Insurers need to prove green credentials

Some of the world’s economic leaders have called in the financial services sector to pay more attention to their efforts in driving sustainability.

As part of the United Nations’ Environment Programme roundtable series, leaders from some of the world’s  major financial institutions discussed why financial services firms across the world  need to increase their efforts to drive sustainability.

European Central Bank President Christine Lagarde (pic) warned that there is not enough green finance, and finance that claims to be green may not be green enough.

She said: “More needs to be done because financial markets are probably not measuring risk properly and have not priced it in. All central banks have to ask whether taking excessive risk by simply trusting mechanisms that have not priced in massive risks that is out there and results from the impact of our action as human beings on our planet and how we impact the life of future generations by not fighting climate change.

“In the absence of a common shared definition and compulsory disclosure by companies we lack granular information assess whether something is green.”
she added this calls for intervention from legislators and regulators to correct market failures in green finance. One such measure is the EU taxonomy.

“However, more needs to be done to understand what is not green, and variations of green and brown. Of €750 billion in bond issuance to be launched from early 2021 onwards to respond to the consequences of the pandemic, 30% will be green investment.”

Corli Pretorius, Deputy Director, UNEP-World Conservation Monitoring Centre, called for financial institutions to step up and help transition to more sustainable economic system in the Decade of Action.

She said the climate and nature crises need to be tackled together, warning that if we do not achieve biodiversity goals, the costs of achieving the other goals will be much higher. She pointed out that billions in investments needed to achieve the post-2020 Global Biodiversity Framework can be mutually reinforcing to achieve multiple Sustainable Development Goals (SDGs).

UNEP’s Executive Director Inger Anderson said: “The finance industry and its future profitability and our very own survival need natural systems.”

She called for the financial sector to show leadership to address the climate, nature and pollution crises, altering investments away from unsustainable consumption and production patterns, and to stop financing coal.

Ms Anderson highlighted five essential actions for the finance industry to shift gears: one, start measuring the impacts of its financing, two, set real sustainability targets, three, follow the science, four  align the entire portfolio; and five, be transparent and accountable.

She cited the UN-convened Net Zero Asset Owner Alliance and the UN Principles for Responsible Banking’s Civil Society Advisory Body as examples of initiatives that are setting targets, following the science and promoting transparency and accountability.

In a dialogue with Fiona Reynolds, CEO, Principles for Responsible Investment, Sir Ronald Cohen, Chairman of the Global Steering Group, Impact Investment and The Portland Trust said that the weight of ESG money has already shifted the scales in favour of companies creating less environmental damage.

“Investors should invest all their assets in ESG and impact investment to help build a fairer and more sustainable world,” he said. “Now that we can measure the impact performance of companies, we need governments to mandate that every company starting three years from now has to publish impact-rated financial accounts, in order to move down the path of shifting from shareholder capitalism to stakeholder capitalism and to provide the tools for companies to have transparency on impact.”