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Action Items Toward Sustainable Finance

Tasnia Khan, Research Analyst, G7 Research Group
September 20, 2018

On 18 September 2018, New Climate Economy convened leaders from government, industry and key institutions in advance of the G7 environment ministerial meeting in Halifax. The G7 Sustainable Finance Roundtable was composed of three sessions on enabling conditions, innovative solutions and mobilizing capital. The roundtable produced a list of five action items for implementing sustainable finance decisions globally.

In his introductory remarks, Marc-André Blanchard, Canada's permanent representative to the United Nations, emphasized the importance of the interaction between global demand and global side for a cleaner future. He spoke of the importance of non-G7 countries to work alongside G7 members in actually making a dent in this issue area. G7 members depend heavily on the private sector for capital, but working with non-G7 countries brings the potential of amassing more capital for sustainability that includes rebuilding transportation systems, cities and buildings and making them efficient while moving toward a dependence on renewables. The G7 has the opportunity to set an example.

The correlation between economic success and investing in protecting the environment was also evident at the roundtable. Michael Sabia, CEO of Caisse de dépôt et placement du Québec, demonstrated how it invests in environmentally sound projects that have brought massive returns for investors. He provides investors with statistics such as because of the seven-fold increase in solar power in the past seven years the price of solar power is five times lower than it was a decade ago. These numbers have changed the landscape for emerging economies including India, which recognize that building solar infrastructure is less expensive than building coal and gas pumps. The trajectory demonstrates that 50% of energy worldwide will be supplied by wind and solar by the next decade with USD11 trillion invested. By 2030, sustainable finance projects will likely generate USD26 trillion in global gross domestic product and produce 60 million jobs. Thus, climate change is not hampering economic growth, but rather is an opportunity to increase it.

On 19 September 2018, addressing the G7 environment ministers who had gathered for the first of three days of ministerial meetings, Lord Nicholas Stern summarized some of the key action items where the G7 can make a difference and scale up action.

Zero-carbon economy. A complete and shared understanding of a zero-carbon and circular economy is an opportunity to bring growth, inclusion, output and jobs. Growth is a major factor, due to the global economy doubling in 20 years and infrastructure doubling in 15 years. This period of growth must be compounded by the reduction of emissions by at least 30%. This is an opportunity for finance ministers and environment ministers to work together on projects that are mutually beneficial and produce both revenue and protection.

Resilience. Resilience brings vulnerable communities, countries and people into the picture. This includes countries such as Bangladesh and the Philippines, regions such as the Caribbean, and even states such as North Carolina. An increasing number of extreme weather events has destroyed capital and lives. More can be done regarding mitigation and prevention to lower overall costs. One solution is to protect natural capital, including watersheds, mangroves and corals as they provide natural defence mechanisms. Additionally, insurance is vital to providing rapid responses and getting resources quickly. The G7 can work through international institutions to work around the impediments to facilitate rapid support.

Policy. It is important for governments to work with markets and to make sure they run wisely and well and to combat market failures. Evidently, the tide is changing on the micro scale, in which consumers are making conscious decisions that reflect their values. This includes the movement away from single-use plastics, an emphasis on recycling, and more. Policies must reflect these new changes in behaviour, which in turn affect the market.

Disclosure. Disclosure is a dominant theme because it is important for people to know exactly what they are investing in — especially because of the opportunities for individuals, companies and countries to invest in risky 19th- and 20th-century technology as opposed to those of the 21st century. Another important aspect of this includes globally shared definitions of sustainability and the processes of its measurement, bringing education and information to schools, and inevitably bringing civil society and democratic processes to generate policy.

Capacity. Necessary investments must include a complete overhaul of existing cities and their infrastructure. The infrastructure made up of inefficient transportation systems and buildings requires extensive updates toward more efficient solutions. This is a complex and lengthy issue that requires investing in emerging markets by the private sector, multilateral development banks and citizens together.

Finance. Finance on the correct scale can make significant changes including through projects in infrastructure and programs on both an international and national level. Another aspect of this includes reducing risk with the help of financial institutions. Reduced capital costs translates into reducing the costs of projects by half, by managing risk and transparency better. Multilateral banks and development finance institutions play an important role in bringing policy confidence to those institutions, forming a long-term perspective, and providing the correct instruments and skills. By handling early-stage risk so the projects can eventually be sold off, these institutions intensify the use of capital so projects can be scaled up quickly. Thus, investing in multilateral development banks is integral.

These five action items offer an opportunity for the environment and financial sectors to cooperate and contribute to the global gross domestic product while increasing sustainability. The cost of acting early is always more cost efficient than acting late.

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Tasnia KhanTasnia Khan is a research associate with the G7 and G20 Research Groups at the Munk School of Global Affairs in Trinity College at the University of Toronto. She has just completed her undergraduate degree with a major in international relations and a minor in political science and history. Her areas of research are global security and artificial intelligence.

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