Sustainable finance in action: UNEP FI’s latest annual review now published

19 July 2021

Several milestones in sustainable finance are highlighted in our overview of UNEP FIs work during the period from July 2019 to December 2020, which provides a summary of initiatives that are helping to transform the financial sector. Download the full report here and find out more below by reading the report’s foreword.

The COVID-19 pandemic changed lives overnight and plunged global economies into crises. It shone a spotlight on how dependent our societal and economic health is on the health of our planet and how far we still have to go to build resilient and sustainable societies and economies. Despite the global industrial and transport slowdowns as a result of the pandemic, carbon dioxide emissions were higher in December 2020 than in December 20191 and governments are failing to deliver on their commitments made under the Paris Climate Agreement. At the same time, one million animal and plant species are threatened with extinction within decades.2 Social problems are likely to become worse for many people around the world, in particular in the global south, as the world’s poor and vulnerable are hardest hit by the environmental decline caused by the pandemic.

“A recovery from the coronavirus crisis…is an opportunity to build more sustainable and inclusive economies and societies.”
UN Secretary-General António Guterres

As the world recovers, sustainable finance has the potential to play a transformative role in shaping financing that builds back better – and we see momentum increasing demonstrated by new UNEP FI initiatives and the growth in UNEP FI’s membership. We were reminded of the critical role of financial institutions in supporting communities through this crisis when UNEP FI convened members shortly after COVID struck to exchange and share best practice on how they were supporting their clients and society through the pandemic. And throughout these challenging times, UNEP FI has continued to work with members to equip them with the tools to contribute to a green recovery and put sustainability at the heart of decision-making. Indeed, the blueprints for change are now available for each sector of the finance industry. The Principles for Sustainable Insurance developed by UNEP FI in 2012, and the UN-backed Principles for Responsible Investment have already been in place for some time to guide insurers and investors. With the launch of the UN Principles for Responsible Banking in September 2019, the banking industry now has the framework to embed achieving the Sustainable Development Goals and the Paris Agreement as core elements of their strategies.

September 2019 also saw the launch of major initiatives which are driving the race to net-zero. The UN-convened Net-Zero Asset Owner Alliance, which the UN Secretary-General has called the “gold standard” for net-zero commitments, brings together investors to provide a framework for high-ambition target setting, and the Collective Commitment to Climate Action convenes a group of banks which are signatories to the Principles for Responsible Banking to work towards aligning their portfolios with the Paris Agreement climate goals.

UNEP FI and its members are now focusing on developing credible and robust approaches to implementing commitments, as we work towards our shared mission to create a financial sector that positively impacts and serves people and planet. Our membership has continued to expand, growing by one-fifth in the year to the end of December 2020 and together our impact is growing. By the end of 2020, more than 200 banks representing upwards of 40% of the global banking industry had signed the Principles for Responsible Banking and 38 banks had signed the Collective Commitment to Climate Action. Thirty-three asset owners had joined the Net-Zero Asset Owner Alliance. All three initiatives launched at the UN General Assembly and the UN Secretary-General’s Climate Action Summit in 2019.

Despite the pandemic, in just over a year these groups have set up rigorous governance structures and through a series of working groups are developing tools and guidance to operationalize their commitments. At the end of 2020, a group of insurers convened by UNEP FI announced the intention to form a coalition to work on ensuring their underwriting business is net-zero by 2050 and launched the Net-Zero Insurance Alliance in July 2021. In April 2021, a group of banks launched a similar net-zero undertaking, the Net-Zero Banking Alliance ratcheting up the ambition built so far through the Collective Commitment to Climate Action. Both are further examples of the increasing momentum to shift financing to deliver net-zero economies.

This high level of ambition from all financial institutions will be required to deliver on the commitments agreed at the Paris Climate Summit. UNEP FI is also mobilising climate leadership by financial institutions on adaptation to climate change delivering a key technical paper on finance to support the Global Commission on Adaptation’s (GCA) flagship report on climate change adaptation and convening a group of ten financial institutions who are calling on policymakers and regulators to move towards greater standardisation and improved access to climate scenario and asset data. In the run-up to COP26 in November 2021, when the world is expecting decisive and transformative action from governments on climate change, this demonstrates that leading financial institutions are taking urgent action on climate.

