New UNEP FI Leadership Council explores sustainable finance integration & alignment

25 November 2021

On the heels of COP 26 and at a critical juncture between crisis and recovery across society, business and the environment, the UNEP FI Leadership Council met for the first time, bringing together CEOs of banks and insurers to help steer faster and deeper sustainability action across the industry.  

An advisory body built on UNEP FI’s 3 governance bodies, the Council is designed to shape high-level strategic insights into how the financial sector can fulfil its critical role in driving the economic transformation required to secure a resilient and sustainable future.  

The triple planetary crisis of climate change, nature loss and pollution, combined with social inequalities, pose an enormous threat to human wellbeing. Tackling these interconnected crises requires international collaboration and action across all economic sectors, including the financial sector that cuts across industries through financing. The path that economic actors take now and in this decade will determine the future of our planet and humanity.

Leading financial institutions under UNEP FI’s frameworks, including the UN Principles for Responsible Banking, the UN Principles for Sustainable Insurance and the UN-convened Net-Zero Banking, Insurance and Asset Owner Alliances, are working to align portfolios with a 1.5 degree climate scenario and UN Sustainable Development Goals. This collective action from market actors is imperative to drive the business transformation needed for a stable environment that our economy and society depend on.  Given the scale of the challenge and the costs of delayed action, institutions must act now to accelerate the rate and scale of change and be accountable to stakeholders. 

The United Nations Secretary-General, António Guterres, told Council Leaders, “We need to act with greater urgency, ambition, and credibility. We need pledges to be implemented, and commitments to turn concrete. We need credible targets and transparent timelines.” The Secretary-General highlighted the role of the new UN High-Level Expert Group to propose clear standards to measure and analyse progress against net zero commitments from non-state actors. This will enhance transparency around how the financial sector contributes climate financing to help implement Nationally Determined Contributions, especially in developing countries. 

“We need to act with greater urgency, ambition, and credibility. We need pledges to be implemented, and commitments to turn concrete. We need credible targets and transparent timelines.” – United Nations Secretary-General, António Guterres addressing UNEP FI Leadership Council members

The inaugural Council meeting explored two priorities; the importance of integrating and disclosing sustainability risks and impacts, and the alignment of financial portfolios with global goals.  

Integration – mainstreaming ESG risks and impacts 

While integration of Environmental, Social and Governance (ESG) factors in risk frameworks has enhanced understanding of their influence on financial performance, further action is needed to strengthen understanding of how companies are positioned when it comes to climate change, biodiversity loss, pollution and growing inequality.  Standardised reporting is needed to understand related risks and opportunities, as well as to shift towards the double or dynamic materiality lens and capture how businesses can have an impact on these issues.  

Council members emphasised the importance of global convergence around clear, mandated disclosure requirements, and expressed support for the new IFRS International Sustainability Standards Board to establish consistent sustainability reporting standards across industries. “Disclosure can drive action,” said one participant, “if companies are obliged to report according to common metrics, they will start seeing their own impact on the environment and therefore put in place measures to correct it.”  

With Council members tuning in across six continents, they recognised the challenges faced in different regional contexts. Common global standards could facilitate capital flows across jurisdictions, while supporting sustainable transition pathways that take account of regional differences in economic development. 

There was a clear understanding that financiers need to take action and make practical and rapid progress, with one CEO commenting, “there are enough institutions ready to move, and we can’t wait for those who may be hesitating.” A common thread was the view that if banks, insurers and investors work together, speaking with a unified industry voice through the Leadership Council and UNEP FI Frameworks amongst others, then they can drive the necessary changes. “We need a collaborative approach. No bank with a stand-alone approach can deliver this – we need to move as a team, we need to move with a standardised, common, intense, shared vision.” 

Alignment – from green transactions to green institutions 

Disclosure alone is insufficient to deliver the economic transformation needed to tackle global challenges. The finance industry worldwide must continue to work to adjust business models and align underwriting, lending and investment portfolios with societal and environment goals. The Council considered ways in which the insurance and banking sectors can accelerate and mainstream alignment, using robust, ambitious frameworks to raise ambition and deliver results in the real economy.  

The Council discussed what it takes for financial institutions to meet these challenges, from culture changes within organisations to embed sustainability fully into commercial strategy, to engaging with clients – particularly with those unsustainable industries and sectors needing to undergo rapid transformation. As intermediaries, financial institutions such as banks, insurers, asset owners and managers can facilitate and influence real-economy sectors, such as cement, steel, transport and agriculture towards global sustainability goals. The transition of this ‘real economy’ needs to be a just transition, done in an orderly manner. “It’s about helping our clients to change – we need to support their transition, and the focus should be on holistic transition plans of our clients, and investing in those with the ability to change.”

“Companies and financial institutions increasingly recognise that sustainable business is good business,” said Inger Andersen, United Nations Under-Secretary General, Executive Director of the UNEP and Chair of the UNEP FI Leadership Council. “UNEP FI initiatives show the positive impact the financial sector can have when it takes bold action together.”

This meeting was held under Chatham House rules. A summary will be published soon. In the meantime you can download the background paper here.

About the Leadership Council 

The UNEP FI Leadership Council is an advisory body, formed in 2021 to further mobilise the financial sector and deepen the integration of sustainability across the industry. Chaired by Inger Andersen, United Nations Under-Secretary General and Executive Director of the UN Environment Programme, the Council brings together leaders of banks and insurers currently represented on one of the three elected UNEP FI governance bodies; the Global Steering Committee, the board of the Principles for Responsible Banking or the board of the Principles for Sustainable Insurance. The Council signals the importance of harnessing the unique partnership between the UN Environment Programme and the financial sector to transform the finance industry, raise the level of ambition, and embed sustainability at the heart of financial practice. 

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