In May 2014, Nick Robins, co-director of the United Nations Environment Programme (UNEP) Inquiry into the Design of a Sustainable Financial System, discussed "How can the financial system serve a green and inclusive economy?" in a Critical Theme seminar hosted by IIED. In the seminar, Robins outlined the rationale behind UNEP's new Inquiry into the Design of a Sustainable Financial System, which has been tasked to deliver policy recommendations in 2015 that could help underpin the implementation of the new Sustainable Development Goals and the Paris climate agreement. More details: http://www.iied.org/economics.

1. How can the financial system serve a
green and inclusive economy?
May 2014

2.  A new area of green policy innovation is emerging
 Inquiry to identify policy options in 2015
 First milestone reached – Council meeting in DC
 Priorities for next phase
o Foundation analysis to map the agenda
o Country convenings to learn real world lessons
o Thematic research for cross-cutting priorities
Inquiry: work in progress
2

3. Advance policy options that would deliver a step change in the
financial system’s effectiveness in mobilising capital towards a
green and inclusive economy.
This means aligning the rules of the game that govern the financial system
with the long-term health & sustainability of the real economy
Objective of the Inquiry
3
Policy options
Financial
system
effectiveness
Green
economy

4. Inquiry timeline
Dec 2015Jan 2014
Map current practice
Learning across the system
Establish analytical frameworks
Opportunities for innovation
Conduct thematic analysis
Options for policy design
Engage with key stakeholders
Catalyse leadership and action
4

5. Inquiry guidance from Advisory Council
Rachel
Kyte
Group Vice
President,
World Bank
David Pitt-
Watson
Co-Chair UNEPFI
Atiur Rahman
Governor, Central
Bank of
Bangladesh
Murilo
Portugal
President, Brazilian
Bankers Federation
Neeraj
Sahaj
President, S&P
Rating Services
Rick
Samans
Managing Director
WEF
Maria
Kiwanuka
Minister of
Finance,
Government of
Uganda
Andrew
Sheng
President,
Fung Global Institute
Naina
Kidwai
Group General
Manager &
Country Head,
HSBC India
Mallam
Sanusi
Former Governor,
Central Bank of
Nigeria
Lord Adair
Turner
Former Chair,
Financial Services
Authority, UK
Kuandyk
Bishimb
ayev
Chairman,
Baiterek
Development
Bank
Jean-Pierre
Landau
Former Deputy
Governor, Banque
de France
John
Lipsky
Former Deputy
Managing Director,
IMF
6

6. A growing strategic focus on finance
5
Intergovernmenta
l Committee on
Sustainable
Development
Financing
Momentum
For Change

7. A system undergoing profound change
11
Real Economy
Real Ecology
Financial Economy
Big data, internet of everything, new materials,
nanotechnology, 3D Printing, robotisationTechnology
innovation
Population growth, rapid urbanisation, aging
InequalitySocial pressures
Intra-country inequality, reduction in wage
differentials, ‘the end of cheap’, impact of
automation on labour markets
Economic shifts
Increased volatility, water stress, climate
change, biodiversityEnvironmental
impacts
Financial system
change
Private currencies, peer-to-peer finance, crowd
funding, disintermediation, policy driven
institutions, impact of data on risk pooling.

8. The structural disconnect
8
Too much of this Not enough of this
US$7trn/year environmental
externalities; 7mn premature air
pollution deaths/year alone;
escalating inequalities
Current flows a fraction of the
US$ 6trn/year needed for low-
carbon to 2030 – and does not
include access to key resources

9. From incremental cost to a system approach
-8
-6
-4
-2
0
2
4
6
8
“The clean
trillion” –
annual
$0.7
trn
$5
trn
$7.3
trn
Underlying annual
infrastructure
investment need
Cost of environmental
capital destruction
and negative
environmental
externalities
Climate finance:
$100 billion/year
Financial trading
volumes
Financial assets
Non-
financial,
and publicly
held assets
$225 trillion
Total green infra $6 tr/year
Greening infra: $0.7 tr/year
Climate finance: $0.1 tr/year
10

10. Financial regulation for a green economy?
10
“Financial regulators need to lead. Sooner rather than later, they must
address the systemic risk associated with carbon-intensive activities in
their economies. The so-called "long-term investors" must recognize
their fiduciary responsibility to future pension holders who will be
affected by decisions made today.
Jim Kim, World Bank, 2014

11. Innovative policy practice so far
Insurance
Securities &
disclosure
Pensions
• Green Credit Guidelines spreading across key developing
countries: Bangladesh, Brazil, China, Indonesia, Nigeria
• Environmental, social and governance factors included as
part of investors’ fiduciary duty: South Africa
• Insurance regulators incorporating climate change into
disclosure and risk assessments: USA
• Mandatory corporate disclosure of sustainability: China, EU,
India, South Africa, UK, USA. Investor disclosure: France
12

12. Rationale for intervention: Council views
Systematic
Bias
Real
economy
objectives
Coherence
“Everyone is working off a model. The models don’t incorporate
environmental change factors, but just extrapolates out from the
past.”
“None of the reforms such as Basel III have considered the nature of
environmental risk for the sustainability of the system. Instead it
prices out investment for long-term infrastructure.”
“As a central bank we are working to engrain socially responsible
investing into the financing structure itself. It is explicit…Our
mandate is to support the growth objectives of the government. The
governments goals are pro-environment and inclusive.”
12
But not every problem or opportunity, even where finance is involved, can or should be
addressed through interventions in the financial system…

13. 13
Cons and pros of financial system intervention
Systematic bias Policy coherence
Real economy
objectives
Unintended
consequences
Impact
avoidance
Preventing
interventions
Policy intervention in the financial economy could be warranted to support efficient markets,
system resilience and real economy policy objectives

14. Disclosure and
reporting
Long-term
duties
Tax breaks,
incentives
9
Inquiry scope: rules of the game & arena
Green credit
guidelines
Capital
requirements
Green bond
markets
Disaster risk
reduction
Solvency
requirements
Extending
access
Interest rate
effects
Quantitative
easing
Central bank
mandates
Investment Banking Insurance Monetary
Financial
Policy
Financial
Regulation
Private
Standards
Financial
Sector
Fiscal
Measures

15. System purpose and performance
System governance
Financial institutions
Tomorrow’s Economy: scenarios
Sound, Supportive, Sustainable
Mandates Principles Assessment
ResponsibilitiesIncentivesInformation
An emerging framework
13

16. 16
Thematic research & engagement
e.g. Time horizons, systemic risk,
institutional governance,
regulator mandates,
incentives, information
Country engagement
e.g. Bangladesh, Brazil, China, EU,
India, Indonesia, South Africa, Uganda,
UK, USA
1
2 3
Design foundations
e.g. Scenarios,
Principles,
Assessment Framework
Three pillars for the next phase of the Inquiry

17. A work in progress: findings so far
• Financial system reforms are part of the solution to
rapidly scaling capital for the green economy agenda
• Such interventions are complements, rather than
substitutes for smart action in the real economy.
• Examples of financial policy innovation are growing
globally, yet remain fragmented
• The time is ripe to reflect on updating the mandates of
financial rule-setters to capture forward-looking green
economy challenges.
12

18. Contact
Simon Zadek
Co-Director
Nick Robins
Co-director
Mahenau Agha
Head of Outreach
Nick.robins@unep.org Simon.zadek@unep.org Mahenau.agha@unep.org
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19. inquiry@unep.org