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Emerging markets regulators seek rapid shift to sustainable finance

Financial sector regulators and banking associations across emerging markets are said to be promoting a rapid shift to sustainable finance as a pathway to mobilize the financial sector for resilience.

This, they believe, is the only way to accelerate response in the face of the twin shocks of COVID-19 and the climate crisis, as people, businesses, and economies look toward more resilience. Also, World Bank research estimates that climate change could drive up to 132 million more people into poverty by 2030.

As a result, the financial sector is seen as being on the frontlines of managing these economic, environmental, and social shocks by supporting the private sector’s role in unlocking opportunities that help achieve climate commitments and the Sustainable Development Goals (SDGs).

According to a new report released last week, Accelerating Sustainable Finance Together, a Global Progress Report of the Sustainable Banking and Finance Network (SBFN), the effects of these shocks are already being felt through droughts, heat waves, floods, and fires, and will get worse if we don’t rapidly curb greenhouse gas emissions and invest in adaptation.  

In its Foreword to the report, the SBFN Secretariat notes that this reality is compounded by the additional 150 million people who may end up in extreme poverty in 2021 due to COVID-19, adding that these combined trends will increase inequality and more seriously affect people who are already marginalized.

Significant investment required

The Organization for Economic Co-operation and Development (OECD) estimates $2.5 trillion in financing needs in developing countries to achieve the SDGs by 2030, with an additional projected shortfall of $1.7 trillion as a result of COVID-19. Aligning just 1.1% of global finance with the SDGs could fill that gap, it added.

While the need is great, the opportunities are also significant, as the International Finance Corporation (IFC) estimates that over $23 trillion in investment opportunities in green and climate-related sectors and activities can help achieve national goals aligned with the Paris Agreement and accelerate the global transition to a low-carbon economy.

However, most of this capital will come from the private sector, including banks, institutional investors, and capital markets.

IFC and 10 emerging markets established the Sustainable Banking and Finance Network (SBFN), formerly the Sustainable Banking Network, in 2012, to accelerate sustainable finance in emerging markets as a tool for increased resilience and prosperity.

Consequently, there is a groundswell of interest in sustainable finance worldwide as a means to activate the financial sector in pursuit of sustainable development objectives.

The report notes that with this mind, a growing number of regulators, supervisors, industry associations, and financial institutions (FIs) have adopted policies, regulations, and practices to:

• reduce and manage environmental, social, and governance (ESG) risks from financial sector activities — including climate-related risk, and

• encourage the flow of capital to assets, projects, sectors, and businesses that have environmental, climate, and social benefits.

SBFN mission

The report said SBFN’s recent name change in September, exemplifies members’ commitments to create collaborative ecosystems for sustainable finance across all parts of the financial sector.

SBFN’s 63 member institutions represent 43 countries and $43 trillion, accounting for 86% of banking assets in emerging markets. IFC-supported SBFN facilitates knowledge sharing and collaboration on common approaches by members to speed up the development of national sustainable finance frameworks.

So far, these efforts have supported members in 33 countries to launch over 200 national policies, roadmaps, voluntary principles, guidelines, and tools to themes. The approach taken this year to data collection and interviews, in partnership with members, allows for rich qualitative insights to support future actions.

IFC estimates that over $23 trillion in investment opportunities in green and climate-related sectors and activities can help achieve national goals aligned with the Paris Agreement and accelerate the global transition to a low-carbon economy.

The Network also seeks to expand the network to include other full financial sector landscapes such as capital markets, insurance, pension funds, and asset management.

Apart from representing emerging markets’ perspectives in global dialogues on sustainable finance to enable them to translate and advance initiatives without being discouraged by the pace of how things are happening, the Network also seeks to leverage the leadership of the advancing countries to help other countries deepen their work on specific themes.

The Secretariat therefore “Invites members to use this report to fast-track collaboration and the development of effective national frameworks for sustainable finance to strengthen financial stability, competitiveness, and resilience.”

SBFN members now include financial sector regulators, central banks, banking associations, ministries of finance and environment, capital market authorities, and regional bodies representing banking associations and regulators.

Also, members are committed to advancing sustainable finance and achieving measurable change. To this end, SBFN’s Global Progress Report is said to be the most comprehensive assessment and benchmarking of national approaches to promote sustainable finance in emerging markets.

It applies a Measurement Framework that has been developed and refined with members since 2016 under the leadership of SBFN’s Measurement Working Group.

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