New CEO says increased financing from developed markets “will be crucial” to net zero ambitions.
Investors in the developed world have a crucial role to play in supporting emerging markets to meet UN Sustainability Development Goals (SDGs), said David Atkin, CEO of the Principles for Responsible Investment (PRI).
Speaking at the Sustainable Investment Forum Europe, the recently appointed Atkin said Western investors could, alongside other stakeholders, help emerging markets nations to develop financial policy frameworks that recognise the “real world impact” of investing to meet SDGs by 2030.
A key area of focus for investors ahead of COP27 in Egypt in November is climate change mitigation, largely through reduction of greenhouse gas emissions to avoid its worst aspects. Atkin cited PRI’s recent report, that states Paris Agreement and the SDGs will be met only if developed and emerging market stakeholders – including governments, investors, multilateral organisations and local communities – work towards their advancement.
“The private investment sector clearly has an important role to play and we need to see the high-level commitments that have been made move into action and implementation,” he said. “There is a leadership group that has emerged, but it is time for others to follow.”
Atkin said the OECD had estimated a US$3.7 trillion funding gap between the annual financing needed to meet the SDGs by 2030 and what is provided by current investment levels. “A big step-up is required in emerging markets to transition to net zero and increased financing from developed markets will be crucial, as will redirection from domestic sources,” he said.
Europe’s foundational work
During the past four years there has been “significant” advances in sustainable finance reform in Europe, noted the PRI’s CEO, through initiatives such as the action plan for sustainable growth and the Green Deal, which have set the direction for EU policy. Other jurisdictions, said Atkin, are taking inspiration from this foundational work. “Taxonomies – many in emerging markets – are being developed elsewhere including Bangladesh, Chile, Indonesia, China and India,” he said.
Atkin said the EU could lead further in stewardship and financial product labelling for emerging markets and continue to leverage and advocate on sustainability. There is potential, he added, for Europe to unlock collaboration between private and public finance in emerging markets.
Referring the need to adapt to climate change as well as mitigate it, Atkin said Investors should recognise the urgency of what needs to be done in emerging markets and focus on building resilience to climate change as well as ensuring a just transition. “These issues cannot be seen as secondary, otherwise the problems will be greater,” he said.
The PRI’s paper suggests institutional investors and multilateral institutions should continue to engage with governments and local regulators in emerging markets on developing and implementing sustainable finance policy frameworks that align with the SDGs and the Paris Agreement.
Further, standard setters, institutional investors, corporates and stock exchanges should collaborate to improve capital market disclosure practices. Interested stakeholders should collaborate to engage with ESG data providers to improve emerging markets data coverage and methodologies.
“Ratings and methodologies can have unintended negative consequences for emerging market issuers where there is a lack of resources to assess risks,” said Atkin. “More work is needed in policy area and in blended financial solutions and bond issuance.”
The climate challenges faced by emerging markets could not be solved without a “concerted effort” by all stakeholders to direct more capital into those markets, although Atkin warned there was no “simple answer”.