The COVID-19 pandemic is part of the three planetary crises: the climate crisis, the biodiversity and nature crisis, and the pollution and waste crisis – which are destroying the natural systems that allow our economies to thrive.
Over the decades, there have been many commitments to address these crises. COVID-19 has shown what happens when we do not act with sufficient speed and force on these commitments. We all need to stretch our goals, actions and financing towards what we have agreed.
What this means for the public and private finance sectors is that money has to start flowing to the right places. As you have heard many times recently, pandemic recovery provides a chance to start this process. According to UNITAR, over the next 6 to 18 months, we will need in excess of 20 trillion dollars to recover from COVID-19.
This initial injection of taxpayer funds through stimulus packages has rightly prioritized jobs and putting food on the table. But in the long-term, these funds must go towards creating a zero-carbon, nature-positive economy, in which finance fuels the energy transition, a healthy planet and green jobs.
Public money alone is not going to get the job done, however. We need private finance to mobilize trillions of dollars. Let me briefly draw on emerging insights from the Dasgupta Review on the economics of biodiversity, to be issued by Her Majesty’s Treasury later this year, to illustrate why this matters.
The review finds that, for humanity to live in harmony with nature, we need a global financial system that invests in enhancing natural assets and helps mitigate risks from biodiversity loss and natural capital depletion. We are far from creating such a system. Global estimates of financial flows supporting natural assets range from USD 78 billion to USD 143 billion dollars per year. Meanwhile, the OECD estimates that governments spend around USD 500 billion dollars per year on support that is potentially harmful to biodiversity.
As highlighted by the World Economic Forum’s 2020 Global Risks Report, this imbalance is exacerbating risks. The report ranked biodiversity loss and ecosystem collapse as one of the top five threats humanity will face in the next ten years.
Investors have also acknowledged the need to redirect their capital, joining many coalitions and promising to decarbonize and invest in sustainability. I would like to offer quick points on how to make sure these investments – be they in nature-positive agriculture, renewable energy, or sustainable infrastructure – count.
Commitments from financial institutions need to be science-based.
To give an example, UNEP’s Finance Initiatives engages with major investors, who represent 5 trillion USD in assets, under the Net-Zero Asset Owner Alliance. The investors in the Alliance relied heavily on the Intergovernmental Panel on Climate Change Special Report on Global Warming of 1.5°C to set a timetable to net zero emissions in their portfolios by 2050, with intermediate targets every five years. And they are working closely with the scientific community to convert targets into sectoral emissions pathways. Such credible sectoral pathways to zero climate impact need to be applied to everything from steel and cement manufacture, to aviation, energy and agriculture. This is the only way to design a credible response.
Action needs to be portfolio- and institution-wide, in line with international processes.
Opportunistically adding ad-hoc green bits at the margins of otherwise gray, counter-productive portfolios is not going to get us anywhere. Entire portfolios and organizations need to be consistent – across all sectors and geographies – with the Sustainable Development Goals, the Paris Agreement, the post-2020 biodiversity framework and other international agreements. This means moving beyond a focus on financing for renewable energies to a wider conversation about balancing the grey and the green, in energy sector financing.
Transparency and accountability are essential.
Let me give you an example of how to do it, through the Principles for Responsible Banking. Under the principles, 190 banks, representing around 40 per cent of global banking assets and serving 1.6 billion customers, committed to aligning their business strategies and practices with the Sustainable Development Goals and the Paris Agreement. The Principles require third-party reviewed annual reports to provide assurance that what is being reported actually happened. Banks that do not show adequate progress will be delisted.
Adhering to these three practices will go a long way to moving the finance industry in the right direction. But we also need those who have not stepped forward with commitments to do so. We need every cent and every penny to be spent on shifting the needle to sustainability.
I invite and encourage all banks, insurers, investors and other important actors in the finance ecosystem around the world to join the UN in making the finance sector fit for financing the needs of society and its sustainable development outcomes.