The new climate reality is a 'use it or lose it' moment for financial centres in Europe. The UN-led Financial Centres for Sustainability (FC4S) wants to make sure it is the former.
First, the good news: All research suggests that a better tomorrow awaits if we succeed in the massive global effort to limit warming to 1.5°C: clean air, healthy communities & consumers, climate-resilient homes and financial systems. The financial sector has also woken up to the fact that climate change, shifting market preferences, and climate policies can negatively impact the value of their assets – potentially even leading to asset stranding in some cases.
The not-so-good news? We are hopelessly off-target in capping rising temperatures at 1.5°C above pre-industrial levels and it's becoming exceedingly difficult to do so (and 1.5°C is not a good scenario to begin with!). The longer the delay in addressing the transition to low-carbon, the higher the physical damage costs and the overall costs - something that is already evident in, for instance, the insurance industry, which is on the front line of these impacts.
We know that time is quickly running out, that taking climate action makes financial sense, and that we need to channel trillions to mitigate climate change and accelerate the turn to zero net carbon.
So what does this mean for European financial centres and how can they best prepare to the inevitable shift towards green and sustainable finance?
To start with, changing the course of these grim climate forecasts requires smart financial decisions - and making these decisions together will ensure that we create the synergies we need to catalyse systemic change for climate action.
In Europe alone, some €177 billion in additional yearly investment between 2021 and 2030 will be needed to keep the increase in average global temperatures to well below 2°C. This is why the 2018 EU sustainable finance action plan is focused on 1) reorienting capital flows towards a more sustainable economy; 2) mainstreaming sustainability into risk management; and 3) fostering transparency and long-termism.
Making smart financial decisions together will ensure that we create the synergies we need to catalyse systemic change for climate action.
Nearly a dozen European financial centres have answered the call by coming together under the new
Financial Centres for Sustainability Europe (FC4S Europe). Backed by a three-year investment of EUR 1.5m from the EU's EIT Climate-KIC, this European hub aims to mobilise action across more than 30 financial centres in Europe. This includes efforts to raise capability on sustainable finance, boost collaboration between participating centres, connect finance with real economy needs and stimulate proposals for new approaches that have the potential to catalyse exponential leaps in decarbonisation and resilience. In short - to meet Europe's investment targets and sustainable finance agenda.
And they are not alone: the European FC4S chapter is, in fact, part of to a global network, the
UN Financial Centres for Sustainability (FC4S), a hub of leading financial centres focused on promoting the innovation, partnerships, and best practices needed to rewire finance for sustainability.
The benefits of being part of this European movement? Access to resilience-enhancing innovations in financial infrastructure and policy through an open innovation platform, and the collective brainpower of experts grappling with similar challenges.
To make sure green finance innovations and lessons learned are shared far and wide, South Pole has set up an
Open Innovation Platform, a dedicated space to develop, adopt and bring to life the breakthroughs needed to mainstream sustainable finance and resilient financial infrastructure in the local markets.
Financial centre ecosystems consist of different actors such as banks, insurance companies, stock exchanges, asset managers, knowledge actors and others. Those actors that wish to engage in fostering innovations through the Open Innovation Platform will have the chance to develop and test systemic innovation, source and seek support to innovative products and service and replicate and scale innovative ideas within their own financial centre and in cooperation with other European financial centres and global UN network.
The Open Innovation Platform will help bring to life the necessary breakthroughs to mainstream resilient financial infrastructure in the local markets.
As a next step, the Open Innovation Platform will engage in a market testing phase during which the selected innovation mechanisms are further defined in close-cooperation with selected financial centres.
While the risks of inaction are great, so too are the opportunities in coming together and catalysing systemic change for climate action across financial centres in Europe.