Climate and Environmental Risks and Opportunities in Mexico’s Financial System

This study represents a first in-depth diagnosis on the readiness of financial institutions to address environmental and climate risks. It evaluates the evolving governance architecture adopted so far by financial institutions in Mexico to integrate environmental and social risks into their mainstream management risk strategies, also looking at the tools and capabilities used to address these risks. This diagnosis is expected to raise awareness at the senior level on the underpinning risks they face and the opportunities from climate and environmental impacts, in the context of international discussions about the fiduciary duty of financial organizations.

The report is structured in three main chapters, covering governance, strategy and risk management practices. For each of these, it looks at drivers and challenges, and makes recommendations to better align financial flows to the development of an environmental and socially responsible agenda, and a low-carbon economy.

Nudging the Financial System: A Network Analysis Approach

This paper is a first attempt to improve the understanding of the sustainable finance ecosystem, its partnerships, actors and emerging network characteristics related to the implementation of the 2030 Agenda for Sustainable Development and its 17 Sustainable Development Goals (SDGs).

Network analyses of these diverse arrays of sustainable finance partnerships are deemed relevant for the alignment and cascading of sustainable finance into the wider financial system. The current sustainable finance network is composed of 115 different “partnerships”,

5,181 constituent members and more than 10,000 connections. Based on network analytics, this paper shows that 74.6% of the network is connected to only one partnership and only 13.3% of the network constituents are connected to three or more other partnerships. This means that a small number of constituents have a high number of connections to the different partnerships and a high number of constituents have a low number of connections.

The analysis also shows that the network is rather small, as the length of the path from any two different network participants is 3.67 on average, any constituent in the network is at less than four degrees of separation from anyone else. This just highlights the role that international organizations with a broad geographic presence such as UNDP or multilateral development banks can play to convene and connect, facilitate and scale up the reach and impact of the current sustainable finance network.

Guernsey – Reporting Global Developments: Family Offices Financing Sustainability

High-profile protests and campaigns have not managed to significantly mobilise capital from the private wealth and family office sector into green and sustainable finance, according to research from Guernsey Finance.

The sector is increasingly important for attracting investment and although significantly more capital is finding a home in green investments, individuals and family offices appear to be looking for greater confidence in returns and in the green credentials of their investments.

The research, carried out with some 20 family offices and high net worth individuals, with a combined estimated worth of £25 billion, and 50 service providers, in 2019, showed more focus is needed in engagement with investment managers and investors on the aims of green and sustainable finance and the benefits of responsible investing.

Guernsey – Green Private Equity Principles: A Guide to Best Practice for GPs

These principles provide a pragmatic and proportionate guide to best practice. They are structured as a two-pillar framework: firstly process, comprised of governance, culture and transparency; and secondly portfolio, covering risk assessment, assets, taxonomy, measurement, and reporting.

These principles are largely written from the perspective of the GP, primarily with a portfolio of majority owned direct investments, to help influence their investment process and policy as the stakeholder with the greatest degree of control over investments and the day-to-day operations. LPs and other relevant internal stakeholders may also identify with certain action points, and can also implement them into their everyday processes, where possible.

They are clearly voluntary – we have no desire to create more bureaucracy and burden. But they are created on the basis that firms and professionals will use them in good faith to guide and pivot their practices toward the goal of sustainability and fighting climate change.

Shifting Gears: How the world’s leading financial centres are entering a new phase of strategic action on green and sustainable finance.

This report, published by the Financial Centres for Sustainability (FC4S) Network, measures for the first time the contribution of financial centres to sustainable development and the ongoing low-carbon transition. It also identifies key challenges facing this growing sector.
In 2018, supported by EU EIT Climate-KIC the FC4S Network established an Assessment Programme to track the progress of financial centre efforts to support the expansion of green and sustainable finance markets, and explore different ways of measuring the contribution of financial centres to sustainable development and the low-carbon transition.

    Results of the pilot Assessment Programme survey illustrate that:

  • New forms of public private partnership: Nearly two-thirds of financial centre initiatives on green and sustainable finance are partnerships between the private and public sectors, giving them unique ability to link policy and practice.
  • There are material barriers to growth: The top three barriers faced by financial centres are i) a lack of green financial products, ii) inconsistent standards and iii) insufficient market demand. Lack of a shared language for green and sustainable finance is a key constraint, highlighting the need for continued dialogue between public and private stakeholders on taxonomies.
  • Financial centres are going beyond climate: Climate change continues to be a major focus for activities branded as “sustainable” but FC4S members recognize need to broaden their offering to include other environmental priorities (e.g. circular economy, natural capital and conservation finance) as well as social themes, such as financial inclusion and social impact investing
  • Policy innovation is a key driver: New policy initiatives and action by financial regulators and supervisors is a key driver in half the financial centres, with system-wide initiatives and debt capital markets the most cited examples. In a quarter of centres, policy and regulation is touching upon equity and debt capital markets, insurance, investment, banking and system-wide action.
  • New instruments are proliferating: Over 75% of financial centres noted the presence of different debt instruments related to green and/or sustainable finance – primarily green bonds. Equity instruments are on the rise, with 25 % of respondents noting the presence of structured products, closed ended funds, and discretionary mandates.
  • Progress varies across sectors: Investment and asset management is the most mature sector with respect to green and sustainable finance in most centres, while green banking is evolving, and insurance has the furthest to go.
  • Professional services are growing rapidly: Over 75% of respondents acknowledged the presence of sustainable rating services and consulting firms; other services (sustainability research, labelling, legal, clean techs and carbon trading) are present in select financial centres.
  • Shared priorities for Future Action: Leading financial centres have identified further product development, improved data collection and better market standards as top priorities for further development.
  • Focus on Innovation: Applying financial technology (fintech) solutions to sustainable finance challenges is a major focus for financial centres, with several FC4S members establishing specific projects aimed at fostering innovation – including accelerator programmes.
  • Increasing international collaboration: FC4S member centres are working more closely together on sustainable finance, including through bilateral projects. More and more centres are seeking to join the FC4S Network to benefit from collaboration opportunities.

Building Shared Language for Green and Sustainable Finance – Expert Briefing on the Development of Taxonomies

New fields of human activity need clear classification to enable participants to operate with clarity and efficiency. In science, a taxonomy deals with the description, identification, naming, and classification of different activities. The rapid growth of green and sustainable finance is now generating the development of taxonomies to underpin future expansion.

Across the world, banks, investors, insurers and stock exchanges are seeking to align their capital allocation decisions, product development, service provision and institutional strategies with new risks and opportunities associated with the transition to sustainable development. Financial centres are at the heart of this shift as they are the places where the demand and supply of capital of sustainable finance comes together. To harness the power of place that comes together in the world’s leading hubs, the network of Financial Centres for Sustainability was launched in September 2017. One of the priority issues facing the members of the network is the core question of definition and taxonomy.

Swiss Sustainable Investment Market Study 2018

This is the first time Swiss Sustainable Finance (SSF) provides its own comprehensive market overview of sustainable investments in Switzerland. The goal of this study is to highlight the growing importance of sustainability within the Swiss financial community and to shed more light on the background and drivers for this development.

Communique from G7 Environment Ministers’ Meeting

The G7 Environment Ministers and high representatives, and European Commissioners responsible for environment and climate, met in Bologna on 11-12 June 2017, and were joined by heads and senior officials of International Organizations and by representatives of universities and firms.