Pathway to COP26: Combatting climate change post covid-19 - how can responsible finance ensure we build back better?

  • Eric Usher
  • 14 October 2021
  • Blog | Green Finance | Thought Leadership Insights | Blog

“A recovery from the coronavirus crisis must not take us just back to where we were last summer. It is an opportunity to build more sustainable and inclusive economies and societies,” said UN Secretary-General António Guterres as he proposed six climatepositive actions for governments to consider as they build back global economies, societies and communities in the wake of the COVID-19 pandemic.

When 130 banks signed the UN’s Principles for Responsible Banking1 alongside the Secretary-General in September 2019, who could have predicted that six months later our world would change overnight? As countries went into lockdown to protect citizens from a worldwide health emergency, the global economy was plunged into crisis. Now, as parts of the world start to recover from the pandemic, we have an opportunity to rebuild a better, greener and more equitable economy – the finance industry’s role will be key to delivering it. With the launch of the sustainable banking framework, developed by a coalition of global banks led by UNEP’s Finance Initiative, 2 the UN’s largest partnership with the finance sector, all the tools are now in place.

The COVID-19 pandemic has shown us that the health of people and the planet are one and the same. Human activity has altered virtually every corner of the Earth bringing us into contact with new vectors: seventy-five percent of all emerging infectious diseases in humans cross from animals.3 The long-term threats of climate change and ecosystem and biodiversity loss are also accelerated by our continued destruction of nature.

Yet, as large parts of the world went into lockdown, many of us experienced cleaner air, clearer water and nature began to flourish again. But the climate and natural emergencies have not gone away, and shutting down our economies – jeopardizing the income of millions around the world – is surely not the best way to address environmental degradation. Despite the global industrial and transport slowdown, carbon dioxide levels in the atmosphere have increased this year and governments are failing to deliver on their commitments made under the Paris Climate Agreement. 4 At the same time, one million animal and plant species are threatened with extinction within decades.5 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. Meanwhile, financing for the Sustainable Development Goals (SDGs) is falling short: the financing gap to achieve the SDGs in developing countries is estimated to be US$ 2.5 – 3 trillion per year,6 and private investments in SDG-related infrastructure in developing countries were lower in 2018 than in 2012. 7

But there is good news. While the Sustainable Development Goals and the Paris Climate Agreement provide the trajectories and targets for governments and the private sector, there are several frameworks specifically designed to guide financiers as they redirect financial flows. The UN-backed Principles for Responsible Investment (PRI),8 born out of UN Environment Programme’s Finance Initiative in 2006, gives the investment industry the guidance to incorporate environmental, social and governance issues into investment practice. Additionally, the UN-convened Net-Zero Asset Owner Alliance is a group of 26 pension funds and insurers representing nearly US$ 5 trillion, brought together by UNEP Finance Initiative and the PRI. 9 Launched at the Climate Action Summit in September 2019, the asset owners are engaging with the companies that they invest in to ensure that their investment portfolios are net zero carbon by 2050. The Principles for Sustainable Insurance, devised in 2012 by UNEP’s Finance Initiative, guide the world’s insurers on how to integrate environmental, social and governance considerations into their underwriting business. 10 And with the launch of the UN Principles for Responsible Banking, each sector of the finance industry now has its own sustainability blueprint. 11

The six Principles for Responsible Banking provide banks around the world, no matter how small or how sophisticated, with the guidance to align their businesses with the Sustainable Development Goals, the Paris Climate Agreement and other relevant national, regional or international frameworks.

Signatories commit to reduce their negative, and increase their positive impacts on people and the environment and are required to achieve that by setting public targets. A group of 37 signatory banksi has already pledged to align their business with international climate goals by signing the Collective Commitment to Climate Action, launched in September 2019. 12 They will be expected to take concrete action within a year of joining the collective in order to start aligning their business to reflect and finance the lowcarbon, climate-resilient economy required to limit global warming to well below 2 degrees and striving for an increase of only 1.5 degrees Celsius.

Signatories are also working towards setting targets to address their business’ impact on the world’s biodiversity. UNEP FI is working with them to develop guidance for banks to set targets on biodiversity that are specific, measurable, ambitious, realistic and timebound. Linking science, policy, the economy and finance can help ensure sustainable finance helps address the nature, pollution and climate crises facing society.

The Principles for Responsible Banking framework commits signatories to work responsibly with clients and to encourage sustainable practices that create prosperity for current and future generations. Helping clients shift to sustainable business models and technologies will mean they are better prepared for emerging regulations and consumer preferences, and better positioned to succeed and build resilience to the challenges of climate change.

The scale of transformation needed to meet the objectives of the SDGs, the Paris Climate Agreement and contribute to solving the climate and nature emergency is so great that it requires collective action. Signatories pledge to consult stakeholders such as regulators, investors, governments, suppliers, customers and clients, academia, and civil society institutions to help understand all the impacts of a bank’s business, including indirect impacts, such as within communities, or on wildlife.

Implementing the Principles requires banks to take a long hard look at the way they are running their businesses, and affect change from the very top to right across their entire operations. Operationalising the Principles involves ensuring effective governance and a culture of responsible banking so that all employees understand their role in delivering the bank’s purpose and integrate sustainability in decision-making.

For banks’ implementation of the Principles to be effective and remain credible, they must ensure that their progress and ongoing operations are open to public scrutiny. Signatories will be transparent and accountable for their positive and negative impacts on the environment and on society. They will report on their progress publicly within 18 months (At the time of writing) of signing when they will be expected to demonstrate the steps they are taking towards implementing the Principles.

Due to the COVID-19 crisis, key dates for the international community to accelerate the urgent work required to deal with the climate emergency have been postponed to 2021. But the finance industry is not delaying: now numbering more than 190, and representing US$ 50 trillion, the signatories to the Principles have already begun implementing them and working groups including more than 300 individuals from 150 banks around the world are developing tools and guidance to help banks strategically and practically embed the framework.

Shifting trillions of dollars of private financing and investments to deliver a low-carbon, sustainable economy will require the support of policymakers. At the annual UN climate conference (COP25) in December 2019, progress by governments towards meeting the goals of the Paris Climate Agreement was disappointing. 13 Policymakers now have the chance to ensure they take bold action both in the lead-up to, and at the Climate COP26 and the Biodiversity COP15. We call on governments to respond to the COVID-19 crisis by building back better – linking recovery efforts with the clean energy transition, naturebased solutions and the Paris Climate Agreement. This will require connecting the biodiversity and climate agendas early in planning cycles.

Nature has sent us a message. Signatories to the Principles for Responsible Banking have heard it and are positioning their businesses to heed it. Pension funds and insurers who direct the investment of trillions of dollars have committed publicly to net zero carbon investments by 2050 are signalling to the businesses they invest into to change their practices. By making policy and investment decisions that address the crises in the natural world and the climate emergency, we expect governments to echo that response.







4 Scripps Institution of Oceanography, NOAA

5 The IPBES Global Assessment Report on Biodiversity and Ecosystem Services (2019)

6 UNCTAD (2014). World Investment Report.

7 Inter-agency Task Force on Financing for Development (2019). Financing for Sustainable Development Report.