to meet our urgent global sustainability challenges, multilateral policymaking on sustainable finance must be anchored in existing financial policies and international dialogue. The G7 in Biarritz may just have opened the door for this change.
Sustainable vs mainstream
In 2018, sustainable finance was a separate working group within the G20. The mainstream finance track in Buenos Aires, where the 2018 G20 was hosted, focused mostly on traditional finance issues, leaving sustainability of capital markets to the ad-hoc working group and investor summit. At the 2019 G20 held in Osaka, the Paris Agreement featured in a dedicated theme ‘Environment and Energy’ but not within the ‘Trade and Investment’ track. The G20 also adopted the ‘Principles for quality infrastructure investment’ which featured only a high-level connection to the SDGs and no discussion on alignment with the Paris agreement.
To date, sustainability issues have been pushed on the agenda by environmental or development ministries, directorates, and expert groups, which should be commended. While they have the technical expertise on sustainability and climate change, the issue of financing the Paris Agreement and the Sustainable Development Goals (SDGs) impacts traditional finance and investment policies. Translating the Paris Agreement, the SDGs and other sustainability challenges into finance and investment discussions requires breaking the silos existing between already established workstreams on financial systems, capital markets and institutional investment on one side, and climate change, sustainable development and income inequality on the other.
If sustainability-related finance and investment workstreams remain separate from the mainstream intergovernmental dialogue, they will be considered as optional by financial markets and policymakers and remain the focus of environmental and sustainability experts alone.
2019: a turning point for multilateral policymaking
This weekend’s meeting of G7 leaders in the French surf-town of Biarritz aimed to achieve this. Key sustainability issues, from inequality to deforestation and biodiversity, featured as key topics of the summit. One of the goals of the meeting of the G7 finance ministers held in July was “making the transition to a sustainable, low-carbon economy happen, in line with the Paris Climate Agreement”, including by strengthening public and private funds invested in the transition and rallying multilateral organisations and regulators.
Several other developments on the international scene from this year aim for the same goal. The central banks’ Network for Greening the Financial System acknowledged in April that climate change is a source of financial risk. With support from the World Bank, at the same time finance ministers from more than 20 countries launched a coalition to promote climate action through mainstream financial policies at a national level. IOSCO, the international securities regulators organisation, and IOPS, the international pensions supervisors organisation, launched in early 2019 consultations on ESG integration and disclosure, for listed companies and pension fund regulators.
The added value of policy alignment
Creating a new baseline for multilateral financial policymaking, one that embeds the Paris Agreement and the SDGs, will enable global standard setting on sustainable finance, and will socialise the concept that sustainability is firmly a part of financial policy. The benefits of aligned policymaking on an international level are multiple: creating market efficiencies, reward for first movers, more private capital supporting public good, and providing a response to a clear social need for more sustainable finance. It will also provide clarity and consistency to currently misaligned policy messaging from the same organisations.
Creating a new baseline for multilateral financial policymaking, one that embeds the Paris Agreement and the SDGs, will enable global standard setting on sustainable finance, and will socialise the concept that sustainability is firmly a part of financial policy
The focus and agenda of the 2019 G7 summit are positioning global environmental and social challenges as the purpose of economic and financial policies. This paves the way for a transition to more sustainable and wealthy economies. Multilateral organisations should support this transition by updating international standards, policy analysis and dialogue between government and regulators. Aligning finance and sustainability will enable policymakers to share and work towards the same end goal: making the real economy more resilient, environmentally friendly and inclusive.
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