Skip to main content
May 29, 2019

Groups eye financial system overhaul with ESG focus

Global organizations see a need to reset the financial system and align financial flows with climate goals

The OECD, World Bank and UN Environment Program have joined together to call for placing sustainable finance at the center of an overhauled global financial system.

The three organizations are working on an agenda for governments around the world to align financial flows with global climate and development goals - as signatories to the Paris climate accord agreed to do.

‘A deep transformation of existing infrastructure systems is needed for both climate and development, one that includes systemic conceptual and behavioral changes in the ways in which we manage and govern our societies and economies,’ a joint report states.

The groups state that there is a need to ‘[r]eset the financial system in line with long-term climate risks and opportunities by fixing biased incentives, capability gaps and inadequate climate risk disclosure and pricing that are hindering the allocation of finance to low-emission, resilient infrastructure.’

They add in the new report that there is a need to ‘[r]ethink development finance for climate by ensuring that development finance institutions have the resources, mandates and incentives to deliver transformative climate action, attract new investors and sources of finance by using concessional finance strategically and help countries advance their climate agendas and build enabling environments and climate markets.’

The coordinated push to overhaul the financial system with an ESG focus comes as other groups are working to develop frameworks and standards for improving companies’ sustainability-related disclosure to investors.

The Sustainability Accounting Standards Board (SASB) last November launched its 77 industry-specific reporting standards for companies to disclose material environmental risks. SASB is also a member the Corporate Reporting Dialogue, which was launched by the International Integrated Reporting Council (IIRC) with the aim of promoting greater coherence, consistency and comparability between corporate reporting frameworks, standards and other requirements.

Other member organizations are the CDP, the Climate Disclosure Standards Board (CDSB), FASB (as observer), the Global Reporting Initiative (GRI), the International Accounting Standards Board and International Organization for Standardization.

They started a two-year project last November to push for better alignment between the different frameworks. SASB, GRI and CDP plan to map their frameworks against the Taskforce for Climate-Related Financial Disclosure recommendations. Meanwhile, the IIRC and CDSB will look at how to further integrate non-financial and financial reporting.

Meanwhile, one of the main demands of the new OECD, World Bank and UN initiative is the promotion of innovation in the field of green technology. The challenge is that at present only around 10 percent of technologies being developed are on their way to being market ready.

‘We must work to make these technologies affordable,’ OECD deputy secretary general Masamichi Kono said in a recent speech.

The sums needed to reach the groups’ goals are vast. According to an OECD estimate, $6.9 trillion will be needed annually until 2030 to reach the climate and development targets. Not even half of that amount is being invested at present.

Peter Pellegrini, prime minister of the Slovak Republic and OECD ministerial council meeting (MCM) chair, said at the recent MCM: ‘The global nature of the digital transition involves a need for effective international co-operation, and that members can better work together to address the challenges and ensure that the benefits of digitalization are more widely accessible, and contribute to the realization of the 2030 Agenda for Sustainable Development.’

International co-operation is also seen as a necessary building block, the report notes. It adds that ‘the international community has increasingly recognized the need for such transformation: almost all G20 countries confirmed their willingness to embark on a global energy transition in line with climate and development goals in the 2017 G20 Hamburg Climate and Energy Action Plan for Growth.

‘There is also growing awareness that the push for greater climate action must be accompanied by a just and inclusive transition to address inequalities and provide equal opportunities for all parts of society.’