UNEA Provides New Momentum to Financing the Green Economy Fri, Jun 27, 2014
Nairobi, 27 June 2014 - An international symposium on Financing the Green Economy convened world environment leaders, policy-makers and financial experts this week at the United Nations Environment Assembly (UNEA) to identify smart policies and instruments that can be mobilized to finance the green economy transition.
The symposium's green economy financing theme is considered crucial to the creation of low-carbon, resource-efficient and equitable societies. However, this transition requires far greater public and private investment.
United Nations Environment Programme (UNEP) research suggests that an investment scenario of allocating 2 per cent of global Gross Domestic Product (GDP) - US$1.3 trillion - a year to greening economic sectors will produce a higher global GDP within 10 years, compared to a business-as-usual scenario. It will also reduce the ecological footprint and resource intensity of current growth models. The economic cost of failing to transition is far greater. Trucost puts the annual cost in natural capital degradation and negative environment externalities at US$7.3 trillion a year.
The good news is that the public and private capital is available to make this transition happen, although much of this capital continues to be invested in an unsustainable, resource- and carbon-intensive, polluting economy. The Organisation for Economic Co-operation and Development (OECD) Large Pension Survey reported that in 2013 less than 0.1 per cent of institutional investor assets were allocated to clean energy infrastructure projects.
The symposium's international panel of environment ministers, civil society leaders, and investors and asset managers identified an emerging set of issues that will advance the green economy finance agenda. Foremost among these issues are: a regulatory framework for capital makers; financial intermediation between small and micro-sized enterprises and large pools of capital; and creating pools of blended capital to offset risks associated with long-term investments.
The symposium was opened by Dr. Oyun Sanjaasuren, Minister of Environment and Green Development, Mongolia, and UNEA President. Minister Sanjaasuren identified green economy opportunities and challenges from the perspective of Mongolia - a country experiencing rapid economic growth.
She identified financial and technical capacity building as some of the more critical requirements to ensure sustainable development, and highlighted the role of cultural and behavioral change in spreading awareness and understanding of the benefits of greening the economy.
EU Commissioner for Environment Janez Potocnik followed the minister's address with a call for financing that prioritizes resource efficiency. Commissioner Potocnik said that such a shift could save companies 3 to 8 per cent per annum, but that loans for resource efficiency are not easily available.
Correcting price distortions of goods and services and raising awareness of resource efficiency benefits amongst the finance sector is, he said, key to changing the current short-term perspective on financial returns.
The session on financing the need focused on the capital required to build an inclusive green economy.
The Director General of the United Nations Conference on Trade and Development (UNCTAD), Dr. Mukhisa Kituyi, kicked off the discussions by outlining the size of current financial flows. Citing UNCTAD's World Investment Report 2014, Mr. Kituyi argued that there are substantial underutilized funds to implement Sustainable Development Goals (SDGs). He said that, for example, US$20 trillion of pension funds and US$5.5 to 7 trillion of sovereign funds could be unlocked and mobilized to deliver long-term sustainable prosperity as a necessary complement to public expenditure.
As a banker from South Africa, Ms. Madeleine Ronquest from FirstRand confirmed the interest in financing sustainability when it made viable business sense, stressing the importance of enabling policies and regulations within both the real and financial economy. The South African Integrated Resources Plan has incentivized banks in South Africa to finance US$7 to 10 billion in renewable energy. Ms. Ronquest stressed the need for close dialogue between policymakers and the finance industry and raised concern that financial regulators were not sharing the same understanding of 'risks' towards the environment.
Senior executives from China and Kenya's leading commercial banks presented good practice examples of blending public finance with public policies and private capital and capabilities to fund green business. Mr. Jingdong Wang, Executive Vice President of the Industrial & Commercial Bank of China (ICBC) - the world's biggest bank - described how ICBC is responding to China's Green Credit Policy. China's Green Credit Guidelines were issued by the China Banking Regulatory Commission (CBRC) to encourage implementation of its green credit policy, which was launched in 2007.
