Finance is indispensable to the achievement of the U.N.’s Sustainable Development Goals (SDG), which address issues from climate change to inequality. Capital is essential for any government and business to reach these goals.
The COP26 conference saw 450 financial institutions commit to net zero portfolios by 2050. This means that they require all companies they invest in to reduce or offset their carbon footprint. It may seem like a lot of capital, but the $130 trillion that they manage collectively is enough to address sustainability problems. But only a tiny fraction of the $130 trillion they collectively manage is being utilized. The OECD has estimated that $2.5 trillion will be needed each year to reach the SDGs. Of this, $23 billion must be spent in developing nations. Only 10% of the current investment is made.
Financial ecosystems are complex. They include many interdependent, diverse players that cannot be changed by themselves. Asset managers cannot create a portfolio that is carbon neutral if their clients do not demand zero indexes. Similarly, banks can’t finance projects in developing countries without rating agencies offering fair credit ratings and regulators taking a progressive approach. We heard unprecedented calls from financial institutions to regulate at COP26. This is a great opportunity for governments to speed up change. All players need to have an open dialog and be held accountable for implementing and adhering to specific action plans in order to meet their SDGs commitments.
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Investors are urging CEOs to do more than maximize shareholders’ value. The role of an investor is not limited to optimizing returns on investments. They also need to be responsible for the financial system’s stewardship. For their portfolios to become sustainable, the financial system—and wider economic system—must be sustainable. This applies to all societies and the environments in which we live.
All of us are part the financial system and we can all contribute to its ongoing improvement. Why not start by asking your bank to offer sustainability-focused financial products? Our combined contributions will mobilize the financial system to achieve the U.N.’s SDGs. There’s no time to waste. To achieve a sustainable, inclusive future, we must all work together.
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