The Secret Life of Green Finance
By Simon Zadek | 15 August 2017
Simon Zadek is writing in his personal capacity, and currently serves as the senior advisor on finance in Executive Office of the Secretary General, is co-Director of the UN Environment’s Inquiry into the Design of a Sustainable Financial System, and is Visiting Professor at the Singapore Management University.
Green finance’s meteoric rise has been a remarkable feature of the contemporary global financial landscape. From London to Nairobi, and Sao Paulo to Singapore, green finance has become the currency of high profile advocacy, policy and regulatory developments and increasingly market practice. The G20’s embrace of green finance as a legitimate topic for finance ministers and central bank governors has catalysed action across the world, from the green finance work being led by the Reserve Bank of India to the European Commission’s High Level Expert Group on Sustainable Finance. The G7 has highlighted the growing focus of the world’s major financial centres on green finance as a basis for product innovation and competitiveness, such as the City of London’s Green Finance Initiative. And the darling of green finance, green bonds, has seen a ten fold increase in annual issuance over the last five years.
The logic of green finance’s rise is undeniable. Environmental challenges have impacted markets and returns, through droughts and other natural disasters, volatility in food and other commodity prices, and growing liability risks as the more stringent enforcement of environmental and climate-related regulations become a global norm. Climate change necessitates accelerated action by the world’s largest emitters, both to keep global temperature rises below 2 degrees, and to more effectively manage investor risks. Beyond downside risks, environmental stewardship and resilience has become a source of value. Renewables have transitioned from a side-show to the main game across global energy markets, stranding along the way carbon intensive assets. Electric vehicle and battery technology threatens to overturn the all-powerful auto industry and reward investors who have backed businesses at the nexus of environmental concerns, policy responses, and breakthrough technologies. Financial regulators have woken up to systemic risks in such a transition, especially those linked to climate, requiring the financial community to demonstrate their will and capability to manage this new generation of risks and report accordingly.
History’s impeccable logic alone, however, rarely guarantees the right response. People make a difference, and the secret life of green finance is a disparate band of people who have made it their mission to green the global financial system. Dr Rahman, for example, placed Bangladesh on the global map by championing the development role of central banks in advancing financial inclusion and green finance. Dr Ndung’u, likewise, as Kenya’s central bank governor, was a key player in turning Kenya into a global leader in digital finance, which now underpins the country’s growing eco-system of green financing innovations connecting mobile payment platforms, distributed solar and now also crowd-sourcing, block chain and crypto-currencies. Muliaman Hadad, until recently Commissioner of the Indonesian Financial Regulatory Authority, has championed what was arguably the world’s first ‘sustainable finance roadmap’. And in Brazil, Murilo Portugal, president of the powerful bankers association, Febraban, has championed the greening of the country’s banking community.