Thirty private-sector CEOs, including the heads of Bank of America, Citi, Santander, Standard Chartered, UBS and Allianz, have urged the European Commission and global governments to step up the financial sector’s role in financing the Sustainable Development Goals (SDGs) and Paris Agreement.
The Global Investors for Sustainable Development (GISD) alliance released its report, Renewed, Recharged and Reinforced: Urgent actions to harmonize and scale sustainable finance, on Wednesday.
It represents a manifesto, identifying 64 recommendations, 42 of which are global in nature and the remainder specific to the European Commission.
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Jay Collins, |
“We had initially planned to prepare a more limited response for the European Commission’s consultation on sustainable finance, but after the pandemic hit we collectively realized we needed to have a bolder global call to action,” says Jay Collins, vice-chairman, banking, capital markets and advisory at Citi, and chair of the GISD report committee.
He points out “it’s not to be taken lightly that 30 of the world’s largest investors, financial institutions and corporations agreed on over 60 concrete recommendations”.
Amy O’Brien, global head of responsible investing at investment manager Nuveen, which was also a signatory on the report, said the EU consultation served as a “focal point for further and intentional mobilization around the broader sustainable finance ecosystem” and called the report “a significant milestone” in scaling up sustainable finance.
Categories
The recommendations fall into several categories. These include the need to address “flawed metrics, lack of harmonization of standards and unenforced disclosure”.
It describes sustainability data as being “poor quality, inconsistently disclosed, frequently backward-looking – if not stale – non-comparable in nature and often bereft of technology that could improve it”.
Collins, who describes the current situation of reporting standards and sustainability data as a “cacophony”, adds: “Unless we start to harmonize and standardize sustainability metrics in a way that we can get our arms around, it will be impossible to meet the Paris and SDG2030 objectives.”
If we can get commonality and consistency of disclosure and data across our supply chains, then we’ll really start to make a difference
– Jay Collins, GISD
He says transparency and consistent metrics are also critical across supply chains.
“Yes, as an alliance, we represent $15 trillion in assets, but our real impact is much broader if we include our systemic influence, our ecosystems and our supply chains,” says Collins. “If we can get commonality and consistency of disclosure and data across our supply chains, then we’ll really start to make a difference.”
Specific requests are made to mandate sustainability reporting – including the Task Force on Climate-related Financial Disclosures (TCFD), and to create a transition taxonomy.
Global level
The report also stresses that while the EU has been the global leader of the development and regulation of sustainable finance, it must ensure that its work can be adopted at a global level to avoid a “counterproductive patchwork of definitions and regulation”.
GISD also calls for greater collaboration between the public and private sector, “reinvigorating public-private partnerships to a degree not experienced since the Second World War”.
The report urges the creation of a blended finance fund for the SDGs modelled after the International Finance Corporation’s managed co-lending portfolio programme (MCPP).
“For some time, we’ve been talking about how blended finance in its current format isn’t working,” says Collins. “It isn’t scaled, and a fund could allow us to scale.”
We don’t talk enough about government budgets… It’s an afterthought
– Mahmoud Mohieldin, UN
The group calls out governments for offering public subsidies to sectors that go against the aims of the Paris Agreement. Collins adds that governments, as large asset owners, need to take greater accountability.
“We need to further align public-asset owners – central banks, public pension funds and sovereign wealth funds as investors – with Paris and the SDGs,” he says. “That represents over $47 trillion in market assets. That’s huge.”
A strong carbon price “commensurate with a net-zero carbon economy by 2050” is also singled out in the report.
Financial products
Regarding financial products, the group recommends diversifying and dramatically increasing bond issuance across the SDGs and across actors, including both “use-of-proceeds and sustainability-linked instruments” and “to drive green bond standards and principles into the project finance market”.
“We don’t want or need to recreate ICMA [International Capital market Association], so we recommend innovating within their global framework,” says Collins.
He stresses that investors are now demanding ‘additionality’ and performance commitments around metrics with a specific outcome objective.
“We will see more outcome-linked products backed by measurable and standardized KPIs [key performance indicators],” he adds.
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Mahmoud Mohieldin, |
Responding to the report, Mahmoud Mohieldin, UN special envoy on financing the 2030 agenda for sustainable development, praised it as “a positive development”, adding he would encourage a follow-on report from the GISD alliance that addresses specific Organization for Economic Cooperation and Development (OECD), emerging markets and developing economies in addition to the EU.
Commenting on specific sections of the publication, he says he would like to see the International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB) included further and the standards to be broadened in scope to encompass sustainability.
On new products, he comments that “it is important to mention the new products needed, but it will be, of course, subject to the health and capacity of markets under growing debt pressures”.
Mohieldin added he would like to see greater development of sustainability products with more emphasis on private equity and direct investment.
“For a long time, we’ve been talking about building pipelines of investable products, taking the unbankable to the bankable, but that will call for larger risk-taking and bigger investment in data and reliable information as the market still largely guided by perception,” he says.
Government budgets
Mohieldin also highlights one area that doesn’t get enough attention when it comes to government support for sustainable finance.
“We don’t talk enough about government budgets,” he says. “Budget discussions tend to focus on the mobilization of resources through tax and non-tax revenues, then address wages, debt services and only after all the ‘essentials’ are covered do sustainability and the environment get considered.
“It’s an afterthought. We need a dialogue on these topics – not just from the finance community but also acquainted with fiscal and monetary policy. We have an opportunity not to just discuss build-back-better one-off post-Covid budgets, but entire budgets.”
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