Por que precisamos de finanças sustentáveis?

Hello, today I will talk about sustainable finance, why do we need sustainable finance, what are the instruments for it and what are the next steps in sustainable finance. During the last COP26 at Glasgow, we saw countries, corporations and banks and financial institutions pledging to align themselves with the Paris Agreement and to go to net zero in carbon emissions. And sustainable finance is a cornerstone of this long-term strategy to achieve these Paris goals and the sustainable development goals. We are familiar with climate and energy policies, the Paris Agreement goals, energy market taking up renewables, the strategy on adaptation.

We combine that with the environmental policies on local air quality and water quality and obviously a lot of countries in the world are investing for growth having national development plans, sustainable development goals and research and development and innovation strategies and sustainable finance is the next cornerstone of this long-term strategy on the energy transition. Sustainable finance is dealing with the risks that climate change is having on companies and countries and is also dealing with the risks that the economic activities of these companies and countries are having for climate change.

Risk management is central to the financial world and the risks from climate change or contributing to climate change are risks that need to be dealt with if we want to achieve the Paris goals. And being transparent and reporting on those risks is an essential part of that strategy. Now, if we want to achieve the Paris goals, we need energy investments that are transitioning from a fossil fuel-based energy system to a renewable energy system and for that we need policy world, technology and finance to come together and work together towards this goal.

And the policies are some kind of carbon pricing, whether explicit in the form of a carbon tax or emissions trading or implicit in terms of standards, but it’s telling the corporations, the citizens that in the future we should do with less carbon and we should move out of the fossil fuel-based economy. Now, this carbon price signal is saying well, if you can avoid carbon at this price, then you should definitely deploy the technologies to do it and so what we are seeing is an emergence of low-cost clean energy technologies. Now, what does finance have to do with this?

Well, finance is actually translating this carbon price into a risk signal, namely saying that in the future your business model who might dependent on fossil fuels will be more costly or your business model who is about the introduction of new clean energy technologies will be more affordable or will be more positive, yielding positive returns for your corporation. And so, the energy investments are helped with a strong carbon price signal which translate into a carbon risk assessment from the side of the financial institutions. And the central fact of this clean energy transition is that renewable energy costs are falling and carbon liabilities are increasing and what we have seen in the last years is exactly this kind of tendency.

We saw oil and gas companies writing off their fossil fuel assets and we saw financial institutions gathering funds and capital into sustainable finance instruments, funds, bonds, sustainability-linked loans and so forth and so we are seeing the emergence of this rebalancing this energy transition in the real economy. Now, obviously, currently there’s a resurgence of the oil and gas business due to the high prices, but in the long run we are confident that the oil and gas assets will be at risk of being stranded and the renewable energy assets need the funding to be deployed on a much larger scale.

And the instruments to do that are really quite easy in the sense that, as Christiana Figueres of the UNFCCC has said, making risk disclosure mandatory and pricing pollution are the highest impact measures that governments can take. And in other sessions the carbon pricing has been addressed and explained and analysed and what we will talk about here is the risk disclosure in the sustainable finance actions that can be taken.

And so, the EU was one of the first big regional economies to make a Sustainable Finance Action Plan and the three main goals and topics of this action plan are the reorientation of capital flows towards a sustainable economy, mainstreaming the sustainability risks into the risk management of financial institutions, requiring disclosure, transparency, prudential supervision by the central banks on climate risks being addressed and, lastly, fostering transparency and long-termism in the financial sector, meaning not only to report on short-term profit and loss but also to report on nonfinancial indicators such as climate, biodiversity impact and so forth.

This EU Sustainable Finance Action Plan has been translated into concrete instruments that foster transparency, that help and support the reallocation of capital to the sustainable economy and these instruments will be explained in the next videos.