Over the past year, momentum towards a sustainable financial system has deepened, with a specific focus on green finance and climate risks. Clear pathways are bringing together three critical elements: market leadership by financial institutions; policy and regulatory innovation; and, over time, changes in governance, standard and norms. The precise blend and sequencing of these factors differs according to the issue at hand and country level financial cultures.
The result of these actions is the beginning of a new powerful dynamic between the financial system, real economy and progress toward sustainable development. Looking across the range of policy and regulatory measures under way that are driving this dynamic, five priority areas stand out: capital reallocation; risk management; the responsibilities of financial institutions; reporting and disclosure; and national roadmaps for sustainable finance (the '5R's). Added to this, the role of public financial institutions in both market creation and setting market norms is becoming clearer. The linkages between monetary policy and environmental outcomes are also increasingly a focus of attention.