Redirecting financial flows towards efficient, clean and inclusive economic activities in Asia Pacific and away from polluting, resources intensive activities is crucial to the region’s future sustainable growth and prosperity, finds a new report by the UN Environment Programme (UNEP).
As home to over half of the world’s people, but much less than half of its natural resources, achieving inclusive, sustainable economic prosperity in the Asia-Pacific region depends on the health of the environment. Yet stocks of natural capital – including non-renewable resources, forests, agricultural land and fisheries – are in decline across the region, and have dwindled by between third and a half in most countries of the region over the past five years.
In order to close the gaps in basic services and infrastructure and to protect the environment, enhance energy efficiency and respond to climate change, the Asia-Pacific region needs an annual investment of US $2.5 trillion, less than a third of US $8.4 trillion saved by the region’s citizens in 2012 alone, says the report entitled, “Aligning the Financial Systems in the Asia Pacific Region to Sustainable Development”.
The region’s developing financial and capital markets provide a unique opportunity for innovative financial and capital
market policies, regulations and standards that can align private capital flows to the financing needs of sustainable
“Today less than 1 per cent of assets under management in the region are invested according to sustainability criteria. The Asia-Pacific region has an enormous potential to use local, national and international finance for sustainable development. As can be seen, there is ample money to invest in ways that produce the highest quality of life without damaging the world’s critical life support systems,” said Achim Steiner, UN Under-Secretary-General and Executive Director of UNEP.
“Financial systems based on sustainability criteria can enhance the efficiency, effectiveness and resilience with which financial and capital markets channel these resources, delivering both returns to savers and the investment needed for economic growth and transformation.”
The report and other research by UNEP’s Inquiry into the Design of a Sustainable Financial System find that in the Asia-Pacific region, there is substantial innovation towards a sustainable development based financial system.
New green disclosure requirements are being adopted across banking and capital markets. Green credit guidelines are being introduced by banking regulators. Sustainability indexes and benchmarks are becoming established in securities markets, and credit rating agencies are beginning to incorporate climate risk into their solvency analyses. Innovations in micro-finance, including mobile-money, are also closing the gaps in access to finance.
Countries such as China, Indonesia and Japan are also demonstrating leadership in taking systematic approaches to developing and embedding green finance principles across the financial system.
The Asia Pacific region has a long history of policy-directed lending and investing, which could be aligned with sustainable development goals. Regional governments have in particular established ‘priority sector lending’ as a key policy tool to improve access to credit for underserved sectors, particularly SMEs and agriculture. India, for example, requires 40 percent of all bank loans to be made in priority sectors, which include agriculture, small and medium enterprises, and export-oriented industries. Malaysia and Vietnam mandate interest rate discounts for loans in priority sectors.
Mr Steiner said putting sustainable development at the heart of financial and capital markets does not represent an ‘additional’ performance measure for Asia-Pacific’s financial markets. “Quite the contrary, it improves the availability of material information, enhances the all-important task of risk-pricing and advances the efficiency of credit and capital allocation,” he said.
With 1.6 billion people still in poverty, and 800 million without access to electricity, the region faces an urgent need to mobilize investment to generate jobs for its young and growing population, and to close infrastructure gaps and build cities that offer a good quality of life.
The recommendations in the report will be discussed by Ministers and high level representatives from over 35 countries gathered for the First Forum of Ministers and Environment Authorities of Asia Pacific 19 and 20 May 1015 in Bangkok.
UNEP’s Inquiry into the Design of a Sustainable Financial System was set up to explore what could potentially be one of the most important changes in the international economic landscape – the reshaping of the global financial system, such that it plays a productive and emphatic role in financing sustainable development.
The work of the Inquiry in over 15 countries, so far, reveals the need to speed the transition to an inclusive sustainable economy, which requires the channeling of trillions of dollars annually into green investment and many more trillions away from pollutant and natural resource intensive investment.
Key findings from the Report:
While recognizing the diversity of the region, the report has identified potential innovations and actions worth consideration by countries in Asia Pacific including:
· Sustainable banking and ‘green credit’ risk management and reporting;
· Policy-directed lending and investing blending commercial and policy objectives;
· Green bonds issuance and green infrastructure and enterprise development;
· “Sustainable” stock exchanges with social and environmental performance indexes, benchmarks and tracker funds;
· Lender and investor environmental liability to encourage environmental due diligence and risk management;
· Monetary policy to incentivize longer-term investment in productive infrastructure and enterprises;
· Environmental stress testing at the financial enterprise and macro prudential levels;
· Enhanced sustainability oversight for cross boarder investment.