WHEB Commentary

The Financial System We Need


The United Nations Environment Programme (UNEP) released the Inquiry report on the Design of a Sustainable Financial System during October 2015. A distinguished member of our Advisory Committee was a lead member of the Inquiry Team and co-author of the report. The inquiry itself, and its report evidences growing recognition all over the world of the need to move towards a more sustainable financial system.

Moving to a sustainable economy is not easy, however, particularly for developing countries. The report quotes Rathin Roy, Director, National Institute of Public Finance and Policy, India saying that industrialisation without recourse to growing fossil fuel consumption has never been done before. Therefore “Innovations are needed in every kind of financial market.”[1]

The report highlights that “there is an historic window of opportunity to develop a sustainable financial system.”[2] There are signs that this opportunity is being seized upon by those in a position to influence the system. Ever growing amounts of capital are being committed to more sustainable financial practices, perhaps in part motivated by evidence showing that these practices can enhance financial performance. Governments and regulators are also taking action to encourage and accelerate this growth. Amongst the policy innovations highlighted in the report are the following:

  • Stock exchanges in South Africa and Brazil requiring sustainability reporting.
  • Standard & Poor’s Rating Services identifying climate change as a key mega-trend effecting sovereign bonds.
  • Brazil’s banking regulations requiring socio-environmental risk management.

Altogether, the Inquiry found “over 100 examples of policy measures across 40 countries targeting each of the main asset pools and actors, as well as the underlying governance of the financial system.”[3] This is dubbed the “quiet revolution” which they see as “led by those governing the financial system, often in collaboration with market actors.”

Moving to a more sustainable financial system will require very considerable investment, much of it by the private sector. The IEA estimates that investment required for energy and energy efficiency will rise towards $2.5tn per year by 2035. In China alone, estimates suggest that there will be demand for up to $400bn of green finance annually, of which no more than 15% will be from public sources.[4] The World Health Organisation estimates that $27bn per year will be required to ensure universal access to safe drinking water and adequate sanitation of the most basic kinds.[5] These are just some of the kinds of figures you can find in the report, together with multiple case studies of how governments and regulators have promoted change and encouraged investment in these areas.

The report contains a framework for action and recommendations for policy makers and actors in several different areas. With regards to institutional investors, the report highlights that “a key first step is to align the design of pension and other investment systems with sustainability.”[6] With this we wholeheartedly agree and we at WHEB have been working with a number of pension funds on different approaches to investing in sustainability and assessing the exposure of their investments. WHEB’s investment strategy is specifically designed to meet this need and to benefit from the growth in investment required to shift towards a more sustainable economy. We hope and expect that the contents of this report will be widely read and help to accelerate the shift towards the financial system we need.

[1] UNEP, “The Financial System We Need”,2015, xi

[2] UNEP, “The Financial System We Need, 2015, xiii

[3] UNEP, “The Financial System We Need, 2015, xvii

[4] UNEP, “The Financial System We Need, 2015, 7

[5] UNEP, “The Financial System We Need, 2015, 8

[6] UNEP, “The Financial System We Need, 2015, 48 (emphasis in the original)

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