Rethinking capitalism: sustainability and architecture of global finance
F4B Chair Simon Zadek joined Ann Florini and Sonja Gibbs in a discussion hosted by the Institute of International Economic Policy(IIEP) and moderated by Dr. Sunil Sharma and James Foster.
Simon set out the finance for biodiversity agenda in the wider context of the challenge of aligning the overall architecture of global finance to sustainable development (download the slides)
"If we want to take sustainable development into account the financial sector requires a fundamental reset. This is not minor.....This is about reshaping the financial services industry to what it is supposed to be an industry that serves people at its core"
He ended with a prediction:
"If a country passes a policy and into law an environmental commitment like "zero carbon balance at a national level by 2050" I think we will quickly now come to a stage where the financial regulator is challenged to ensure that licensed financial institutions can demonstrate that they will be aligned to that law."
Discussant Ann Florini, Professor at the Thunderbird School of Global Management at Arizona State University responded highlighting the situation in the US:
"This is a very timely session because we are about to have the advent of a new and very different us administration. Is this going to be another tipping point? It's pretty clear that the incoming administration has a different set of priorities and is thinking very seriously about some parts of the broader sustainability agenda one of the four top priorities is climate, alongside managing the pandemic economic recovery. And racial equity is part of the broader sustainability agenda."
Sonja Gibbs, Managing Director and Head of Sustainable Finance, Global Policy Initiatives. talked about the different ways to view the role of central banks beyond greening their their own reserve management accounts but in terms of financial sector regulation and supervision:
"The classic central bank territory is resilience; to ensure the safety and soundness of individual financial institutions both short run and long run. This a micro prudential lens ...it is really only focusing on climate risk now: there's not a lot going beyond climate to incorporating natural capital biodiversity."
"The next is is more ambitious: that central banks could have a responsibility for alignment; so they look at the alignment of the financial system with decarbonization objectives for the economy to understand and assess and take action to reduce the potential for future financial instability that comes from climate and environmental risk. How well is the financial system as a whole aligned with climate imperatives and risks: that's a macro prudential lens."
"And finally and this is a little more controversial: active transition. Should central banks be using prudential or supervisory tools to regulate and incentivize the financial system to support the broader economic transition to a low-carbon economy by the provision and pricing of financial products and services. A very active role for central banks. Its not controversial to say that that approach is more of a European than a US one."