Sustainable finance

Background

Our commitment to sustainable development represents our belief that economic activity need not be viewed as requiring a choice between protecting the environment and supporting human development.

Society needs economic innovation, social and policy transformations and the right mindset. Financing activities that will help to curb climate change and to adapt to its effects represent a tremendous opportunity – economically and environmentally. The Stern Review on climate change commissioned by the UK Government has estimated that by 2050 markets associated with the development of low-carbon technologies could be worth at least $500 billion. As well as the risks to society and habitats, climate change also brings major financial risks – Stern put the cost of extreme weather events at up to 20 per cent of global output.

Successful financial institutions understand the risks and opportunities in the drive for sustainable development. We integrate sustainability in risk management and provide the financing to make vital investments. This demands an understanding of the links between food, energy, water and the climate and the issues each critical area faces.

Scarcity of essential resources, such as water and food sources, is already creating economic opportunities around the world. For example, China has been increasingly involved in Africa and Brazil in trade flow and direct investment, accessing agricultural production and raw materials. Business activities such as renewable energy, waste and water management services are growing fast, and enable the adaptation to a resource-constrained economy.

The world needs significantly more energy to support development but must simultaneously be able to reduce greenhouse gases to avoid irreversible environmental damage. These pressures are driving significant growth in renewable energy in the Bank’s markets, two of which, China and India, are already substantial players.

We face three main challenges:

• Managing environmentally sustainable economic and social development. For example, the rise of bio-fuels demonstrates the need to achieve the right balance of food security and the production of cleaner energy (see Sustainable risk management)
• Financing renewable energy and clean technology projects in markets which lack the policy and financial incentives offered in Europe and other regions
• Embedding sustainability criteria into our financing decisions in small to medium-sized enterprise (SME) banking