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Speeches & Transcripts October 11, 2018

Closing Remarks at Flagship Event: Scaling Up Green Finance—The New Role of Regulators and Central Banks

Ladies and gentlemen, I know that I am supposed to provide closing remarks—but I must admit, the insightful and vibrant discussion you led is quite a tough act to follow.

I would like to thank our panelists for having advanced our thinking on how we can find new ways to fund the mitigation and adaptation efforts to face climate change. The contribution of central banks and regulators is unique, because greater disclosure and better understanding of climate-related risks, as well the prudential response to them, are indeed key elements to providing the right price signals to change business behavior and consumer choice.  They can also inform public policy, including by identifying the significant externalities of climate change that cannot be addressed through market signals only.

At the World Bank Group, we recognize the adverse impact that shocks to the environment present to our development agenda of ending extreme poverty and boosting shared prosperity, which are essential elements of achieving the UN Sustainable Development Goals by 2030. That is why we are speeding up our contribution to adaptation and mitigation efforts. I am happy to report that the share of our activities with climate co-benefits has already surpassed our 2020 target established at the Annual Meetings in Lima. And we remain focused on developing climate-smart and quality infrastructure projects, also in the context of the G20.

At the World Bank Group, we believe in the power of transparency and data as essential aspects of the transformational change required to address climate risk.  We have acted accordingly:

  • The World Bank has been disclosing the impact of climate-related investments and net emission reductions through green bond impact reports for several years now. Compliance with our Environmental, Social and Governance (ESG) guidelines is required each time we support investment projects, and with have updated our safeguards in 2017.
  • Similarly, IFC is using internal carbon pricing for project-finance investments and has just published its Annual Report, which discloses its climate-related risk under the guidelines of the FSB’s Task Force on Climate-related Financial Disclosure (TCFD)—a first among multilateral development institutions.

Environmental shocks are very high and already present in many of our client countries. It is estimated that more than 90 percent of people facing extreme poverty today are in countries that are politically fragile or vulnerable to natural disasters and climate risk—or, in many cases, both. This underscores the importance of connecting growth-friendly policies with climate-smart investment to strengthen these countries’ resilience.

Today’s discussion illustrates how the Network for Greening the Financial System (NGFS) can help address the impact of climate change in a coordinated, empirically based way, which also seeks to give voice to investors’—including individual investors’—preferences. This will be achieved through workstreams covering microeconomic factors and macroeconomic channels, through which climate change can affect the real economy and the stability of the financial system of individual countries and at the global level, as well as regulations that can protect consumers and guide asset managers seeking sustainable asset allocations.

For the World Bank and IFC—which represents the Sustainable Banking Network (SBN) as Secretariat—to have joined the NGFS as observers is a precious opportunity to work together and contribute on behalf of our more than 180 shareholders. Some of today’s speakers are from countries that belong to the SBN (Indonesia, Malaysia, and Morocco), which just shows how much developing countries are committed to addressing climate-related risks in their policies and regulations. The 35 countries of the SBN bring diversity and traction to this endeavor, especially where rapid economic progress entails even greater rewards from sustainable finance. Given that we are in Indonesia, we also are inspired to see how shari’ah-compliant mechanisms—with their special focus on risk- and loss-sharing—can help in these efforts.

We did not have representatives from the private sector on stage, except perhaps our moderator, Martin Wolf from the Financial Times, but we know how institutional investors and asset managers of different stripes want mechanisms that allow them to shift their focus in investment decisions from short-term gains to long-term factors. There is a pent-up demand for sustainable investment, and reinforcing the conversation between savers, institutional investors, asset managers and private sector associations, with regulators and governments is a priority.

We have been active in this area at the World Bank Group:

  • We have partnered with leading institutional investors in incorporating ESG principles into fixed-income strategies, and we are building a global database capturing the way in which companies disclose how their business activities comply with ESG principles.
  • We continue supporting green bonds and have recently published guidelines for Green Bond Proceeds Management Reporting, which has been distributed to you. We have been engaged in the development of adequate taxonomy and meaningful labeling that respond to savers’ expectations. In this context we also encourage a greater focus on the overall balance sheet of issuers in the evolution of green finance—in the future all finance ought to be green—as we engage with other members of International Capital Markets Association (ICMA) in our discussions on the evolving nature of Green and Social Bond Principles and the role of sustainable development bonds.
  • Third, we are also working with regulators to explore how new evidence on the favorable risk profile of infrastructure, particularly in green sectors, could be better reflected in lower regulatory capital charges for insurers and other financial institutions. We discussed this topic yesterday at a joint workshop I co-hosted with the Advisory Finance Group and the NGFS. Some of these considerations have already been reflected in the Financial Stability Board’s recent evaluation of the impact of regulatory reforms on infrastructure finance and the Report of the G20 Eminent Persons Group (EPG) on Global Financial Governance. Both noted the significant scope for reviewing the regulatory treatment of infrastructure finance for long-term institutional investors.

We look forward to continuing this vital dialogue on sustainability with investors, asset managers and representatives of savers at the high-level Investor Forum, which we will host on the eve of the G20 Summit Buenos Aires.

In sum, today’s panel has demonstrated that there are many ways to promote the right economic incentives to support sustainable practices in finance—on a fact-based approach and avoiding fragmentation—by bringing together, on a voluntary basis, a global community of regulators, supervisors and central banks. Fostering the development of a clear, rigorous framework can bring extraordinary results, with positive impact on the welfare of millions of households. Mitigation and adaptation efforts not only address existential threats but, as new technologies evolve and relative prices adjust, also create new jobs and increase productivity if capital flows are adequately steered.

Availability of finance is a key challenge in facilitating systemic transitions. Simply put, what gets financed gets done. So, we must keep our ambitions high and act accordingly, with the right sense of urgency—and intellectual rigor. Thank you all for having been with us today.