“The finance industry and its future profitability and our very own survival need natural systems.”
UNEP Executive Director, Inger Andersen.

At UNEP FI’s biennial Global Roundtable in October 2020, UNEP Executive Director, Inger Andersen reminded participants that, “the finance industry and its future profitability and our very own survival need natural systems.” Financial institutions are exploring approaches to integrating nature into decision-making, as policymakers respond to the urgency signaled by science to step up action to protect biodiversity that underpins society and the economy. UNEP FI is working with members to develop guidance and tools to set targets to reduce biodiversity loss. Signatories to the Principles for Responsible Banking are developing guidance on indicators, metrics, and methodologies for setting targets in the significant impact areas identified by signatories including biodiversity loss. The ENCORE tool, (Exploring Natural Capital Opportunities, Risks and Exposure) which enables financial institutions to gain insights into how environmental change might impact economic sectors, was updated in 2020 to include not only the dependency of businesses on natural capital, but also the impact businesses have on nature. A new module launched in 2021 enables financial institutions to explore the alignment of agriculture and mining portfolios with global biodiversity targets. The Blue Economy Finance initiative, founded in 2019, a global community of more than fifty banks, insurers, investors, international organisations, scientists and researchers is working to shape the future of the ocean in 2020. The first guidance on financing ocean sector sustainability was launched in early 2021.

Helping financial institutions contribute to achieving the Sustainable Development Goals (SDGs) and assess impacts is a key target for UNEP FI. The SDGs and Impact workstream developed two tools to enable banks and investors to analyse the impact of their portfolios during 2020, and work on updates continues in 2021. Under the auspices of the Principles for Sustainable Insurance, a group of insurers also started work to develop Sustainable Development Goals for the insurance industry.

Our work with insurers and reinsurers continues to deliver industry firsts: the first global guide to manage Environmental, Social and Governance risks in insurance underwriting launched in 2020 and will be regularly updated. Meanwhile twenty-two leading insurers and reinsurers from across the globe worked with UNEP FI to develop the first comprehensive guidance for the insurance industry to identify and disclose the impact of climate change on their businesses in line with the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) recommendations.

Banking and investment members also collaborated to develop the tools and methodologies to implement the TCFD recommendations. A second phase of work with 39 banks helped expand their climate risk toolkits and delivered guidance in 2020 and 2021, building on a first pilot during 2017. A third phase of this work with banks and a second phase with asset managers is underway in 2021.

UNEP FI’s role in mobilising climate leadership by financial institutions turned to adaptation as we delivered a key technical paper on finance to support the Global Commission on Adaptation’s (GCA) flagship report on climate change adaptation. We then convened a group of ten financial institutions who – at the Global Adaptation Summit in January 2021 – called on policymakers and regulators to move towards greater standardisation and improved access to climate scenario and asset data.

We continue to lead thinking on the next generation of impact investing with the Legal Framework for Impact programme which seeks to understand and analyse how investors can manage dual duties (their fiduciary duty and sustainability impact duties) and what happens if they are in conflict. In 2020, we helped the banking industry prepare for new regulations by assessing and testing how the EU taxonomy can be applied to core banking products: results launched in July 2021 and a second phase is continuing in 2021.

“A recovery from the coronavirus crisis…is an opportunity to build more sustainable and inclusive economies and societies,” said UN Secretary-General António Guterres in April 2020 as he proposed six climate-positive actions for governments to consider as they build back global economies, societies and communities in the wake of the COVID-19 pandemic. Our members are playing a crucial role themselves in building back better. Every project, programme and initiative that UNEP FI convenes with members requires commitments in terms of intention as well as time and resources. Combined with UNEP FI’s regional and global events and a rich programme of webinars, as well as a growing training programme, we are providing the insight, guidance and tools for the finance industry to play its part. We salute the perseverance of our members who continued to concentrate on sustainability while dealing with the huge strains caused by the global pandemic and look forward to continuing to collaborate to achieve more sustainable, fairer and more resilient economies and societies.

Adapted from the foreword of UNEP FI’s Annual Overview.

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  1. International Energy Agency: https://www.iea.org/news/after-steep-drop-in-early-2020-global-carbon-dioxide-emissions-have-rebounded-strongly Scripps Institution of Oceanography, NOAA
  2. The IPBES Global Assessment Report on Biodiversity and Ecosystem Services (2019)
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