(3BL Media/Justmeans) – According to the United Nations Environment Program (UNEP), a sustainability revolution in the global financial industry is quietly gathering pace. A range of financial institutions are beginning to incorporate sustainable development considerations in their financial decision-making. Investors increasingly realize the need for such forward-looking approach to protect the global economy from climate-induced financial distress.
France recently introduced the world’s first mandatory climate disclosure requirements for institutional investors. The sovereign wealth fund of Norway is divesting from coal. South Africa has incorporated sustainable development into listing requirements on its stock exchange. The new banking regulations in Brazil require accounting for environmental risk. The Swedish government is pushing an ambitious sustainability agenda featuring a series of proposals aimed at improving information for investors.
Private financial companies are also preparing to act decisively on the sustainability front. Blackrock, the world’s largest asset manager, is launching a fossil-fuel-free index. Axa, one of the largest insurance companies in the world, has pledged to divest from coal. Altogether, institutions worth more than $2.6 trillion have committed to divest from fossil fuels.
Axa’s CEO Henri de Castries said that divesting from coal helps remove risk from investment portfolios and contributes to building a more sustainable society. Bank of England Governor Mark Carney recently said in a speech at Lloyd’s of London that a delayed transition to limit global warming to 2 degrees Celsius would increase risks to financial stability.
McKinsey and the Carbon Trust have estimated that 30 to 40 percent of the value of fossil-fuel companies could be endangered because of a “carbon bubble,” or an overvaluation of fossil-fuel reserves. The European Parliament has established an informal cross-party grouping, called the Carbon Group, which aims to tackle the carbon bubble and promote sustainable finance. Within the European council, a number of countries, most notably Sweden and France, are working for greater integration of sustainability metrics into financial markets.