G20 china_web

Climate change and green finance
Leaders, markets and performance
tools all need to be engaged
Conventional wisdom that drives
markets must be challenged
Erik Solheim
The G20,under
China’s presidency,
has established a
new work stream of
finance ministries
and central banks
Executive Director
United Nations
Environment Programme
ICONS BY GREGOR CRESNAR AND FREEPIK FROM FLAT ICON
(UNEP) report entitled The Financial
System We Need. Exciting innovations are
taking place at the intersection of market
innovation and policy frameworks, such as
the burgeoning green bond market, which is
predicted to surpass $150 billion in market
value before the end of the year.
Coordinated action
Far deeper changes are in progress, too.
Credit rating agencies are embedding
climate risks in sovereign and corporate
ratings. Pension fund trustees are
embracing broader environmental
considerations. Banking and other
regulators and stock exchanges are
encouraging better flows of sustainable
development information to both investors
and savers.
Many financial institutions are taking
on environmental stress testing, such as
France’s new requirements for investors
to disclose their alignment with global
climate goals. Green finance is becoming
part of the competitiveness equation. Hong
Kong, France, Switzerland and the United
Kingdom have all launched initiatives to
position themselves as global hubs for
green finance.
Coordinated international action is
arising from national leadership. The G20,
under China’s presidency, has established a
new work stream of finance ministries and
central banks, co-chaired by the Bank of
England and the People’s Bank of China. It
is supported by UNEP to consider options
for accelerating green finance through
financial market reform and development.
In parallel, the Financial Stability Board is
Erik Solheim is the Executive
Director of the United Nations
Environment Programme (UNEP).
@ErikSolheim
Achim Steiner
Director
Oxford Martin School
Achim Steiner is Director of the
Oxford Martin School and was
previously UNEP’s Executive
Director.
@ASteiner
www.oxfordmartin.ox.ac.uk
hosting a taskforce led by the private sector
and chaired by Michael Bloomberg. It is
exploring how climate-related financial
risks can best be disclosed in financial
markets. Leading insurance regulators in
the Sustainable Insurance Policy Forum
are sharing experience in managing the
sustainability dimension of their mandates.
Three-part programme
These inspiring developments now need
to be scaled up, so that they can realise
the promise of the SDGs and the Paris
Agreement. This requires a three-part
programme that builds on existing practice.
The first part is national leadership. As
with reducing fossil fuel emissions, each
country needs to produce a roadmap to
plot the transition of its financial system.
Indonesia was the first to do this in 2015.
The second is developing a coordinated
approach to the international financial
architecture. All financial market standard
setters need to be engaged, along with the
international organisations that advise
on national action to strengthen the
financial systems.
Third, assessment tools and
performance frameworks need to be
upgraded. Only a handful of countries can
measure flows of green finance and system
resilience to environmental shocks. Such
measurement must soon be the norm.
The SDGs and the challenge of climate
change both require a financial system that
is fit for purpose for the 21st century. It is
time for the quiet revolution to make some
noise and reset the conventional wisdom
that drives markets. G20
G7G20.com September 2016 • G20 China: The Hangzhou Summit 203