Sustainable finance at the core of European economic recovery
By Vikas Vij — Capital infusion into sustainable infrastructure and innovation has emerged as an important strategy to drive job creation globally. The direction provided by governments to global markets during the COP 21 summit in Paris was clear that sustainability and environmental concerns will be at the core of future development. Far from being seen as a drag on growth, sustainability is now regarded as an essential component of a recovery process that is more stable and efficient, and better serves the real economy.
According to Achim Steiner, Executive Director of the United Nations Environment Program (UNEP), Europe’s financial system is on the move toward a low-carbon, green economy, backed by individuals as well as institutions. Europe’s financial institutions, most notably its pension funds and insurance companies, are recognizing the long-term benefits of putting sustainability at the heart of their business models. Central banks and regulators are realizing that they have critical role to make this reallocation of capital as orderly as possible.
Institutions, such as the Bank of England, have become part of this changing agenda. Governor Mark Carney has now delivered the first assessment of what climate means for the insurance sector. As chairman of the Financial Stability Board, Carney launched a new industry-led task force to improve climate disclosure, ensuring that investors can make informed decisions.
France also has been a pioneer, delivering a path-breaking Energy Transition law last year. An innovation of this new law is a requirement for investors to disclose how they are managing the transition. New labels are being introduced to help individual consumers choose financial products that are sustainability-oriented. Spain, Portugal and Germany offer further examples of these market transformations.
Italy recently launched a national dialogue on sustainable finance and Sweden has included a new policy goal linking finance with sustainable development in its recent budget. The Dutch central bank, DNB, recently argued for a long-term view, adequate carbon pricing, and more transparency.
At the Union level too, action is underway. More than half of the 42 projects that the European Fund for Strategic Investment approved earlier this year are in sustainability-related areas, including energy and climate action, environmental and resource efficiency, transport, and research and development.
The steps already being taken in Europe are part of a global shift, what UNEP calls a “quiet revolution.” A growing number of countries realize the need to link finance more clearly with social and environmental drivers of long-term prosperity. China, for example, has made green finance part of its new 13th Five Year Plan, and is seeking to raise $400 billion in green investments each year.
Image Credit: Flickr via onuraltin
This article first appeared on Justmeans.