Italy now has a chance to strengthen its financial system through the use of sustainable development and investment. Details of their plan is discussed in a new report called Financing the Future, released by Italy’s Ministry of Environment. The 2015 Sustainable Development Goals and the Paris Agreement on climate change require a new generation of financial innovations. Italy will now take stock of existing practice, identify key challenges, and suggest policy options to take promising developments to scale.
This effort has been the collaboration of working groups comprised of leaders in the financial sector and the research community. Harnessing the financial system will be essential for achieving a successful transition to a low-carbon and sustainable model of development. Sustainable finance involves the integration of environmental, social, and governing factors across the financial system with the goal of strengthening resilience, targeting capital allocation, and improving accountability.
Green finance aims not only to guarantee finance for needed environmental projects, but also to make more sustainable all finance. A shift is already under way both domestically and globally. Environmental threats such as climate change and water scarcity are creating risks to financial assets. New challenges particularly will exist for the insurance sector. Banks, capital markets, and institutional investors are starting to incorporate environmental and social factors in capital allocation decisions. Public finance will be key to enabling this shift, but the bulk of the capital required will need to come from the private sector. Internationally, policy cooperation is deepening and Italy is an active participant in the G20’s Green Finance Study Group. Within the EU, sustainability is also a core investment goal and has announced its intention to develop a comprehensive European strategy on sustainable finance.
There still exists factors that have led to insufficient flows of capital to a green economy. Unrecognized risks could leave the country’s sustainable development and climate goals unrealized. Since consumers demand for green products and services is expected to grow faster in Italy than elsewhere. These challenges are by no means unique to Italy. There is increasing activity at the international level to overcome these hurdles.
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