2021: a year of private finance stepping up sustainability action

8 December 2021

The climate clock was ticking loudly in 2021. With every region of the globe impacted by climate change, expectations were high for COP26 which took place in Glasgow in November. The outcomes of the most anticipated climate conference since Paris were not as ambitious as required and left the goal of keeping global warming to 1.5C on life support. However, it came during a year when commitments to finance a net-zero economy were made by financial institutions from around the world – many of them from within the UNEP FI family.

2021 also saw UNEP FI’s membership continue to grow, reaching more than 450 financial institutions and 100 supporting organisations, while a raft of UNEP FI publications, guidance and new initiatives helped the finance industry keep working to align its activities with the Paris Agreement and the UN Sustainable Development Goals. Read our assessment of the outcomes of COP here and read on for a summary of the year when UNEP FI’s members really stepped up action on helping deliver a more sustainable and resilient future economy and community.

Net-zero finance on the move

2021 witnessed record-breaking ambition from the finance sector on delivering a net-zero global economy driven by UNEP FI, its members and partners. In April, the Mark Carney-led Glasgow Financial Alliance for Net Zero (GFANZ) was born, a coalition of coalitions which by COP26 included financial institutions representing US$130 trillion in capital or roughly 40% of the financial system. UNEP FI convenes three of the four main GFANZ alliances: the Net-Zero Banking Alliance which launched in April and now includes nearly 100 members representing over US$60 trillion in assets; the Net-Zero Asset Owner Alliance created with the Principles for Responsible Investment (PRI) in 2019 and now comprising over 60 members representing US$10 trillion, and the Net-Zero Insurance Alliance launched in July and now counting 16 (re)insurers in its ranks.

The Net-Zero Asset Owner Alliance, hailed as the “gold standard” for net zero commitments by UN Secretary-General António Guterres, recently published its first biennial progress report and has set science-based, 1.5-aligned portfolio decarbonization targets to be achieved by 2025. 29 of its member investors have committed to reducing portfolio emissions by 25-30% by 2025 across three asset classes. These first concrete outputs show how financial institutions can translate promises into consistent and near-term actions to accelerate the transition of the real economy to net-zero.

To support all financial institutions committing to net-zero, and elevate ambition, UNEP FI published its G20 Sustainable Finance Working Group input paper showcasing 11 recommendations for credible, transparent and comparable 1.5°C science-based commitments. By defining net-zero, the new guidance will help financial institutions achieve consistency in target setting and implementation of their net-zero goals.

Mainstreaming sustainable banking and insurance

UNEP FI’s flagship guiding frameworks have also fostered ambitious leadership in 2021. The Principles for Responsible Banking (PRB) published its first collective progress report shortly after its two-year anniversary in October summarising the progress being made by over 200 signatories. It includes an independent view from its Civil Society Advisory Body with their suggested areas for improvement. Over 265 banks representing over 40% of banking assets worldwide have now joined this movement for change. UNEP FI’s banking team continued to develop guidance to help PRB signatories implement the framework in areas such as gender equality, biodiversity and resource efficiency target-setting. In December, 28 PRB signatories committed to promote universal financial inclusion and support the financial health of customers.

Almost 10 years after its launch, the Principles for Sustainable Insurance Initiative (PSI) reached 200 members, building a community that is working to strengthen the insurance industry’s contribution to building resilient, inclusive and sustainable communities and economies. Acting globally, this year it supported the establishment of the V20 Sustainable Insurance Facility (SIF). The platform which launched at COP26, will assist the 20 most vulnerable countries in scoping small enterprise financial protection needs in the context of climate change. Find out more about the history of this partnership with the insurance sector, and about other more recent achievements here.

Embedding climate disclosure across the finance industry

Building on the uptake of earlier work, UNEP FI continued to develop tools and guidance for members to implement the recommendations of the Task Force on Climate-related Financial Disclosures. Nearly 50 banks and investors are consolidating best practices in climate risk management, and standardizing climate disclosures across the industry. Four TCFD guidance reports for banks and investors were published this year, covering amongst others transition scenarios, climate stress-testing, sectoral risk assessments, and portfolio-implied temperature evaluations.

UNEP FI also worked with 22 leading insurers and reinsurers representing more than 10% of global industry premium to develop the first TCFD guidance for insurers to identify, assess and disclose climate change-related risks and opportunities in underwriting portfolios.

Harnessing the power of nature

Building on TCFD experience, UNEP FI in 2021 co-founded with the United Nations Development Programme (UNDP), the World Wide Fund for Nature (WWF) and Global Canopy, the Taskforce on Nature-related Financial Disclosures (TNFD). The initiative will support financial institutions to disclose and manage emerging nature-related risks and opportunities. 35 Taskforce Members and over 100 institutions are working with the TNFD Co-Chairs to develop the Framework to be delivered by 2023.

