Excellencies, Colleagues, Ladies and Gentlemen,
In Kenya, where the United Nations Environment Programme is headquartered, there is a saying: "If a dead tree falls, it carries with it a live one."
This proverb seems especially pertinent to the world circa 2008, when some of the world's most sophisticated financial systems spawned the worst global financial crisis scene in decades. As markets in some developed countries collapsed, others in both developed and developing nations were inevitably dragged down.
Looking back, we can see that many of these financial systems were not only dragged down but were similarly not fit-for-purpose themselves.
In the clearing opened wide by the crisis, a financial system has emerged that has been stabilised by hastily introduced policies, regulations and standards. Confidence has returned to the system, but it is a shaky confidence.
And while this expanded oversight may help prevent a 2008-like collapse, as regulation grows in scope it raises barriers to long-term investments, like trying to grow a tall tree in a tiny box.
Meanwhile, the fragile confidence in the market leads toward short-termism, excessive leverage and uniformity in investment, which further stunts growth.
In parallel to these changes in financial markets we have witnessed a virtually universal acceptance of the deep challenges facing our world in the guises of climate change and environmental degradation.
We know that we must respond on a scale never before seen.
The 21st century economy will continue to require enormous investments. Be it through the lens of resource efficiency or clean technology, our infrastructure, transport and energy systems will require massive injections of finance to keep pace with humanity's needs.
Efforts to address these investment challenges in a manner that supports sustainable development are futile if the world's financial systems are not incorporated into the shift.
The financial system underpins growth and development. To achieve sustainable growth and development, the financial system can and must be reorganized to integrate the environment and sustainability into financial thinking.
However, the disconnect between what is currently being financed and what needs to be financed magnifies the challenge of achieving an inclusive green economy and prosperity for all.
It must be acknowledged that financing of the scale we're speaking about cannot be be accomplished by governments alone. Private finance will play a key role in climate change mitigation and adaptation efforts and sustainable development.
Finance, after all, is a constructed enabler and not the sole remit of national and regional authorities. Finance is only of real value to us when it is being used to support the "real economy". Improved alignment between the financial system and sustainability can ensure that finance enables the real economy over the long term, supports stable growth patterns and fortifies the system to better handle disruptive impacts.
What does this alignment mean in real terms? UNEP - through the UNEP Inquiry into the Design of a Sustainable Financial System and the UNEP Finance Initiative - has been working to answer that very question.
The UNEP Inquiry examines best practice and emerging innovations across the world in sustainable finance while the UNEP Finance Initiative is a partnership between the UN and a global network of over 200 financial institutions. Through these initiatives, what we have found is that aligning the financial system for sustainability is not some far-off notion, but is already happening. The transition is being impelled both in response to the need for a different kind of economy but also to take advantage of the opportunities sustainable finance presents.
Perhaps the most surprising discovery of our work thus far is not that the seeds of this transition have been planted already, but that they have sprouted in unexpected places.
It is developing countries who have taken a leadership role in this field. Policy innovations from the financial system's governing institutions - government ministries, central banks, regulators, rating agencies and stock exchanges - have demonstrated the potential for financial systems to be better aligned with sustainability. These innovations have come from countries like Bangladesh, Brazil, India, China and Indonesia.
In Bangladesh, the Central Bank issued a set of environmental risk management guidelines for banks and financial institutions and a set of policy guidelines for green banking, making it obligatory for banks to address environmental and social issues in their lending processes and internal frameworks.
Brazilian banks must also undertake socio-environmental assessments of prospective loans.
The Inquiry's work in India has highlighted considerable scope for listed investment trusts for clean energy finance.
China is developing regulations on green credit, green securities and green insurance. To achieve environmental targets for the Thirteenth Five-Year Plan, China's government will be looking to inject some US$320 billion annually into green initiatives from public and private sources.
The Indonesian Financial Services Authority and the Ministry of Environment and Forestry have launched a "Roadmap for Sustainable Finance", whose goal is to determine how to improve the sustainability of finance in Indonesia and then implement these measures by 2024.
