The trends outlined in the Living Planet Report will lead to increased uncertainty and may cause acute resource scarcity. In turn, this could have an impact on business value and might increase risks in financial institutions’ loan and investment portfolios.
Financial institutions do understand that consuming capital as opposed to income is not sustainable. It is the same with the Earth’s regenerative capacity. Business-as-usual is no longer acceptable and change to a more sustainable global economy is necessary. That requires financial institutions to fully integrate Environmental, Social and Governance (ESG) criteria into their into their core products, services via their daily business processes.
As financial flows shape all private and public sector activities that have an impact on the Planet and depend on its natural capital - from infrastructure development to commodity production - it is clear that a range of ESG risks and opportunities are increasingly becoming important and material to financing decisions.
There are credit risks which could result from more severe weather patterns impacting infrastructure or agricultural production. Water stress could affect production activities in numerous sectors. Regulations could reduce the value of carbon assets or carbon-related infrastructure.
In addition to the risks, the anthropogenic era creates numerous opportunities for financial institutions. The transition to a carbon-constrained economy creates financing needs in renewable energy and energy efficiency. Sustainable transportation infrastructure will need to be built and supported. Water management systems will become more important. Financial inclusion for the base of the pyramid is another opportunity and can be combined with low-emission household energy solutions or locally-controlled forest regeneration activities, which also have positive environmental benefits.
The finance sector at large does not yet have an adequate strategic response to manage all financial and business risks caused by environmental and social issues, and in doing so, to move from a reactive stance to a leadership role in enabling the transition towards a sustainable future. Unfortunately both Business and Governments are still drawing on the principal of the natural world rather than the interest, funded by public and private sector finance and driven by the need for short term profits.
We are therefore interested in the way money, public or private, moves and our aim is to push for a measurable increase in public and private financial flows toward sustainable development in support of our six major goals and more generally toward sustainable development goals. Redirecting those financial flows to ensure that money is only invested in sectors that protect the Planet and moving away from financial systems that favour short-term returns over long-term wealth creation that supports inclusive development and protection of natural assets.
Within this strategic framework, WWF has been working with the finance sector for more than a decade in innovative collaborations that seek to integrate ESG risks and opportunities into mainstream finance and to redirect financial flows to support the global sustainable development agenda. WWF has also worked for longer with bilateral and multilateral development partners to ensure that that environment protection is integrated into development finance plans and financial mechanisms that support biodiversity conservation are available. Our approach to sustainable finance recognizes that combined skills, expertise, innovation and collaboration can leverage WWF’s conservation mandate and deliver better environmental and social risk management and increasingly new business opportunities.
We are thus targeting our efforts toward four strategic activities:
- Changing key financial market regulations and frameworks to ensure ESG integration and to affect system-wide change.
- Shifting Investors and lenders to sustainable investment/lending.
- Development and enforcement of Safeguards and Standards (both voluntary and mandatory) for allocation of public and private finance that contributes to sustainable development.
- Mobilising financial resources, domestically, internationally, both public and private for the global sustainable development agenda.
Finance: expected outcomes
Public and private financial institutions catalyze change in government and business policies and practices to reduce threats to nature, by integrating and reporting on environmental and social safeguards in investment frameworks.