The Global Commission on the Economy and Climate recently put out a report that calls on governments and financial institutions to invest in sustainable infrastructure in order to increase growth. The global financial system needs reshaping to finance an inclusive, prosperous, and environmentally sound future. This momentum has dramatically increased over the past year, but still has a long way to go.
There are key steps that can align the impact of the financial systems to serve the economy in a transition to sustainable development. First, sustainability must be in included in national strategies for financial reform and development. Next, technological innovation must be channeled to finance sustainable development. Also, institutions must leverage the potential of public finance. Finally, sustainability must be put into common methods, tools and standards across all financial systems.
Financial institutions and markets are developing innovations such as green bonds, green ratings and stress tests. Policymakers and regulators are introducing measures to promote capital reallocation, improve risk management, enhance reporting and clarify responsibilities of financial institutions. There are also signs that international cooperation with regard to sustainable development is increasing.
Action within the financial system could most effectively be built through collaboration efforts between private and public sectors, involving action at both the national and international levels, and complementing classic sustainable development policies. There is potential to scale and systematize these early innovations, both nationally and internationally, to effect a major redeployment of capital to finance sustainable development.