The growth of sustainable finance has been good news in an otherwise challenging year. This momentum is needed but building back better will require the finance sector to recognise that impact matters just as much as volume. 'Where' may be more important than 'how much'.
A dollar invested can have a significantly different outcome depending on where and how it is deployed. As our first sustainable finance impact report (PDF, 1.3MB) highlights, financing a solar project in India will help avoid more than seven times the CO2 from a similar-sized project in France given the current sources of power on those countries’ grids.
Catalyse, standardise and democratise
In order to finance change, we need to switch the focus from green bond league tables to how we catalyse, standardise and democratise sustainable finance:
- We need to mobilise much more sustainable finance and catalyse everyone's efforts – no-one can do this alone. The new financing required to keep global warming to an increase of just 1.5 ˚C may be as high as USD8 trillion annually while the UN estimates that the funding gap to reach the Sustainable Development Goals (SDGs) by 2030 is USD2.5 trillion a year. We need innovative financial products that can bridge investor interest with impact on the ground whether through deposits, fixed income like our Sustainability bond, private equity, equity markets or other products. We need to see different shades of green as we help companies transition to lower carbon business models as a mobilisation of capital into sustainable oceans and to drive greater gender equality.
- One of the biggest obstacles to raising more sustainable finance, is the lack of information and transparency on impact and the myriad of standards and conflicting definitions. Standardisation can help nascent markets grow and protect against the risk of green or SDG-washing – this is evident in the success of the Green Bond Principles and the sustainable debt markets. This needs to be balanced with allowing innovation to flourish but greater transparency is still vital. This is why we published our Sustainability Bond Framework and our Green and Sustainable Product Framework last year and aligned them with the SDGs and the EU Sustainable Finance taxonomy, ensuring they were verified by a respected third party.
- Finally, we need to democratise the benefits of sustainable finance. Funding is not flowing to the countries at the greatest risk from climate change – but which have the biggest opportunity to jump to low carbon technology. Our report (PDF, 1.3MB) tries to help educate investors about the opportunity and positive effects that emerging market sustainable finance can have.
Flowing funds to emerging markets
Less than 60 per cent of the financing needed to achieve the SDGs in low and middle-income countries is being met. In Africa, this is as low as 10 per cent. This is why we are proud that out of our USD3.9 billion of verified sustainable financing, 91% is in emerging markets and 86 per cent is in some of the world’s least developed nations.
Asia is home to 80 per cent of the world’s population who may be flooded if there is a 3°C rise in global temperatures, while Africa has at least 19 coastal cities with a population of more than 1 million at risk from climate change. Billions in these markets face this stark reality if we cannot move capital from Lyon to Lucknow. Financing this change is also a USD10 trillion opportunity for investors.
Getting this right is far more important than league tables.