Transforming financial sector’s core value system may be essential to 1.5C

With the carbon costs of travel in mind, Climate Innovation Summit session summaries are available online for those who cannot attend—and for review for those present. These summaries aim to extract the key debates, dialogues, and learnings from each #MissionFinance session.

The Climate Innovation Summit panel, “The policy and finance conditions needed to meet climate and sustainable finance ambitions,” explored taxonomies, disclosure agreements, carbon taxes, and ensuring orderly and just transition. With vested interests and lack of political will named as obstacles to securing 1.5C, it may be necessary to challenge the very value system the financial industry is built upon.

The panel consisted of: Martin Spolc, Head of Capital Markets Union (CMU), DG Fisma, Nancy Saich, Chief Climate Change Advisor, EIB, Molly Scott-Cato, MEP, Mariana Mazzucato, UCL Professor, Founder of Institute for Innovation & Public Purpose, Vicki Plater, Director Growth and Public Services, NZ Treasury, and Sasja Beslik, Head of Group Sustainable Finance, Nordea.

The session sought to address the question: If we’re exceeding a 1.5C warming scenario, what policy and investment changes are needed to ensure we stay on track?

The combination of an EU green finance taxonomy, establishing common carbon benchmarks and fostering transparency in the financial sector will be the game changers that will shift capital flows towards the sustainable investments required to meet the Paris Agreement goals, according to Martin Spolc, Head of CMU, DG Fisma.

“The most important thing we can do is to establish clear signals for financial markets like setting a plan to phase out fossils fuels by ‘this’ date,” said Scott-Cato. “We need to ensure there’s an orderly transition… We create and then eliminate stranded assets in a sequential action.”

Saich discussed how the interlinkages between a host of environmental problems, referencing the recent IPCC, WWF and Oceans Conference reports*, create complexity that must be addressed to achieve sustainable finance.

She also stressed the need to “focus on the win-wins”—targeting measures that address several climate issues at once (such as mitigation, adaption, conservation, etc).

Mazzucato pointed to the idea of using taxes to reinvest in sustainable assets, and thereby incentisiving positive change. 

Beslik said: “86 per cent of the world’s capital is not invested in a sustainable way,” he said. Moreover, “100 companies are emitting 71 per cent of emissions… What do we need to discuss?” He emphasised that a sense of urgency needs to be brought to the forefront of policy discussions. 

The gravity of the policy challenge cannot be understimated and must secure the buy-in from the widest spectrum of society. Spolc added that this is not just about legislation but requires broad engagement that brings together public and private actors to define the way forward. Examples of successful collaboration include the EU Sustainable Finance expert groups. 

Beslik then asserted that we need to critically examine the value system and incentives currently driving the financial industry, calling for a social contract based on a new set of values—no longer privileging personal wealth but, instead, thinking of the generations to come and working towards a sustainable economy. 

Scott-Cato brought up the obstacles to achieving this kind of systemic change. “Politically it’s not simple, there are massive vested interests… the problem is political will,” she said. “Imagine if the EU had been able to agree on a carbon tax in 1992. Why did that not happen? Because you need agreement.”

How can we overcome these challenges?

Plater suggests persevering: “It’s about standing up for something that’s right, even if it’s uncomfortable and even if there are risks involved.”

Righteous action of this kind might best be exemplified by bottom-up activism, specifically, by the climate change lawsuits currently taking place around the world: Citizens vs. the government of the Netherlands, youth vs. the government of the United States, and more.

Scott-Cato also cited the #ExtinctionRebellion demonstrators as an example. Considering the increasing momentum behind grassroots climate movements, she remarked that, with regards to policymakers and politicians, “people are ready for us to be a lot more radical than we’re being.”

*The IPCC’s Special Report on Global Warming of 1.5˚C, in response to the decision of the 21st Conference of Parties of the United Nations Framework Convention on Climate Change;

The Progress Report of the Our Oceans Conference delivered in Bali on 29 and 30 October

The World Wildlife Fund’s Living Planet Report on species extinction