Finance is indispensable to the achievement of the U.N.’s Sustainable Development Goals (SDG), which address issues from climate change to inequality. Without capital, no business or government can hope to achieve these goals.
At COP26, 450 major financial institutions committed to making their portfolios net zero by 2050, meaning they will require any company they invest in to eliminate or offset their carbon footprint. The $130 trillion they collectively manage may sound like more than enough capital to solve sustainability issues. However, a fraction of that is being put to this use. The OECD estimates $2.5 trillion is needed annually to achieve the SDGs, two-thirds of which must be invested in developing countries. Just 10% is currently being invested.
The financial ecosystem is sophisticated, comprising many different, interdependent players who cannot change the system alone. No asset manager can build a carbon-neutral portfolio unless their customers demand net-zero indexes. Similarly, banks can’t finance projects in developing countries without rating agencies offering fair credit ratings and regulators taking a progressive approach. At COP26, we heard an unprecedented appeal from financial institutions for regulatory intervention. Governments should seize this opportunity to accelerate change. To achieve their commitments and subsequently the SDGs, all players must have open dialogue and hold one another accountable to produce and adhere to concrete action plans.
Investors are urging CEOs to do more than maximize shareholders’ value. Investors must also fulfill a greater responsibility than simply optimizing financial returns, by acting as stewards of the entire financial ecosystem. For their portfolios to become sustainable, the financial system—and wider economic system—must be sustainable. That extends to the societies and environments we live in.
We are all part of the financial ecosystem and can contribute to its systematic change. 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. We must work together to achieve a sustainable and inclusive future.
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