Sustainable finance has developed at a considerable pace when measured against various yardsticks. Financial systems are increasingly aligned to sustainable development. Sustainable finance has also become an established part of the G20 and other international fora. Sustainability related considerations and more recently, the Sustainable Development Goals (SDGs), are increasingly factored into investment decision-making and product development in a growing number of financial institutions including pension funds, banks and insurance companies. Related products, such as green bonds and other sustainability linked investment products and tools are growing at a rapid rate.
Despite the encouraging momentum, the deployment of private capital for sustainable finance is still relatively limited. Several studies have concluded that achieving the SDGs will require a significant increase in the quantum of sustainable investment from current levels. There is broad consensus that public finance alone will be insufficient to meet these requirements, and that private finance will be key for the successful implementation of the SDGs.
The G20 Green Finance Study Group (GFSG) and Sustainable Finance Study Group (SFSG) have been looking at ways to overcome a variety of institutional and market barriers to scaling up private finance over the last three years. Seven options were outlined in the G20 Green Finance Synthesis Report released at the Hangzhou G20 Leader’s Summit in September 2016, and the Green Finance Progress Report assessed progress against these seven options in the 12 months that followed:
- Provide strategic policy signals and frameworks;
- Promote voluntary principles for green finance;
- Expand learning networks for capacity-building;
- Support the development of local green bond markets;
- Promote international collaboration to facilitate cross-border investment in green bonds;
- Encourage and facilitate knowledge sharing on environmental and financial risk; and
- Improve the measurement of green finance activities and their impacts.
This non-exhaustive report is also broadly organized around those seven options, and focuses on progress in sustainable finance developments over the subsequent 12 month period from the Hamburg G20 Summit in July 2017 to the current date. The focus of this review is on developments in G20 members while recognizing that action has also been taken in many non-G20 countries. The scope also includes innovations by international organizations and examples of international cooperation. The analytical lens has been broadened from ‘green’ to ‘sustainable’ to align with the mandate of the SFSG in 2018.
The report also highlights broad emerging trends in the sustainable finance policy arena, and then focuses on a selection of emerging trends in sustainable financial markets before concluding with a stock take of examples of progress against the seven options outlined above. It should be noted that much of the material that follows can be challenging to assess, and that not every policy measure or market innovation can be translated into a ranking, number or rating.
Material has been surfaced through meetings, including with the SFSG, expert interviews and desk-based research. The findings are non-exhaustive, but the intention is to highlight a selection of topics that have become more prominent over the past 12 months in the eyes of sustainable finance practitioners.