Main Menu

UNEP SPEECH Reshaping Finance for Sustainability – A Moment in Time

World Affairs

Open Eyes Opinion  {source: UNEP}

Speech by Ligia Noronha, Director, UNEP Division of Technology, Industry and Economics at the UNEP Inquiry and AXA Symposium.

03 July 2015

Ladies and Gentlemen,

Colleagues,

let me welcome you, on behalf of UNEP and the UNEP Executive Director, to this event, jointly hosted by AXA and the UNEP Inquiry.

Let me start by thanking AXA for the commitment and energy demonstrated in making this exceptional meeting happen. I say exceptional because this is indeed a momentous event – a critical juncture which, in English, might be called a perfect storm , a moment when many, previously unrelated things come together and catalyze a shift in what is likely or at least possible.

The end of the financial crisis is providing space for innovative thinking in how to shape finance to the long-term needs of an inclusive, sustainable economy.

Today, as we work together here, another meeting is taking place, hosted by the Vatican in Rome, building on the Pope`s outspoken leadership on climate. Those of you that have followed yesterday’s discussions, will have noted the emphasis placed by several speakers on the need to align the financial system with the needs of sustainable development.

It make strike some of you as odd that UNEP, the body mandated to co-ordinate and guide the UN`s work on environment, is focusing on finance. Surely, one might think, this is a topic for the Bretton Woods institutions, and the G20 and other finance focused bodies and platforms.

In fact, UNEP has had a focus on finance for two decades, notably in launching the UNEP Finance Initiative as one of the first structured partnership between financial institutions and the UN system, and has been a driving force behind the establishment of other sustainable finance initiatives, such as the Sustainable Stock Exchange initiative, comprising about 20 of the world`s stock exchanges committed to advancing sustainability focused listing requirements and practices.

Moreover, the UNEP Finance Initiative’s work on insurance led to the historic launch of the Principles for Sustainable Insurance (PSI), the first-ever global sustainability framework for the insurance industry, which were endorsed by the UN Secretary-General and launched by the UNEP Executive Director and insurance industry leaders at the 2012 UN Conference on Sustainable Development (Rio+20). Since then, the PSI has led to the largest collaborative initiative between the UN and the insurance industry, with PSI member insurers now representing approximately 20% of world premium volume and USD 14 trillion in assets under management. Let me acknowledge the leadership of AXA here as it co-chaired the UNEP FI Insurance Working Group that was founded in 2006, and whose work led to the PSI, with AXA subsequently becoming one of the founding PSI signatories in 2012, and a founding member of the PSI Board.

That is commitment.

We are being hosted today by an insurance company, so it is worthwhile to highlight the triple role of the insurance industry – as risk managers, risk carriers (i.e. insurers), and institutional investors – in promoting sustainable development. Indeed, AXA is showing leadership on all these fronts through major commitments it announced on Climate Finance Day here in Paris last May.

As risk managers, AXA committed to offer more extreme weather early warning systems and prevention services to its customers, and to carry out disaster risk reduction and adaptation projects in Africa, Asia and Latin America to help communities better prepare for climate change and reduce its impact.

As risk carriers, AXA announced that it is joining the African Risk Capacity, a regional insurance pooling mechanism whose mission is to help African Union Member States better anticipate extreme weather events and protect the food security of vulnerable populations. It has developed EUR 64 million worth of insurance for renewable energy, and is expanding the availability of innovative climate index insurance and microinsurance solutions.

Finally, as an investor, AXA committed to divest “from companies most exposed to coal-related activities” totalling EUR 500 million. They are also tripling their green investment to over EUR 3 billion by 2020, to integrate environmental, social and governance footprint in all relevant asset classes by end 2015, and have signed the “Montreal Pledge” to assess and disclose the carbon intensity of its investments by end 2015.

Once again, that is commitment.

So, why is this moment so special for this discussion on reshaping finance for sustainability?

One- Sustainable development requires an engagement with issues that may arise behind borders, but have implications across borders and hence need responses that go beyond national borders. The 4 conferences held in 2015 – Sendai, Addis, New York and Paris – speak to many aspects of sustainability – disasters, finance, development, climate change, all of which involve finance (public, private or different combinations of these) as a means of implementation.

