Achieving the UN Sustainable Development Goals (SDG) depend on how the Financial Services industry raise, structure and allocate funding.
For the Financial Services community, the SDGs represent opportunity and responsibility. The SDGs are designed to transform the global economy into an engine that will power a truly sustainable planet by 2030. Comprised of 17 goals, the SDGs provide a blueprint for governments, nongovernmental organizations and companies to meet the existing social, economic and environmental challenges facing our world. They are also designed to help tackle the new challenges posed by 21st century disruption.
Technology, globalization and demographics have been identified as the primary disruptive forces that are transforming the way we work and live, and the ways in which society is changing. As these forces interact, they have given rise to a host of new megatrends. These include climate change and the necessity for innovation to make the planet resource-rich instead of resource-scarce. These megatrends also include empowered consumers, rapid urbanization and a new generation of information technology.
Companies and governments typically make plans for the short and medium term. For business, society and ecosystems to survive, long-term thinking and behaviors must be adopted.
The FS sector is key to achieving the SDGs
The SDGs will require US$4t–US$6t in investment annually but, based on current investment budgets, there is an estimated US$2.5t funding gap each year until 2030. Global financial and capital markets currently manage almost US$300t in financial assets every year. FS can bridge the funding gap by redistributing funds. Leaders in the industry are already calling for action and setting up sustainable finance funds and mechanisms.
Achieving the SDGs will require long-term commitments from both the public and private sectors:
- Governments need to live up to the pledges that they have made, and create the legislative and regulatory frameworks that enable and promote sustainable economic growth
- Regulators must assess current legislation for barriers to SDG financing, and integrate environmental, social and governance (ESG) considerations into finance regulation
- Investors must apply pressure and demand ESG information as they increasingly acknowledge that sustainability is part of their fiduciary duty to shareholders
- Companies need to embed sustainability into “business as usual,” and innovate to create products and services that align with the goals
- Banks must assess their portfolios for ESG risks and stranded assets, and integrate ESG considerations into their products, services and new instruments, while educating customers and employees
- Insurance companies must protect their customers from ESG risks and invest with a mission to avoid ESG risk throughout their business
- Global stock exchanges and rating agencies need to set more robust and uniform standards for ESG reporting, so that investors have access to consistent and comparable data
FS is key to closing the US$2.5t funding gap
The scale of corporate, governmental and nongovernmental organization (NGO) commitments needed to achieve the SDG goals requires the expertise of the FS community to raise, structure and allocate funding.
So, with the funds to achieve the SDGs already in existence, what must FS do to unlock their potential?
- Seize opportunities
The SDGs can be used as a lens to identify the world’s most pressing risks and challenges. It is estimated that addressing the SDGs could unlock US$12t in business savings and revenue annually, and create 380 million more jobs by 2030.
This could include creating new financial products and services, embracing impact investing as a positive driver of growth, harnessing new technology and innovation for sustainable finance and frameworks, and capturing new ESG-focused consumers.
- Manage risk
FS must understand the risks facing the sector and the world, and identify which SDGs to prioritize and address. This will entail factoring in the risk and cost of externalities, such as carbon, new regulations, financial crime, and the changing demands of increasingly conscious consumers and investors.
It is also important to understand the role of the SDGs in driving regulatory changes, from new requirements in nonfinancial reporting to the impact on products, such as pensions and electric cars, and issues such as modern slavery and gender equality.
- Adopt long-term thinking
FS must continue to transform itself from being an industry that rewards short-term thinking to one that realizes long-term value. This will involve a change of mindset and culture within the sector. It requires new frameworks and consistent measurement and reporting mechanisms.