A recent Morgan Stanley study calculated that meeting the Paris Agreement’s goal of curbing global warming by 2050 will require an investment of US$50 trillion in five areas of technology: renewable energy, electric vehicles, carbon capture, biofuels and hydrogen power.
It’s a daunting number. But decision makers in business and government are slowly realizing that the cost of inaction is even greater.
The latest converts: the International Chamber of Commerce (ICC), a Paris-based institution that has spent more than a century lobbying for free trade and regulatory transparency. In a Dec. 5 letter to the world’s finance ministers, ICC Secretary General John W.H. Denton pushed for concerted policy actions “in support of sustainable development and bold climate action.”
The ICC pointed to the response to the 2008 financial crisis as an example of how tough regulatory action can create better outcomes. Unless we act now, it warned, “the collapse of biodiversity, global warming and irreversible changes to natural systems and structures that we all depend on will produce adverse economic and societal impacts around the world that are far greater than those of the 2008 financial crisis.”
Despite the recent growth of green bonds and other sustainability-indexed investment vehicles, Denton says, “sustainable finance remains a market exception at a moment in history when people and our planet require it to be the norm.” He offers 10 proposals for heading off catastrophe. Here are a sampling:
- Add sustainability-related risks and objectives to the mandates of the world’s central banks. Their focus on financial stability “can no longer be separated from sustainable-development imperatives.
- Include climate risks in the risk-management policies of financial institutions.
- Align the rules and processes being developed for environmentally and socially sustainable investment activities, to avoid putting new capital requirements on banks and insurers.
- Embed sustainability in credit ratings and credit pricing.
- Establish clear fiduciary duties for institutional investors and asset managers in relation to their sustainability considerations and investment recommendations they make to retail investors.
- Unlock the estimated US$100 billion of “dormant” assets (left behind when financial institutions lose contact with the assets’ owners). These windfalls could be invested in UN Sustainable Development Goals projects.
- Incentivize green projects by promoting sustainable-finance partnerships and public-private investments. “Public policy impediments to implementation of such initiatives should be identified and removed.”
The letter reached finance ministers just before they sat down at the UN climate conference in Madrid to finalize their own 2020 “action plan.” Compared to Denton’s letter, the ministers’ plan calls mainly for reviewing, studying and sharing.
How good to see business holding politicians’ feet to the fire.