Two- Sustainability is increasingly linked to risk management and ethical behavior, and the demands for both are rising. There is today no horizon more important for risk management than climate risks, which are increasingly becoming core business of governments, companies, the financial sector, and civil society. But there are also risks that arise from choices that businesses make, or policies and regulations that governments support, or do not make as, for example, in case of carbon assets. Effective risk management and longer-term policy objectives, for example, would be better aligned if regulators reduced capital requirements for banks that extend loans for climate-resilient and environmentally-friendly investments.

We also see an upsurge of demand for ethical behavior from the various movements toward carbon, divestment, decarbonization, ‘Occupy Wall Street’, climate action. The citizen is increasingly demanding a more ethical investment, be it in the choice of resources, technology or the reduced environmental and social footprint of investments.

Third- The ‘fix it’ agenda post 2008 financial crisis is not favourable to long term sustainable development: the abundant liquidity does not support long term investments; the absence of ecological risks in the assessment of macro risks is to us short-sighted and not prudential; the increased evidence of companies using high discount rates and short term horizons in decision making implies that social and environmental issues continue to be externalized.

UNEP believes that different types of investments in sustainability would require different types of finance. For example:

 

  • Shifts in consumption and production patterns entail changing mindsets and behaviors, technology and infrastructure, as well as significant long-term investments. Many of these will be “normal” business investment, as firms update and modernize their production facilities and develop new products and technologies. Some of these investments will, however, require enabling investments in public infrastructure. Much of the investment required to “green” the economic infrastructure and enhance its resilience will be lumpy and will generate only limited direct economic returns in the short term. For such, mostly public, investments, long-term funding is needed that does not depend on high short-term financial returns to ensure the viability of the project. This implies that the appropriate funding source for such longer-term infrastructure investments will be public resources?either domestic resources of the government, or longer-term loan resources from external public partners.
  • Cities are ecosystems that we see as key to sustainability and resilient transformations, given their importance in value creation, in resource and energy use, share of carbon emissions, and often vulnerability to climate impacts. Of particular concern here is the fact that municipal authorities, who will need to undertake much of the public infrastructure investment for a sustainability transition, are usually chronically under-resourced, having neither full control over their tax bases, nor direct access to domestic or external capital markets. Careful thought must be given to how resources can be effectively mobilized at subnational levels, without endangering overall debt sustainability or how intergovernmental resources can be used to incentivize sustainability performance.
  • By contrast, investments of an explicitly commercial nature, or those that generate a profit to the investor, could be financed by private resources. Investments in renewable energy, or retrofitting commercial buildings for greater energy efficiency, for example, generate the public good of reduced emissions, but can be financed privately as they generate an economic return that can be captured fully by the investor.The need for a greater understanding of the policy and regulatory issues required to align the financial system to sustainable development led UNEP to launch the Inquiry into the Design of a Sustainable Financial System in 2014.18 months into a two year mandate, we have understood and discovered a great deal, mainly by exploring and engaging directly with change processes on the ground happening in almost 20 countries, from Colombia to China, South Africa to Switzerland, and from the UK to Brazil, Indonesia and Bangladesh.Most of all, we have discovered a host of innovative practices that have the potential to enhance the quality of the financial system`s service to the long-term needs of the real economy, an economy that has to be inclusive and operate within planetary boundaries.Given all else that is happening around us in 2015, this is indeed a moment in time to come together to discuss the change that we want to see.So we are, I hope you will agree, in the midst of a rethink, based on our historic circumstances and the inspiration of leading practice, that in turn may, and we would predict will, create a shift in the future of finance.Ladies and gentleman, we have here today an extraordinary array of expertise, both on the stage and amongst you, the broader participants. This is an indication in itself of progress. We are finally coming together understanding that there is a new agenda to shape finance to the needs of sustainable development.A critical step, certainly- but not enough. Our challenge is now to be ambitious and very, very specific in what needs to be done, how it can be done, and who needs to do it. As UNEP, we are hear to share the experiences we have explored with others around the world, and we are hear to listen and learn from you.We hope that each of you, equally, will join us in exploring today and going forward the unlikely, if not what you might have previously thought impossible – namely how to shape the financial system to secure its keystone role in financing sustainable development.

###

 

Click here for reuse options!
Copyright 2015 openeyesopinion.com





Comments are Closed