Finance, encompassing public and private activities that deal with the allocation of credit and capital resources, serves as a critical driving force for real economic growth. The transition to an inclusive green economy, in particular, will be capital demanding. However, the current financial system often fails to take into account the long-term social and environmental impact of certain economic activities, resulting in underinvestment in green sectors and overvaluation of environmentally damaging assets such as the fossil fuel industry.
In response to the gap between the capital resources needed and current investment flows, endeavors are being made to align the financial system with the needs of green growth. The UNEP Inquiry results, released in late 2015, demonstrate a growing trend in policy innovation from central banks, financial regulators and standard setters, in both developed and developing countries, who are incorporating sustainability factors into the rules that govern the financial system. Additional research and understanding will help the international financial system prioritize the green economy agenda and propel green growth.
Relevance to the SDG
Sustainable Development Goal 1, target 1.4, calls for increasing access to appropriate financial services, including microfinance, to poor and vulnerable population. In addition, SDG 10 target 5 calls for improvements in regulation and monitoring of the global financial system.