As part of its work on Nature, UNEP FI published its first guidance on blue finance providing a practical toolkit for banks, insurers and investors to take part in financing a sustainable ocean economy. The guidance sets out recommendations on how to approach financial activities in some of the key ocean sectors, namely seafood, shipping, ports, coastal and marine tourism and marine renewable energy. With 70 members and signatories, the UNEP FI-convened Sustainable Blue Economy Finance Initiative is growing as well. Find out how your organization can get involved and ensure investment, underwriting and lending activities are aligned to the UN Sustainable Development Goal 14, ‘life below water’.

Building momentum at the regional level

UNEP FI held virtual Regional Roundtables over the course of the year in each of the five regions globally totaling 34 region-specific sessions which to date have had over 50,000 session views. The five roundtables defined the role of banking, insurance and investment in shaping ambitious responsible strategies to proactively address the challenges and opportunities of a green recovery, whilst transitioning to a low-carbon, inclusive and sustainable future.

Over 4470 finance professionals across the globe also took part in UNEP FI’s training programmes during 2021. Held in five different languages, the courses are aimed at building capacity in sustainable finance amongst UNEP FI signatories and finance professionals.

Encouraging public and private sector collaboration

UNEP FI engages the private financial sector, but also works with policymakers, regulators and supervisors on the role of the financial sector in contributing to sustainable development. Indeed, voluntary action from UNEP FI members and the wider finance industry also aims to spur changes in government policy and regulatory action.

The developments of the Task Force on Climate-related Financial Disclosures (TCFD) and more recently the Taskforce on Nature-related Financial Disclosures (TNFD) are great examples of how the private and public sectors can come together to create a determined drive of sustainable change.

We also see the development of sustainability taxonomies as a great way to join public and private efforts and help ratchet ESG ambitions to a new level of activity, comparability and credibility. On this topic, UNEP FI and the European Banking Federation (EBF) published this year a report assessing the extent to which the EU Taxonomy on Sustainable Activities could be applied to core banking products for labelling or disclosure purposes. Another report will be published next year, providing banks with tools for voluntary use of the EU Taxonomy.

Addressing policymakers directly, UNEP FI published in 2021 the afore-mentioned G20 input paper on credible net-zero finance commitments, as well as a discussion paper on a legally-binding carbon price corridor developed through the Net-Zero Asset Owner Alliance and delivered to G7 and G20 policymakers.

Building for the future

Earlier this year, UNEP FI and the Principles for Responsible Investment (PRI) launched a joint initiative: the Investment Leadership Programme (ILP). The new collaboration convenes groups of leading responsible investors to work on cutting edge projects and prepare them for mainstream investment adoption. Although UNEP FI’s investment membership will transition to the PRI at the beginning of 2022, UNEP FI will continue to work with innovative investors to better equip the investment community and the financial industry at large through this platform.

One of the first projects to sit within the Investment Leadership Programme is the Legal Framework for Impact initiative which this year released the first ever comprehensive analysis of how far the law requires or permits investors to invest for sustainability impact. This major report looks at 11 different jurisdictions, namely the EU, Australia, Brazil, Canada, China, France, Japan, South Africa, the Netherlands, UK and the US. A subsequent three-year programme led by UNEP FI, PRI, and The Generation Foundation has now started, aiming to foster legal and regulatory environments that are equipped to meet global sustainability imperatives.

At the end of November, UNEP FI’s new Leadership Council met for the first time convening 20 CEOs of banks and insurers who will meet annually to shape high-level strategic insights into how the financial sector can drive the economic transformation. UNEP FI has been advised and guided by the Council discussion, which identified three main points of action for the coming year. These are to:

  1. Support the IFRS International Sustainability Standards Board and mandatory disclosure standards more generally, working towards accelerating integration of sustainability impact management globally.
  2. Develop engagement with regulators to build the bridge between market leadership on sustainable finance and emerging regulatory approaches to create an enabling environment for a more resilient system.
  3. Collectively drive change, fostering inter-sectoral engagement between banks, insurers and investors to strengthen sustainable finance alignment across the financial system.

These developments boost leadership, ensure ESG issues are considered at the highest level of our members’ organisations and will help UNEP FI drive change across the finance industry.

Looking forward to UNEP FI’s 30th anniversary

Next year will mark 30 years since the inception of UNEP FI, the UN’s largest partnership with the finance industry. The role of sustainable finance will be critical as we progress in this decisive decade for the future of our species and planet. “We have a lot of work to do to make our societies sustainable, but the desire for real change in the private sector is growing and that makes me hopeful” said UNEP FI’s Head Eric Usher looking back to an ambitious 2021 and forward to a results-oriented 2022. Look out soon for information on how we will celebrate with members and partners and follow us on LinkedInTwitter and Facebook for up-to-the-minute information, events and resources.

Facebooktwitterlinkedin