The inquiry into the design of a sustainable financial system started by the United Nations Environment Program UNEP highlights a commendable effort that can meet the sustainable development goals and match the principles of a global financial system.
The program published a final report called Making Waves Aligning the Financial System with Sustainable Development, which represents a detailed overview of the positive improvements this project made from 2014 to 2017, specifying the hurdles they faced, the lessons they learned, and the strategies that helped them to outline the trajectory In achieving the sustainable financial system.
With all the things said and done, there are still a great number of people who still don’t know why we need a sustainable financial system.
The global financial system plays a significant role in organizing the economic activities and the societal outcomes that we are getting after the implementation of a project.
The bitter truth is that the conventional financial system has failed to identify the environmental threats, conditions, and social inequalities, which are long-term economic stability objects.
The inquiry emerged in 2014 to find out how the financial systems could be reformed to gather the capital towards sustainable development goals and for the betterment of climate, which has objectives similar to the ones outlined in the Paris Agreement.
The inquiry’s prime focus was to bring systematic changes in the financial structure. It is necessary to identify the misconduct between sustainability objectives and financial flows.
This also includes revising the rules of the entities governing the financial markets, such as building a regulatory framework for better institutional practice and revising market incentives.
If we look at the key findings of the inquiry between 2014 and 2017, three significant strides were found that made an impact and incorporated sustainability into financial systems. Let’s have a look at them:
1. At number one, we have the proof or the living evidence of the progress made between 2014 and 2017 in the sustainable project. Big countries like China, South Africa, and Indonesia highlighted the need for a green financial roadmap and regulations that promoted sustainable investments.
For instance, China’s green finance task developed solutions that made an impact on global discussions and sustainable finance.
2. During the mentioned time period, The issuance of green bonds increased rapidly. This also increased the interest of investors in financing environmentally friendly projects and objectives.
3. Not only that, but public and private sector actors also came up together to accelerate the development of green finance instruments.
4. Financial institutions have also initiated the inclusion of environmental, social, and governance factors into their decision-making process. The transformation was already supported by the governing and regulatory bodies, highlighting transparency and accountability in ESG evaluations.
The inquiry highlights several significant lessons learned from its work. A few of them are:
- To ensure that the financial system and sustainable development objectives intersect, we need coordinated efforts from central banks, government regulators, private sectors, and even actors. It also mentioned that international collaborations are as important as domestic ones for achieving sustainable development goals and medicating global challenges like climate change.
- We also need to get proper tools to measure the impact of climate-related risks and opportunities in order to make informed decisions. This will not only improve data collection and analysis of the entire thing but also will enhance the progress towards sustainable finance.
- The top technological advancements like Fintech and digital finance open up new doors of opportunities so we can scale sustainable investments. These innovations not only contribute to efficiency and minimizing costs but also expand the area of access to finance.
With all the progress acknowledged in sustainable finance, a significant gap and challenged means within a few of them are discussed below:
- Even after so much financing and funding, there is still a substantial lack of financing, which is required to establish SDGs and climate-friendly goals. Developing economies and emerging markets also face hurdles in jotting up sustainable investment because there is an initial high perceived risk.
- Often, mismanagement is observed between broader sustainability principles and financial regulation. For instance, the low carbon economy is still undermining practice because fossil fuel subsidies are still being continued.
Finally, the compiled report also outlined some actionable steps for meeting the financial system with sustainable development. A few of the recommendations are:
- We need to be more and more involved in international collaborations because no matter what global challenges, we actually need global solutions so we can get the most out of them.
- Starting from policymakers, financial institutions, or regulators, each and every one of us should collaborate to meet the standards of the SDG, implement the best practices, and jot up the resources for green investment.
- We also need to improve the quality of existing climate-related data and its availability because it is very important in evaluating risks and the progress of the project.
Therefore, financial institutions need to invest wisely in data analytics tools, which can help them progress towards the SDG and integrate sustainability metrics even better.
Developing countries need to identify a target support amount so they can overcome the barriers and establish finance that could certainly be utilized for environmental projects. This can be a concessional financing capacity-building initiative or even a sharing mechanism.
As we said earlier, the more greenery we have, the more sustainable our environment is, so we need to ensure that green ones are more expensive. A catalyst here can be the push from governments to offer incentives to implement green financial instruments.
All in all, Making Waves talks about past achievements and encourages every individual to make future efforts that can help streamline the financial system with sustainable development goals and take action by enabling more green projects.
