China Report: Internalizing Climate Mitigation for Financial Policy-Makers

Policy Lever: Transforming Culture

Financial culture is the body of shared values, norms and biases that guide behaviour and decision-making at individual and organisational levels in financial institutions. Failures of this culture – in terms inappropriate risk-taking, ethical failures, and disregard for client obligations – were central to the global financial crisis. Encouraging a financial culture that supports sustainability is an essential complement to more specific policy, regulatory and fiscal measures.  In the wake of the financial crisis significant changes were made to market, sector,and firm-level systems and controls on behaviour, stemming from macro-level reform packages, actions on markets infrastructure, regulation and supervisory guidance. In general however sustainability has not been a core focus.

Examples

Key steps that could be taken to integrate sustainability into the culture of the financial sector include:
  • Consumer education: Extending financial literacy programmes to include sustainability.
  • Professional education: Building the skills and capabilities to assess sustainability risks and issues among financial professionals.
  • Regulator capacity building: Improving the sustainability capabilities of financial regulators and policymakers.
  • Remuneration regulation: Including sustainability in remuneration regulations – so that individual compensation relates to performance in terms of long-term sustainability.
  • Codes of conduct: Incorporating environmental and sustainability in policies to promote integrity in financial markets and the upholding of core values.
  • Non-financial guidance: Encouraging financial institutions to respect global standards of responsible conduct (such as Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises
  • Value-based financial institutions: Ensuring a level-playing field for values-based financial institutions (including cooperatives, impact investment etc.)
  • Market diversity: Promoting diversity of financial institutions in terms of size, geographical focus, ownership and business model.
  • Right sizing financial institutions: Taking action to “right size” financial institutions to deliver sustainability outcomes (e.g. consolidation and unbundling).

Impacts

To date most reforms focused on the culture of the financial sector have not explicitly focused on sustainability, but there is potential for wide application. A robust financial culture focused on the needs of the real economy is a criticalprecondition for other efforts to align the financial system with sustainable development.  

Inquiry Publications

  • China Report: Internalizing Climate Mitigation for Financial Policy-Makers

    Date: 06-Oct-2015

    The paper also shows how the  objectives of financial policy-makers—such as investor protection, transparency, maintaining the safety and soundness of financial firms, financial stability, tackling systemic risk, reducing information asymmetries, tacking market failures and developmental objectives— offer multiple avenues to legitimize policy measures that can contribute to the greening of the financial system. In particular,

  • Human Rights and Sustainable Finance: Exploring the Relationship

    Date: 03-Feb-2016

    Designing and building a sustainable financial system requires a broad focus on what sustainability requires in all its aspects and how finance can help deliver on that important objective. This task includes not only delivering financing for sustainable environmental outcomes and addressing climate change, but it also includes attention to the needs of a sustainable

  • Indonesia Country Report

    Date: 30-Apr-2015

    Placing Indonesia’s economy onto a green and sustainable development pathway, as envisaged in the National Long Term Development Plan, will require a large mobilization of investment. Estimates of the annual investment needed are in the order of US$300‐530 billion, with a large portion of this investment needed in critical infrastructure, as well as environmentally sensitive

  • 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

  • China Report

    Date: 06-Oct-2015

    The Inquiry collaborated in an 18-month project, Greening China’s Financial System, carried out by the International Institute for Sustainable Development (IISD) and the Finance Research Institute (FRI), Development Research Center (DRC) of the State Council. The aim was to develop specific proposals for greening China’s financial system, based on an analysis of current practice in China

  • Experience and Lessons from South Africa: An Initial Review

    Date: 17-Jun-2016

    This paper provides an outline of South Africa’s financial sector, the environmental and social issues it faces, the response of government and financial regulators and the extent to which has resulted in measurable sustainable investment flows. In South Africa environmental, social and governance (ESG) considerations appear on the agenda of strategic discussions and are part of the

  • 3rd Update Report: Pathways to Scale

    Date: 07-Jan-2015

    This is the 3rd Update Report of the UNEP Inquiry, it is focused on the challenge of financing the low-carbon transition. It explores how innovative ideas and practices can be made more effective, adopted more widely, and taken to scale—and as a result move the trillions that are required. Scaling-up proven but limited innovations, is a common

  • 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

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