Dr. Ma Jun, Chairman, Green Finance Committee, China Society for Finance and Banking; Chairman and President, of Hong Kong Green Finance Association (HKGFA) and Ms. Gim Huay Neo, Managing Director, Centre for Nature and Climate, World Economic Forum published an article earlier this month titled “There’s a training gap in green finance and it could hold climate progress back,” published below.
As the adverse impact of climate change intensifies, so does the urgency to mobilize sustainable finance and enhance sustainable investments in emerging markets and developing economies.
The International Monetary Fund predicts climate mitigation investment needs will quadruple to US$2 trillion by 2030.
Along with massive funding requirements, emerging markets and developing economies often lack a domestic supply of sustainable finance resources, having yet to develop their green taxonomies, sustainability disclosure requirements and green financial products alongside policy incentives for green finance.
Behind this absence is a lack of expertise and talent to establish and operate a sustainable financial system in the Global South, as indicated by the G20 Sustainable Finance Working Group.
The working group indicated in its 2023 Sustainable Finance Report that “public authorities in collaboration with private sector actors, research and academic institutions, NGOs, and industrial associations should coordinate amongst themselves to strengthen and synergise the delivery of capacity building for sustainable finance in a manner consistent with national sustainable development plans and priorities.”
Understanding the Green Finance Knowledge Gap
There are several reasons for the knowledge gap within emerging markets and developing economies. First, traditional financial education rarely extends to environmental sustainability, as the environment has long remained an externality in the economy.
Second, green finance has evolved rapidly in recent years, marked by the proliferation of standards, initiatives and products. However, such innovations are mainly concentrated in OECD countries and a handful of developing countries such as China.
Third, external help for emerging markets and developing economies primarily comes from project financing from multilateral development banks. However, more attention should be given to building capacity for greening the domestic financial systems.
Key Barriers to Green Finance Training
Over the past few years, some international and non-governmental organizations have provided training and technical assistance for emerging markets and developing economies on various aspects of sustainable finance market development. However, these efforts are facing several problems:
- Due to a lack of a sizeable budget, most capacity-building programmes are small-scale and cannot meet the vast potential demand.
- Many training programmes are developed in a silo without coordination with other content providers, resulting in duplicated efforts.
- Many programmes are narrowly focused and fail to integrate knowledge from across the sustainable finance field, which is necessary to create impact.
- Most capacity-building programmes target a small potential audience or geographical region, which means their content could be more utilized.
- Most capacity-building activities are ad hoc face-to-face seminars or Zoom meetings instead of structured online courses, with limited scalability.
Bridging the Green Finance Gap
Green finance cannot be just a few products. It must be an ecosystem.
Among the elements needed to develop a green financial ecosystem, four prominent topics stood out where capacity building is most needed: robust policy frameworks, including green finance taxonomy and disclosure standards; green financial products; incentive mechanisms; and incubation of local green projects.
For emerging markets and developing economies, a “top-down”, government-driven approach with better policies, incentives, and taxonomies can help shape market behaviour, align the regulatory landscape with sustainability objectives and ultimately boost investor confidence.
In the meantime, green project owners must also be trained to prepare these projects for better bankability and transform the need for green development into reality.
New Initiative to Bridge the Knowledge Gap
Recognizing these challenges and responding to the G20 call for strengthened global efforts and coordination for capacity building, the World Economic Forum and other partners, in collaboration with the Beijing-based Institute of Finance and Sustainability (IFS), a Chinese green finance think tank, will launch a new initiative called the Capacity-building Alliance of Sustainable Investment (CASI).
It aims to become a global platform for sustainable finance capacity building dedicated to emerging markets and developing economies by consolidating knowledge and expertise from its member organizations and distributing them more broadly.
To address some of the challenges mentioned above, CASI will:
- Consolidate educational content developed by member institutions to avoid wasteful duplication of efforts.
- Deliver the content to a larger audience by working with its distribution partners.
- Develop new means of distribution, including many forms of professional online courses, certificate programmes and face-to-face training activities.
- Integrate contents and tailor them for better use in a developing country context.
Sustainable Finance Capacity Building
To date, 40 global institutions have committed to join CASI.
Members include the IFS, Silk Road Fund, HSBC, Standard Chartered Bank, the Hong Kong Monetary Authority Infrastructure Financing Facilitation Office, Neuberger Berman, CFA Institute, the World Economic Forum, the Sustainable Banking and Finance Network, the United Nations Development Programme Sustainable Finance Hub, the United Nations Principles for Responsible Investment, World Resources Institute, the International Capital Market Association, Asia Securities Industry & Financial Markets Association, Confederation of Business Industry, Hong Kong Green Finance Association and many others.
CASI’s vision is to train 100,000 sustainable finance specialists for emerging markets and developing economies by 2030, offering face-to-face training programmes in all major continents, including Africa, ASEAN, Central Asia, the Middle East and Latin America, and various e-learning programmes. The target audience of the CASI programmes includes financial regulators and policymakers, senior managers of financial institutions, service providers (such as those offering green verification, carbon accounting and disclosure services) and corporations looking to set up green and bankable projects.
The World Economic Forum – through its Giving to Amplify Earth Action (GAEA) initiative – wants to help mobilize philanthropies, corporations, private finance and government actors to unlock the resources needed to train these 100,000 financial professionals in sustainable finance. From helping accelerate financial deals in renewable energy and re-finance coal retirement plants globally to engineering new innovative financial products for corporations to transition towards sustainability and for new green innovative tech start-ups to reach scale – these are all critical levers that GAEA aims to use to support.
CASI will be formally launched in Dubai during the ongoing 2023 United Nations Climate Change Conference (COP28), with operational activities commencing in early 2024.
The achievement of the Paris Agreement goals must rely on collective efforts, and the Global South will increasingly become the “determinate” of its success as OCED countries begin to show a downward emission trajectory.
Even if emerging and developing markets were to access several trillion dollars each year for climate action, they would not be effectively and sustainably deployed to achieve the goals if talent and expertise are not available to set up the standards and products for green finance and to originate enough bankable green projects.
It is time for the international community to join hands to mobilize and deploy more resources for enhancing the soft power – capacity building – for sustainable finance in less advanced economies where sustainable investments are most needed.