Greening the Rules of the Game

Policy Lever: Directing Finance Through Policy

Policy directed finance approaches introduce requirements or prohibitions that shift capital allocation. Such measures in effect introduce new performance criteria into financial decision-making, which might reduce or increase risk-adjusted returns. The Inquiry found that measures that change the legal requirements facing financial institutions are perhaps the most contentious, but are also widely used.

Examples

Examples in practice include:
  • Lender and other liabilities: legal liability regimes for lenders, fiduciaries and insurers (and responses in terms of due diligence for environmental risk).
  • Capital requirements: adjustments to capital ratios to enable lending towards critical sectors (e.g. for SMEs, green assets).
  • Priority sector lending: integration of environmental and social factors into priority lending programmes.
  • Prohibitions: restrictionson financial transactions due to excessive societal costs e.g. lending to illegal deforestation (Brazil) and pollution intensive industrial plants (China).
  • Directed service provision: requirements that financial institutions provide access to particular financial services such as basic bank accounts and insurance.
  • Mandatory purchase requirements: mandatory requirements for purchase of key financial services (such as insurance) that are essential for system resilience in the face of environmental stress.

Impacts

Measures such as priority lending and strengthened environmental liability have a strong potential for driving change, but need careful design and market preparation to avoid unintended consequences.    

Inquiry Publications

  • The Financial System We Need: Aligning the Financial System with Sustainable Development

    Date: 08-Oct-2015

      Download the full report: [AR] [CH] [EN] [ES] [FR] [PT] [RU] Download the policy summary: [AR] [CH] [EN] [ES] [FR] [PT] [RU] This first edition of “The Financial System We Need” argues that there is now a historic opportunity to shape a financial system that can more effectively finance the development of an inclusive, green economy. This opportunity is based on a growing trend

  • The Financial System We Need: From Momentum to Transformation

    Date: 29-Sep-2016

    Download the policy summary: [AR] [CH] [EN] [ES] [FR] [PT] [RU] Download the individual chapters: Chapter 1: Mapping the momentum | Chapter 2: Harnessing financial technology for sustainable development | Chapter 3: Measuring performance | Chapter 4: Steps towards transformation Our follow-up annual report reveals a doubling in policy actions over the past five years to align the global financial system with sustainable

  • Making Waves

    Date: 17-Apr-2018

    The Inquiry into the Design of a Sustainable Financial System was initiated by the United Nations Environment Programme to advance options to align the financial system with sustainable development. ‘Making Waves: Aligning the Financial System with Sustainable Development’ is its final, global report. This report reviews the Inquiry’s core analysis, summarizes progress made in aligning

  • Fintech and Sustainable Development – Assessing the Implications

    Date: 14-Dec-2016

    The report, a companion to the second edition of “The Financial System We Need”, assesses how the financial system’s core functions are likely to be disrupted by financial technology (“fintech”) innovations and how they could help – or hinder – efforts to align financing with sustainable development. It considers ways to: Unlock greater financial inclusion by

  • Financing the Transition – How Financial System Reform Can Serve Sustainable Development

    Date: 15-Nov-2016

    This report is focused on understanding how the growing number of policy and regulatory measures taken in the financial system can support a real economy in transition, seeking to answer the question: ‘what measures are most needed to deliver efficiency, effectiveness and resilience in ways that the financial system can contribute to specific sustainability priorities

  • Establishing China’s Green Financial System: Progress Report

    Date: 16-Nov-2017

    The report finds that China – which put green finance on the G20 agenda during its 2016 presidency – is following through on its political commitment to boost the financing required to do this. The report looks particularly at progress since the State Council in August 2016 approved a set of recommendations for action on

  • Financing the Future

    Date: 06-Feb-2017

    Italy’s Ministry of Environment, Land and Sea, in partnership with UN Environment, launched the National Dialogue on Sustainable Finance in February 2016 to identify practical market and policy options to mobilize Italy’s financial system for sustainable development and climate action. The conclusions of the paper are: Italy faces a strategic opportunity to harness its financial

  • Bangladesh Country Report

    Date: 09-Oct-2015

    Bangladesh has been a leader in developing policies to shape a greener and more inclusive financial system. It has a suite of green banking regulations and policies including concessional green refinancing, credit quotas for green finance and guidance and requirements on environmental due diligence. Green finance is growing but it remains modest compared to the scale of Bangladesh’s

  • France Country Report

    Date: 23-Nov-2015

    This report highlights experience from France in improving the integration of sustainability issues into financial decision-making. A key area of focus has been on improving information and market analysis. Environmental, social and governance (ESG) reporting requirements were first introduced in the New Economics Regulation law of 2001, and strengthened by the 2010 ‘Grenelle II’ law and 2015 the

  • Green Finance for Developing Countries

    Date: 15-Jul-2016

    This report outlines key concerns and needs of developing countries in relation to green finance, particularly focusing on developing countries that are not members of the G20. It also highlights emerging innovations, drawing in particular from engagement with practitioners and regulators from Bangladesh, Colombia, Egypt, Honduras, Jordan, Kenya, Mauritius, Mongolia, Morocco, Nigeria, the Philippines, Thailand

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