Getting honest about sustainability

COPYING AND DISTRIBUTING ARE PROHIBITED WITHOUT PERMISSION OF THE PUBLISHER: SContreras@Euromoney.com

By:
Published on:

The needle may slowly be moving, but if we continue at this pace sustainable finance will still be a niche rather than integrated into all finance by the end of the century.

meter needle-780


In December, the EU announced its green deal along with new rules for sustainable finance – the much-discussed ‘taxonomy’. Under the agreement, all financial products that claim to be green or sustainable will have to disclose exactly what proportion of their investments are environmentally friendly.

It’s going to be interesting – does this mean we will have more sustainable products or fewer? It’s hard to know because, at present, the data simply isn’t there to tell us where we are in the bid to direct capital to socially and environmentally supportive endeavours.

The numbers would convince us we’re making progress. According to research from the World Resources Institute (WRI), banks have pledged more than $2.5 trillion – but asked to drill down to put that in context, the WRI discovered a much starker picture. 

To start with, only 23 of the largest 50 banks have commitments, and those that have differ wildly in their definitions of commitments. On an annualized basis, these numbers look paltry compared to the traditional financial markets, which have no mandate to be environmentally or socially positive. The needle may slowly be moving; but if we continue at this pace, sustainable finance will still be a niche rather than integrated into all finance by the end of this century.

Group effort

No one really wants to address this. Banks are keen to show themselves as caring institutions but at the same time they can only be as caring as their clients and shareholders are ready for them to be. It requires a group effort. It is much easier to launch small one-off products that don’t offend, or put out a policy which doesn’t hurt the bottom line. 

Few banks are willing to make bold decisions – even fewer are willing to work with their largest competitors on galvanizing the industry.

But we’re running out of time. Off the record, bankers say there are ways to move faster – joining the Principles for Responsible Banking, which has timebound targets; mandating Task Force on Climate-related Financial Disclosures (TCFD), including deforestation within capital allocation decisions; or, even better, broadening the TCFD to include nature-related risks

Greater incentives for avoiding brown and investing in green would also help – that the EU has succeeded in putting a deal together across disparate countries might offer hope that regulatory incentives may not be a pipe dream. A taxonomy for transition finance would be useful and, of course, more consistent standards and metrics.

None of it is rocket science, but we cannot be distracted by pledges and large numbers when, in the scheme of things, they are merely a drop in an ocean (an ocean increasingly full of plastic and slick with oil). It’s a wish list for 2020 – a big year of environment-related events and a US election. With a new decade comes renewed hope.