Estimates reveal that up to US$7trn a year is needed to achieve the SDGs by 2030. Public finance is not sufficient to meet this demand. There is a pressing need to attract private capital in order to close a larger part of the US$2.5 trillion annual gap in financing the SDGs (UNCTAD, 2015). If met, it could unlock the potential to facilitate an estimated US$12trn in market opportunities and generate up to 380 million jobs globally by 2030. The greatest impact would be felt in food and agriculture; cities; energy and materials; and health and well-being (BSDC, 2017).
Security market regulators play an important role in attracting private capital, driving change and innovation in capital markets. While most securities regulators do not have explicit mandates to promote sustainable development, sustainability issues and policy responses to these issues are within their mandates to protect investors by facilitating transparency in the capital markets, informing investors
about material risks and opportunities, including those related to ESG matters; improve the resilience of financial markets (SSE, 2019;IOSCO, 2019).The Sustainable Stock Exchanges (SSE) Initiative, the International Organization of Securities Commissions (IOSCO) have shared their view of the role of Securities Regulators in supporting Sustainable Development within these existing mandates.
According to the 2018 SSE Initiative Report, securities regulators could act on sustainability-related risks and opportunities in five main action areas (i) strengthen corporate sustainability-related disclosures, improve the qualitative and quantitative parameters of such disclosure; (ii) clarify investor duties on sustainability, provide investors with the guidelines on the integration of the ESG+ factors in investment decisions; (iii) strengthen corporate governance in sustainabilities matters, introduce board responsibilities related to environmental and social factors; (iv) build market capacity and expertise on sustainability (v) facilitate investments in the SDGs via promoting sustainable and innovative SDGs-related investment products such as green securities, green bonds, social bonds and providing guidance and case studies on how to access the investment opportunities presented by the SDGs, identifying the role of different market participants in contributing to sustainable finance; and developing, supporting or incentivising labelling processes or frameworks for fund, index and sustainable investment product certification. Additionally, securities regulators could also accelerate action through (i) thematic research and analysis; (ii) the development of roadmaps for sustainable finance; (iii) sharing experience and information; (iv) developing guidelines and standards; and (v) working with other stakeholders, – says the Report.
The Report provides the recommendations, built on the options of the experts and the extensive overview of sustainable finance around the world with 35 examples from 19 markets. The study demonstrates how securities regulators are working on promoting sustainable finance and sustainable investment products. This work has resulted in significant growth in sustainable financial products such as green bonds, social impact bonds, renewable energy investments, and sustainable funds; the quality of the ESG and sustainability reporting has also improved (IOSCO, 2019).
To a large extent, this work was triggered by the UNCTAD’s Action Plan for Investing in the SDGs, that presents a range of policy options to increase investment in support of the SDGs such as establishing SDG investment development agencies to develop and market bankable projects in SDG sectors, providing investment incentive schemes to facilitate sustainable development projects, offering effective de-risking instruments, and developing innovative financing mechanisms to accelerate and scale up investment in the SDGs (SSE Report, 2018; UNCTAD, 2015).
This reaffirms the key role of the stakeholders, including the financial regulators, the role of the enabling policy and market environment in attracting private capital to supporting SDGs and the Paris Agreement. At the same time, there is a need to align the efforts of all the actors of the financial ecosystem with the needs and the objectives of the 2030 Agenda and the Paris Agreement. Some controversial trends can be observed. For instance, current low real interest rates create favorable market conditions for sustainable investments to a far greater degree was it was thought. At the same time, World Bank admits, that “the extraordinary international macroeconomic policies—in particular, monetary policies—and regulations instituted in response to the 2008 global financial crisis are still in place, and are a major factor shaping today’s investment environment. While these measures were largely effective in containing the crisis, they also continue to have unintended consequences affecting markets and the global business environment. Financial regulations, (such as Solvency II and Basel II/III), in particular, were cited as potentially disincentivizing long-term investments, especially in infrastructure, due to their capital adequacy requirements and liquidity risk standards.” (World Bank, 2018). New banking regulations, particularly, those adopted in the EU, enforce European banks to withdraw from cross-border projects, with Africa being particularly affected. It undermines the overall effort to close the financial gap in financing the SDGs. (World Bank 2015)At the same time, returning to non-crisis policies may result in volatility and greater fragility of the global economy. Many participants of financial markets underscore that balancing between the needs of financing sustainable development and keeping the stability on the global economy and financial market is a challenging task and requires cooperation and coherence (World Bank, 2018).
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