The guidelines encourage banks operating in China to deny loans to energy inefficient, polluting, or socially risky enterprises, and instead to support green industries and projects. At the end of 2013, loans provided by ICBC to green economic fields totaled around US$1 billion, accounting for 10 per cent of total corporate loans. The bank has also screened all of its customers as environment-friendly and environment-compliant.
This session made clear that policy and regulatory frameworks governing the allocation of capital need to support the flow of finance into the green economy, and that there is much to be learned from individual country innovation.
On the subject of mobilizing capital markets, panelists profiled recent efforts to harness capital market instruments to scale up finance for the green economy. These included green bonds for infrastructure financing, principles for disclosure and responsible investment strategies to measure and act upon environmental risks and opportunities, and the role of stock exchanges in offering new products linked to financing green economies.
During the last session, panelists and participants explored options to spur and catalyze capital flows into the green economy at the country level. They looked in particular at the different contributions that each actor can make in the investment value chain - from public policy, to public finance, to private capital - and addressed the question of what is needed from each to break free from a current low-level equilibrium that sees money flowing into short term and economically unproductive infrastructure and activities.
Bruno Oberle, Secretary of State and Head of the Swiss Federal Office for the Environment, and Co-Chair of the Symposium, spoke broadly about what is required to move the agenda forward. He stressed the importance of advancing the agenda through concrete and tangible examples of how policy dialogue is converted into actions, and highlighted the potential role of the UNEP Finance Initiative (FI), the UNEP Inquiry and the Partnership for Action on Green Economy (PAGE) as platforms for ongoing dialogue and targeted country advisory services.
UN Under-Secretary General and UNEP Executive Director Achim Steiner brought the event to a close, by acknowledging the pivotal role the symposium played in advancing the green economy agenda. It provided, he said, a unique opportunity for investors, policymakers and civil society to help map a path to a global economy that is built upon inclusivity, a more equitable model of prosperity, and the safeguarding of life-supporting natural capital. This, he said, is what the green economy represents and what UNEA is bringing to the fore of the global agenda on sustainable development.
Beyond UNEA, a series of high-level discussions will occur over the next 18 months, including a number of important gatherings of world leaders to discuss climate and biodiversity. With a deeper and growing appreciation of what is needed to green finance, and the active engagement of the financial community and its leaders as was witnessed this week, the task of delivering improved well-being, prosperity and dignity for all within the growing confines of our planetary space, will be that much easier.
H.E. Minister Oyun Sanjaasuren
Minister of Environment and Green Development, Mongolia
H.E Bruno Oberle
State Secretary of Environment, Switzerland
Scale of the Challenge of Financing the Green Economy: At least US$6 trillion is required per annum to finance a green and inclusive economy, with more than half of this needed in the developing world.
Need for a systemic approach: This represents a small fraction of the total stock of assets in the global financial system, estimated at over US$225 trillion. As a result, policymakers need to focus on the rules that govern the deployment of capital within the global financial system. To date, post-crisis financial reform measures have not focused on the sustainability imperative.
A misalignment of signals: Many signals in today's financial system are not aligned with sustainable development - reflected in prevailing short-termism, insufficient transparency, ill-defined responsibilities and inadequate flows to key countries and sectors. The result is a continuing misallocation of capital to high carbon and resource intensive assets, with potential risks of stranded assets.
Recognizing market and policy innovation: Positively, there is a growing body of innovation in market practice and policy measures to integrate environmental and social factors within the financial system, ranging from 'green bond principles' to country-level 'green credit guidelines' as well as sustainability disclosure requirements on stock exchanges around the world.
Championing action: At this moment in time, the global community has a unique opportunity to build on this emerging policy innovation to place sustainable development at the heart of the financial system. A special focus needs to be placed on strengthening the capacities of developing countries to integrate sustainable development into financial policy and regulation.
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UNEA is the highest-level UN body ever convened on the environment. It enjoys universal membership of all 193 UN member states as well as other stakeholder groups. With this wide reach into the legislative, financial and development arenas, the new body presents a ground-breaking platform for leadership on global environmental policy. UNEA boasts over 1200 participants, 170 national delegations, 112 delegations headed at minister level and 40 events during the five-day event from 23 to 27 June 2014 at UNEP's Headquarters in Nairobi, Kenya.
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