The market for sustainable finance is rapidly growing in response to the climate emergency. Despite impressive recent growth, the sustainable finance market has a long road ahead to reach maturity. It faces competing initiatives, uneven coverage by geography and asset class, misalignment of definitions and a mismatch between supply and demand. However, financial market infrastructure (FMI) can help.
Drawing upon the successes of cross-border FMI in the Euroclearable and global bond markets, we identify three opportunities for FMI to support the development of the sustainable finance market:
- Encourage greater sustainable finance issuance by reducing infrastructure, regulatory and informational barriers;
- Improve the processing of ESG information within existing financial systems; and
- Expand the reach of the sustainable finance market to more participants and asset classes.
These opportunities include pragmatic solutions, such as creating an initial sustainability screening solution for investors by tagging the universe of sustainable securities within cross-border FMI systems and embedding ESG disclosure within asset servicing.
We leverage an impact pathway approach to quantify potential impacts of a cross-border FMI-driven approach. We find that FMIs can support up to a 2.5% uplift to the projected sustainable finance market growth trajectory. This is equivalent to an additional US$ 25 trillion mobilised in the sustainable finance market by 2030 and up to 1.1 years saved in financing the UN SDGs.
We face an urgent need to transition to a more responsible world. Read how a cross-border FMI-driven approach to scaling sustainable finance can help to pave this way forward by downloading the report at the link below.
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