UNEP: Aligning the Financial System to Sustainable Developement
Turning innovative potential into system-wide change requires the creation of viable pathways to scale. Barriers to achieving a rapid, widespread realignment of financial rules are considerable, and include complexity, incumbent interests, fragmented governance, and conventional wisdom. Great vision, ideas and technological breakthroughs can and do transform the financial system, but often unexpectedly, and with unforeseen consequences along the way.
♦ Bond markets: The largest capital market (US$100 trillion assets) and astest moving theme, with a rapid expansion of ring-fenced ‘green bonds’ and market innovation starting to integrate sustainability factors into credit ratings.
♦ Institutional investment: With US$93 trillion in assets under management, this is the arena of greatest commitment to date, and where a focus on capital allocation, investor governance and market incentives could
pave the way for the next phase.
Central bank balance sheets: Central banks’ monetary decisions, including balance sheet policies, could also have potential for marrying stability and sustainability, although some measures remain controversial (US$24 trillion in assets).
♦ Resilience and systemic risk: Introducing ‘environmental stress tests’ could be one way to overcome the ‘tragedy of horizon’ for issues such as natural
disasters, air pollution, resource security and climate change.
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