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The sustainable finance hairball

29. November 2020

 

That’s what it is. A gigantic hairball! A myriad sustainable finance initiatives, alliances, and tools exist, and very often the same actors are involved. It is difficult to know who’s who and who’s responsible for what. Let’s entangle this cluster a little and start by categorising entities.

For one, there are governmental organisations. Your first thought might be national governments. Well, in some way, yes, they are part of it as well. Obviously through various legislations and regulations, but on a more connecting level through their central banks. Quite a few of them have joined a network called Network for Greening the Financial System (NGFS) whose primary purpose is to serve as a best practice exchange platform regarding green finance. In addition to central banks, also supervising organisations are part of the NGFS, such as the World Bank, the International Monetary Fund, the Organisation for Economic Cooperation and Development, and the Financial Stability Board (FSB).

The members of the latter FSB include, among others, representatives from central banks and governments. Its mandate is to coordinate national financial authorities and international standard-setting bodies toward strengthening international financial stability. Rather recently the FSB has identified climate change as a growing concern - surprise, surprise! Giving climate the concern it deserves, the FSB launched the Task Force on Climate-related Financial Disclosures (TCFD) to develop a set of voluntary disclosure recommendations for companies. These recommendations for how to effectively disclose climate-related financial information were published in 2015 and greatly endorsed by actors from all fields, most certainly also by affiliations from TCFD’s own members. The member group of the TCFD consists primarily of representatives from banks and corporations such as Unilever, BNP Paribas, and PwC.  

The final recommendations of the TCFD were such a success that the United Nations Environment Programme Finance Initiative (UNEP FI) started a series of TCFD pilot projects in which more than 100 financial institutions participated. UNEP FI, in turn, is a partnership between UNEP and the global financial sector working towards sustainable development via private sector finance. In order to achieve such sustainable development, UNEP FI has established a range of frameworks and launched multiple initiatives. Among others, UNEP FI was instrumental in setting up the principles for responsible banking (PRB), sustainable insurance (PSI), and responsible investment (PRI), as well as in starting the likes of the Investor Agenda for Climate Change (IACC), Net-Zero Banking Alliance, Net-Zero Insurance Alliance, Net-Zero Asset Owner Alliance (NZAOA). The NZAOA is not to be confused with the Net Zero Asset Managers initiative (NZAM). All these initiatives are prime examples of stakeholder engagement – or shall we call it lobbyism?!

Very often the partnering organisations for setting up the above principles and initiatives were, sector-dependent, the same companies: Allianz, AXA, BNP Paribas, Folksam, HSBC, SwissRe… Another group highly instrumental in setting up the above alliances and initiatives were the Global Investor Coalition (GIC) and its participants from the respective geographies: the Asia Investor Group on Climate Change (AIGCC; Asia), Ceres (US), Investor Group on Climate Change (IGCC; Australia & New Zealand), Institutional Investors Group on Climate Change (IIGCC; Europe). The members of these investor groups consist largely of (institutional) asset owners and managers, some of whom are also members of the other above initiatives, but also others such as church investors like Jesuits in Britain. In addition to the participants of the GIC (let’s call them GIC+) and the PRI, CDP is a very active player that helped establish many of the above initiatives and more. Together, they launched the above NZAM and IACC. Moreover, GIC+ and PRI started Climate Action 100+, an investor-led initiative. And the GIC+ established the Paris Alignment Investment Initiative (PAII), which in turn is a formal partner of the UN Framework Convention for Climate Change’s (UNFCCC) Race to Zero campaign where we again find many of the above actors listed as members and supporters such as NZAOA.

The PAII collaborates with the Partnership for Carbon Accounting Financials (PCAF), on whose steering committee, among others, the NZAOA sits. Further, on PCAF’s list of partners and collaborators can be found, among others, CDP, the Green Climate Fund (GCF), and the Science-Based Targets initiative (SBTi). The GCF runs under the financial mechanism of the UNFCCC, whereas the SBTi is a partnership between CDP, the United Nations Global Compact (UNGC), World Resources Institute (WRI) and the World Wide Fund for Nature (WWF). The SBTi sets business standards for how to define emissions reduction strategies and validates such strategies. The underlying emissions inventories for setting such SBTs are supposed to be based on the Greenhouse Gas Protocol, a standard for how to report greenhouse gas (GHG) emissions. The GHG Protocol is a partnership between WRI and the World Business Council for Sustainable Development (WBCSD). Also based on and approved by the GHG Protocol is PCAF.  

Once some of the above actors realised that also other environmental issues should be tracked, new partnerships formed. In the footsteps of PCAF, the Partnership for Biodiversity Accounting Financials (PBAF) was started. Together with other partners like WBCSD, UNEP FI, and Ceres, the founding partners of the SBTi launched the Science Based Targets Network (SBTN) which is currently developing a framework for SBTs for nature. And the Taskforce on Nature-related Financial Disclosures (TNFD) was established by, among others, UNEP FI and the WWF, and is supposed to complement the disclosure framework set out by the TCFD.  

We have now moved from governmental organisations to business initiatives to non-governmental organisations and back; and to everything that lies in the opaque mist in-between. We could continue this overview for quite a bit. If you are curious to see what else is out there, we recommend you have a look at our white paper where we outline the connections between the above and more actors, and present some of the tools they offer. Please note that also this extended overview in the referenced document is also non-exhaustive – one should really try to map this entire sustainable finance landscape by means of a network analysis. Perhaps we have time for this in the future…  

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