As investors and international policy makers gather at COP29, The Global Sustainable Investment Alliance (GSIA) released its report Transforming Global Finance for Climate Action: Addressing Misaligned Incentives and Unlocking Opportunities. In addition to offering specific recommendations to the policymakers at COP29, the report identifies barriers to sustainable investment and the actions needed to encourage the flow of capital to the projects needed to address climate change.
"Investor and policymakers' incentives are misaligned," said James Alexander, CEO of UKSIF and Chair of GSIA. "Ahead of COP29, policymakers, investors and civil society negotiators can help address the key barriers to meaningful and actionable change. We need supportive policy action to align incentives and catalyse capital to unlock the opportunities that a climate transition presents."
The report groups incentive barriers into five categories, which GSIA has framed as PIVOT, the interlinking actions to facilitate capital flow and enable effective action on climate change:
- Policy vacuum Policies can act as barriers that prevent investment from flowing to the climate crisis. At the same time, there is a lack of positive policies that encourage climate-positive investments.
- (self-)Interest Companies and investors may focus on quick wins for near-term financial return or sustainability, ignoring long-term goals (e.g. net-zero by 2050). This short-term thinking prevents investments in sustainable projects and innovations to meet climate targets.
- (mis-)Valuation Environmental and social factors are traditionally not accounted for in financial models causing money to flow into environmentally harmful industries as "hidden costs" aren't considered. A short-term focus on financial reporting can further undermine long-term value creation.
- (In)active Ownership Some institutions and investments are managed without active involvement. A hands-off approach, whether due to cultural or structural challenges, means redirecting capital is difficult, and met with resistance from the current system.
- Transition misalignment Certain business models and industries naturally conflict with the goals of the energy transition, making it challenging to create and put into action long-term plans that include these sectors.
GSIA undertook the report to highlight the need for a coordinated action from both policymakers and investors. The report aims to facilitate more informed conversations among investors and policymakers at COP29 and beyond, providing a foundation for developing comprehensive strategies to align global finance with goals of the Paris Climate Agreement.
"The current system incentivizes investors to invest in unsustainable and un-equitable activities, but by aligning financial incentives and creating the necessary regulatory frameworks, policymakers worldwide have the opportunity to spur sustainable investing practices and drive public and private collaboration which will drive a just and equitable transition across markets," said Maria Lettini, CEO of US SIF, a member of GSIA.
To read the full report, click here
About Global Sustainable Investment Alliance (GSIA)
GSIA is a global collaboration of sustainable investment membership-based organizations, aiming to unlock the power of the worldwide financial services industry to drive leadership, achieve a substantial impact on key global challenges, and accelerate the transition to a sustainable future.
GSIA simultaneously works to enhance the synergies between members, participate in global initiatives, and provide advice and support to local and regional sustainable investment organizations as they establish and grow.
GSIA's members are drawn from Europe, Asia-Pacific and North America. Collectively GSIA's members represent the mainstream of global finance and investment, managing tens of trillions of dollars in assets. GSIA members include Eurosif (European Sustainable Investment Forum), Japan SIF (Japan Sustainable Investment Forum), RIAA (Responsible Investment Association Australasia), RIA Canada (Responsible Investment Association Canada), UKSIF (UK Sustainable Investment and Finance Association), US SIF (The US Sustainable Investment Forum).
About US SIF and the US SIF Foundation
US SIF: The Sustainable Investment Forum is the preeminent voice advancing sustainable investing. Members, who represent $5 trillion in assets under management or advisement, support US SIF's mission to rapidly shift investment practices toward sustainability, focusing on long-term investment, the generation of positive social and environmental impacts and supporting the shift toward a more resilient and equitable planet and society. https://www.ussif.org
US SIF is supported in its work by the US SIF Foundation, a 501(C)(3) organization that undertakes educational and research activities to advance the mission of US SIF, including offering trainings for advisors and other financial professionals on the Fundamentals of Sustainable and Impact Investment.
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Contacts:
Talia Dunyak
+1 414-376-7934
ussif@lowecom.com
