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Building a Sustainable Financial System in the European Union
Organisation :
Inquiry into the Design of a Sustainable Financial System (UN Environment Inquiry)
2° Investing Initiative (2DII)
2 Degrees Investing Initiative

Building a Sustainable Financial System in the European Union presents a stock-take of actions under way at the European Union level and in selected Member States to align the rules governing the financial system with environmental sustainability.

Looking across the range of innovations across the EU, five broad policy priorities emerge. The central challenge of financing sustainable development in the EU is one of capital reallocation. Enhancing frameworks for risk management, clarifying the core responsibilities of financial institutions and improving reporting and disclosure across these dimensions will be necessary to fully unlock flows of sustainable finance. A growing number of Member States are delivering on individual aspects of these priorities, and others are acting within given asset classes. The debate is now advancing to the system level and the need for a strategic reset, seeking to link previously unconnected initiatives and to enhance the capacity of the financial system to support renewed economic competitiveness and improved sustainability performance.

What Role for Financial Supervisors in Addressing Systemic Environmental Risks?
Organisation :
Inquiry into the Design of a Sustainable Financial System (UN Environment Inquiry)
Utrecht Sustainable Finance Lab
Utrecht Sustainable Finance Lab
Since the global financial crisis, financial supervisors have developed a new macroprudential policy framework: mechanisms to identify systemic financial imbalances and instruments to address these. At the same time, a literature is rapidly developing on financial shocks that may originate from ecological imbalances, triggered by either intensified environmental policies to protect ecological boundaries or due to the economic costs of crossing these. However, financial supervisors have so far given little attention to this ecological dimension. This allows systemic financial imbalances resulting from ecological pressures to build up and concentrate in financial institutions and markets. What Role for Financial Supervisors in Addressing Systemic Environmental Risks? sketches the ecological dimension of the macroprudential policy framework and illustrates the working for the case of carbon emissions.
 
A preliminary version of this paper was presented at the UNEP Inquiry/Centre for International Governance Innovation Academic Symposium on the Design of a Sustainable Financial System, held in Waterloo (Canada) in December 2014.
Equity Markets, Benchmark Indices, and the Transition to a Low-Carbon Economy
Organisation :
Inquiry into the Design of a Sustainable Financial System (UN Environment Inquiry)
2° Investing Initiative (2DII)
2 Degrees Investing Initiative
Equity markets have a significant share in financial markets, with institutional investors and market-capitalization weighted indices playing a substantial role. Today’s landscape of market-capitalization weighted indices favours high-carbon sectors and creates biases against green, low-carbon technologies. As a result, institutional investors have lower exposure to the green economy, which, in the context of the transition to a low-carbon economy, may imply capital misallocation creating financial risk.
 
The research presented in Equity Markets, Benchmark Indices, and the Transition to a Low-Carbon Economy on financial products and tools suggests these products are not fully transparent for institutional and retail investors. Policies can play a key role in increasing transparency in financial markets, notably with regard to the diversification of benchmark indices. Potential sub-optimal diversification delivered by the current landscape of mainstream financial products may be a challenge to questions around fiduciary duty.
Aligning Kenya's Financial System with Inclusive Green Investment: Current practice and future potential to mobilize investment in a sustainable economy
Organisation :
Inquiry into the Design of a Sustainable Financial System (UN Environment Inquiry)
International Finance Corporation (IFC)
International Finance Corporation (IFC)
Aligning Kenya's Financial System with Inclusive Green Investment: Current practice and future potential to mobilize investment in a sustainable economy, led by the International Finance Corporation and the UNEP Inquiry into the Design of a Sustainable Financial System, aims to promote inclusive green investment in Kenya. It focuses on policy, structural, and investment innovations across the economy and financial sector that would increase capital flows that support sustainable development.
 
It looks at the main barriers to inclusive green investment and suggests options to promote inclusive green investment in Kenya, which include: developing cohesive, market-wide policy and regulation; effective enforcement of the market-led Sustainable Finance Principles in the banking; consolidating the pension and insurance sectors; providing structured market support to develop institutional investment vehicles; addressing gaps in existing environmental and social regulation; aligning foreign direct investment (FDI) objectives with the green growth agenda.
France's Financial (Eco) System
Organisation :
Inquiry into the Design of a Sustainable Financial System (UN Environment Inquiry)
Institute for Climate Economics (I4CE)
Institute for Climate Economics (I4CE)

This resource is also available in French.

France's Financial (Eco) System highlights experience from France in improving the integration of sustainability issues into financial decision-making.

A key area of focus has been on improving information and market analysis. Environmental, social and governance (ESG) reporting requirements were first introduced in the New Economics Regulation law of 2001, and strengthened by the 2010 ‘Grenelle II’ law and 2015 the Law on Energy Transition for Green Growth (EETG).

France has also practised direct public interventions to mobilize capital and enable new markets and expertise to develop. Public financial institutions such as the Caisse des Dépôts and Bpifrance are able to leverage regulated savings accounts and other sources of capital to provide financing in line with sustainability mandates. They committed to mobilising €15 billion towards low-carbon transition by 2017. French institutions have also played a leading role in the development of the green bonds market.