Financial institutions play an important role in promoting fair and resilient economies by reducing environmental, social, and governmental (ESG) risks for themselves and the communities they serve.
Though attitudes are changing towards ESG accountability, and the demand to take action is rising even among policymakers, bankers, businesses, and other key stakeholders, they’re still not changing nearly fast enough. Moreover, initiatives towards sustainable finance still remain reactive rather than proactive, much like how the subject was presented at the recently concluded World Bank and the IMF Annual Meetings in Washington DC: significant push by civil society, a handful of token sessions hosted by the WB Group and IMF, and a somewhat monumental announcement towards the end that wasn’t even in the actual program until later on in the week. If we are to achieve the UN’s Sustainable Development Goals and our country commitments to the Paris Agreement before it’s too late, then a drastic, proactive change needs to happen in financial regulation, policy, and practice now.
In one of her speeches, Greta Thurnberg likened the climate crisis to a burning house, and how we should all act in total urgency and “panic” to put it out. Safe to say, the fire alarm went off over three decades ago in 1987 when “Our Common Future” was first published, and the Brundtland Commission recommended the rethinking of economic development vis-à-vis generational sustainability. That alarm never really turned off, but somewhat turned to white noise for a society that went on, business as usual. While the agenda of this year’s Annual Meetings provided enough opportunities to discuss the future of sustainable finance and ESG investments, it simply lacked the depth and clarity of a 30+ year old movement. We are pass the point to still be asking whether central banks have a role to play in mitigating the risks and impacts of climate change. They certainly have, and the World Bank Group and the IMF have critical roles to play in enabling policymakers and regulators, particularly from developing countries, to design and urgently implement smart policies and action plans on ESG transparency and accountability.
On Friday, 18th of October, the IMF hosted the launch of the International Platform on Sustainable Finance which aims to mobilize private capital towards environmentally sustainable investments, and to deepen international cooperation and coordination of initiatives that are fundamental for investors to identify and seize environmentally sustainable investment opportunities. While this is a welcome initiative that focuses on green finance, there are a few questions worth asking. For starters, how many more of these platforms will it take to effectively coordinate and implement financial policies and regulations that support the mitigation of well-known environmental risks? Also, how much more social and governmental crises – deepening inequality, continued modern slavery, severe violation of labor rights especially among women, gender based violence, political polarization and corruption, to highlight a few – should we endure before our leaders decide to fully unpack all the other critical issues that complete the acronym “E S and G”? Why not seize this momentum now and push ESG and sustainable finance to its global tipping point? Climate change certainly makes an excellent case for urgency, but if anything, this “reactive” approach does not only impede action on critical issues that continue to plague local communities, it also signals lack of much needed political will which is not going to lead to a comprehensive solution.
ESG investing is still widely considered niche or a strategic option. Imagine the possibilities if it wasn’t a choice. Hopefully, we don’t have to wait another 30 years to see the change.
A blog by Bernadette Victorio, Regional Program Coordinator, Fair Finance Asia