21 January 2015: The UN Environment Programme (UNEP) has released a report, titled ‘Pathways to Scale,’ which identifies “critical innovations in the US$300+ trillion global financial system that can help bring together the historically separate agendas of financial reform and sustainable development.” Drawing on country-level examples of financial market and institutional reforms, the report proposes a number of pathways towards ‘closing the asset and investment gap’ at national and higher levels.

The publication, which was launched at the 2015 World Economic Forum in Davos, Switzerland, is the third progress report produced by the UNEP Inquiry into the Design of a Sustainable Financial System (The Inquiry). The aim of the two-year project, which concludes in 2015, is to advance policy options to improve the financial system’s effectiveness in mobilizing capital towards a green and inclusive economy. Previous reports have addressed ‘Innovations in Practice,’ and the case for linking the development of the financial system with green and inclusive policy objectives.

The report highlights both technical and institutional ‘change pathways’ to effectively align financial systems with sustainable development, with a focus on country-level innovations in five areas: banking, bond markets, institutional investment, central bank balance sheets, and resilience and systemic risk. Among examples cited in the report are Bangladesh’s green banking programme, green credit guidelines in China, and Brazil’s ‘resolution’ on socio-environmental risk.

While acknowledging that considerable work is needed to expand and evaluate the initial design options highlighted in the report, the authors argue that “smart policy work now could ensure greater volumes of debt finance for the green economy at lower cost.” In the same vein, they note that the extension of international banking standards to incorporate sustainability factors “may have seemed unlikely just a year ago,” but growing practice at the national level suggests that articulation of shared frameworks at the international level “is a pragmatic option.”

The report further explores how to address institutional barriers to change by tackling, inter alia: how to navigate business and political interests, reshape organizational mandates, identify and promote champions, build coalitions, and demonstrate viability and potential.

The report concludes by highlighting a number of ‘critical policy milestones’ in 2015 that can contribute to aligning the financial system with long-term sustainable development, including: the World Disaster Risk Reduction Conference in Sendai, Japan, in March; the Third International Conference on Financing for Development in Addis Ababa, Ethiopia, in July (FfD 3); the conclusion of intergovernmental negotiations on the post-2015 development agenda and the Summit to adopt the agenda in New York, US, in September; a new global agreement on climate change in Paris, France, in December; and the forthcoming G-7 and G-20 Summits in June and November respectively.

Following a final round of country-level ‘convenings’ in Colombia, Kenya, Indonesia and Switzerland and completion of the programme of research and consultation activities, The Inquiry is expected to produce its final report containing policy options for advancing a sustainable financial system in October 2015. [UNEP Press Release] [Publication: Pathways to Scale] [The Inquiry Website] [UNEP Green Economy Initiative] [IISD RS Story on WEF 45]