The Africa Renewable Energy Initiative, meanwhile, is working to mobilize billions of dollars in public and private financing to achieve 10,000 MW of installed renewables capacity on the continent by 2020 and accelerate efforts to reach 100,000 MW by 2030.
As developing and emerging markets continue to grow in importance, their focus on sustainable development will shape future financial reform across the globe.
Ladies and gentlemen, if you have not heard of these initiatives before, it speaks to the fact that a "quiet revolution" is taking place as policy makers and financial regulators address the need to forge robust and sustainable financial systems for 21st century needs.
And since the revolution is quiet, perhaps many of you have also not realized that it is occurring in your own backyard. In Europe, countries like England, Switzerland, France and the Netherlands have advanced investigations into how best to integrate environmental considerations into financial market development.
Take for example the Bank of England. Its Prudential Regulatory Authority is conducting a review of climate implications for the insurance sector.
In Switzerland, investigations have begun to explore whether sustainable finance can be a "new source of competitive advantage" to the Swiss financial community.
France has announced plans to mandate carbon and climate risk disclosure by major financial institutions.
And the Dutch Central Bank has introduced a sustainable development mandate and function to ensure relevant perspectives begin to permeate decision-making.
Nordic countries have traditionally been great champions of international cooperation, sustainability and development. Assessing and reshaping financial systems for sustainability here is an opportunity to continue to demonstrate leadership on these admirable and long-term ideals.
The examples I have offered already provide a glimpse into the actions taking place right now, but UNEP's Inquiry goes beyond a simple catalog of current innovations and initiatives.
Systematic national action and international cooperation can now be taken to shape a sustainable financial system.
The Inquiry has identified a number of specific policy actions that could be beneficial. Three overarching ideas stand out.
The first is the incorporation of sustainability and environmental risks into the auditing and management of value chains and balance sheets. In Kenya, climate variability costs upwards of 2.4 per cent of GDP annually. Short-termism and information gaps exacerbate structural mispricing of climate risks. By incorporating sustainability-related risks throughout the value chain - in benchmarks, indices and credit ratings - markets are better able to respond to environmental risk.
Further, by managing these risks prudently with regular stress testing and system-wide reviews, the chances of system-wide failures are reduced.
A second realm where states can take action is in lending and investment. Sustainability-focused investment from government financing vehicles can not only directly stimulate the green economy but also encourage the private sector financing required to curb the negative impacts of environmental degradation.
We know from the IEA that an additional 1.1 trillion USD in low-carbon investments every year is needed between 2011 and 2050 to keep global warming below 2 degrees celsius. Public climate finance is around US$137 billion. Private investment: around US$193 billion. The gap is large and must be closed.
Governments can only contribute so much, so their financial strategies for sustainable development must stress the mobilization of private finance.
Instruments such as refinancing, mandated lending requirements and fiscal incentives can all be employed to this end.
The third domain where policy-makers can take action is in extending environmental liability for lenders and investors. China's green finance task force, for example, has proposed legal infrastructure on lender liability and compulsory disclosure.
Outside the policy world, we are also seeing increasing leadership from the private sector on many of these issues, in part through the work of UNEP Finance Initiative. Groups of investors are getting together to "decarbonise" their investments. Launched less than a year ago, the Portfolio Decarbonisation Coalition, has signed up over $50 billion of funds who are finding ways to sell out of their brown investments and reinvest in green ones. Many banks have banned lending to certain projects. HSBC, for example, is refusing to finance dirty coal plants.
And as investors look for ways to invest sustainably, markets follow. The "green bond" market - where countries and companies borrow for sustainable investment projects - will see some $60 billion of green bonds issued this year, ten times more than four years ago.
Later this month in New York, the Sustainable Development Goals will be adopted. In December in Paris, an agreement to effectively tackle climate change will help put the world on a path toward environmental sustainability. The UNEP Inquiry and the UNEP Finance Initiative are showing that the financial resources and infrastructure will be there to support these global aspirations.
But even without these landmark multilateral initiatives, it is already apparent that tomorrow's markets will be greener markets. Consumers will dictate that the world's future is a sustainable future. Public policy and the financial sector have the potential to align with these objectives and become part of the solution.
