Sustainable finance: from promises to action

Exploring “Moving the finance industry from promises to action” - insights from DIFC webinar.

The recent webinar, “Moving the finance industry from promises to action,” hosted by the Dubai International Financial Centre (DIFC) in collaboration with The Institute of International Finance (IIF), provided a crucial platform for industry leaders to explore the imperative shift from rhetoric to tangible action in the realm of sustainable finance. This event provided profound insights into the pivotal role sustainable finance plays in fortifying the global economy. With COP28 on the horizon, the webinar delved into industry expectations and showcased Dubai’s progress as a innovator in driving sustainable finance initiatives.

Bridging the funding gap with global capital

A crucial insight emerged from the event—the acknowledgment of a “deep well of global capital” ready to bridge the funding gap for sustainable initiatives. Despite this, the absence of standardised policies and rules across the board hampers current efforts. Sonja Gibbs, the Managing Director and Head of Sustainable Finance at the Institute of International Finance, highlighted the urgency of transitioning from brown to green financing models. She underscored the need for expert advice and financial support to facilitate this shift, expressing that the speed at which we achieve net-zero emissions hinges largely on government policies providing necessary guidance.

Addressing fragmentation and inequality

Sonja highlighted fragmentation as a pressing concern, exemplified by initiatives like the US inflation induction act and the EU response to IRA. This fragmentation obstructs a unified approach towards sustainable finance. It was emphasised that climate finance must reach emerging economies, aiming to level the investment playing field and empower nations to actively participate in the transition.

Private financial institutions have the potential to provide approximately 40% of the required $9.2 trillion annual investment needed to support a global economy-wide transition to net-zero by 2050. However, these institutions have limited direct influence over emissions reductions by their clients and investees. Various external factors impact the feasibility and success of clients’ transition activities, making them non-controllable variables. Moreover, this leaves investors more vulnerable to climate litigation risks, which include greenwashing, disclosure inaccuracies, anti-trust issues, and collision risks. These risks threaten industry stability, underscoring the importance of pro-growth policy frameworks and market conditions conducive to sustainable finance.

Harmonised international rules for credibility

A critical aspect of the solution lies in blended finance, defined by the OECD as the “strategic use of development finance for the mobilisation of additional finance towards sustainable development in developing countries” to support sustainable initiatives. The webinar stressed that the international rules are imperative to ensure standard credibility across regulations. This unified approach will not only bolster investor confidence but also streamline the implementation of sustainable finance principles.

An evolving landscape

The event underscored the rapid progress financial institutions have made in developing capabilities to support economy-wide net-zero transitions. However, it also acknowledged the practical limitations within the financial sector, necessitating a holistic consideration of policy frameworks and regulatory approaches. Despite challenges such as politicisation and climate-related litigation, transition finance markets continue to exhibit dynamic growth, showcasing the resilience of sustainable finance.

Financial institutions play a pivotal role in climate risk management and aligning with net-zero frameworks. While progress has been made, there is room for growth, with fewer than 1,500 financial institutions currently disclosing based on TCFD Framework. Regulators and supervisors have published climate risk management principles, and discussions regarding potential adjustments to capital frameworks are ongoing.

In summary, the DIFC webinar provided a comprehensive overview of the sustainable finance landscape, highlighting the critical roles of financial institutions, regulators, and international cooperation. As the world progresses towards COP28, the urgency to translate commitments into tangible action within the finance industry has never been more apparent. By addressing fragmentation, navigating litigation risks, and fostering international collaboration, the finance industry can lead the way in building a sustainable future for all.

About the author:

Matthew Millard-Beer is CEO & Founder, based in Itriom’s London Office.

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