16 November 2022

Developing economy financial regulators use Inclusive Green Finance to build resilience and mitigate against impact of climate change

Sharm El Sheikh, Egypt (16 November 2022)Financial regulators from developing economies are leading the way in Inclusive Green Finance policies. These policies recognize the role of financial inclusion in building resilience to climate change impact and enable small-scale mitigation among the world’s most vulnerable people. This is the key message from the Alliance for Financial Inclusion (AFI) side event at the 2022 United Nations Climate Change Conference (COP27). 

The event saw the launch of the milestone research report “The Roadmap to Inclusive Green Finance”, by AFI’s Inclusive Green Finance Working Group (IGFWG) and an academic team of authors coordinated by the University of Luxembourg’s ADA Chair in Financial Law (Inclusive Finance) Prof. Dr. Dirk Zetzche.

First time at COP, AFI member institutions, central banks and other financial regulators from around 80 developing markets, are sharing their Inclusive Green Finance (IGF) policy solutions that contribute to solving one of humanity’s main challenges, climate change. Focusing on how to use financial inclusion to enable vulnerable people to adapt and mitigate to climate change, the panelists explored how central banks and financial regulators are contributing to climate action. 

“We also want to consider how financial regulators can be involved at both national and international levels in formulating climate change policies and how financial services can be adapted to help individuals and small and medium enterprises (SMEs) to be more resilient against climate change impact”, said Kabinda Kawesha of the Bank of Zambia, one of the panelists. 

Inclusive Green Finance trailblazers
The Central Bank of Egypt is one of the IGF trailblazers and just this month issued binding sustainable finance regulations. “This is a milestone in strengthening the banking sector’s role in accelerating the transition towards a green economy and responding to current and emerging environmental and social risks”, Walid Ali from the Central Bank of Egypt explained. 

Some countries, like Sao Tome and Principe and the Solomon Islands, have integrated Inclusive Green Finance into their national financial inclusion strategies. Ghana, the Philippines or Rwanda have chosen to issue IGF policies in the form of Sustainable Finance/Banking Guidelines and Roadmaps. Fiji, an AFI leader in IGF, completed its two financial services’ demand-side surveys, first focusing on gender and climate and second emphasizing women’s resilience to climate disasters. 

“We are here to create awareness of the role central banks play in mitigating risks associated with climate change. Bank of Ghana has established sustainable banking principles to assist banks in responding to emerging issues including environmental and climate change”, said Bank of Ghana’s Patience Nkansah. 

Ecuador’s  Superintendencia de Economía Popular y Solidaria (SEPS) signed a national cooperation agreement on green finance with the Ministry of Environment as well as launched Environmental and Social Risk Management (ESRM) Guidelines to boost financial inclusion in its credit cooperative sector, especially in support of low-carbon projects and initiatives for build climate resilience among vulnerable communities.  

“Climate change and inequality are two of the largest challenges that we face today. Action to mitigate the effects of climate change without leaving anyone behind is both necessary and urgent and, sustainable finance is a tool to help achieve this”, Jorge Moncayo from Ecuador’s SEPS said.

The Roadmap to IGF
IGF policy is a coherent, holistic approach to integrating both financial inclusion and environmental factors in financial regulation, explained Prof. Dr. Dirk Zetzsche, from the University of Luxembourg. AFI members worked together with Prof Dr. Dirk Zetzche, Professor Ross Buckley from the University of South Wales in Sidney (UNSW Sydney), Professor Douglas Arner (Hong Kong University) to co-author the IGF Roadmap.  

Professor Buckley emphasized the need for constant updates and reassessment: “If regulators want too much too soon, they will achieve nothing. A clear focus on national priorities is crucial for any successful IGF strategy. Each step will require refinement over time, in proportion to the capacity of regulators and regulated institutions.”

Highlighting the importance of capacity building, Professor Arner: “Our research has shown that IGF requires active regulators. Regulators will need more of their existing resources and entirely new types of resources in technology, hard science and data generation.”

“While mutual learning from other countries remains important, we found that financial inclusion and climate change concerns differ from country to country. No one size fits all. Solutions must be country-specific and tailored to the necessities of each AFI member”, Professor Zetzsche concluded.

AFI members, central banks, and other financial regulators endorsed the Sharm El Sheikh Accord on Inclusive Green Finance five years ago during AFI’s annual flagship Global Policy Forum. Under the IGF remit, financial institutions are providing vital support to those navigating an uncertain environment by promoting green products within savings, credit, insurance, money transfers and new digital delivery channels. IGF plays a key role in enabling the implementation of the UN Sustainable Development Goals (SDGs), particularly SDG 1 (no poverty), SDG 7 (affordable and clean energy) and SDG 13 (climate action). 

This special report was a joint initiative between AFI, with support from the Federal Ministry for the Environment, Nature Conservation, Nuclear Safety and Consumer Protection of Germany (BMUV) and a team of authors coordinated by the ADA Chair in Financial Law (Inclusive Finance) at the University of Luxembourg with support by ADA and the Ministry of Foreign and European Affairs of the Grand-Duchy of Luxembourg. The event was hosted at the BeNeLux-EIB Pavilion in Sharm El Sheikh, Egypt.

 

About AFI:  

The Alliance for Financial Inclusion, or AFI, is the world’s leading organization on financial inclusion policy and regulation. Roughly 80 member institutions make up the AFI network, including central banks, ministries of finance and other financial regulators from 75 developing and emerging countries. AFI works on empowering policymakers to increase access and usage of quality financial services for the underserved through formulation, implementation and global advocacy of sustainable and inclusive policies. 

 

About IGF:  

Inclusive Green Finance is a quickly evolving policy area focusing on how access to financial services, such as insurance, credit, payment systems and formal savings, can advance climate mitigation and adaptation. Central banks from the Alliance for Financial Inclusion (AFI) have championed this policy area, focusing on bringing together financial inclusion and green finance policy development. 

 

About the ADA Chair in Financial Law (Inclusive Finance) at the University of Luxembourg:

The ADA Chair in Financial Law (inclusive finance) at the Faculty of Law, Economics and Finance of the University of Luxembourg benefits from research support provided by ADA  (Appui au développement autonome), a Luxembourgish non-governmental organization focused on increasing the autonomy of vulnerable people in Africa, Latin America and Asia with inclusive finance since 1994, as well as the Ministry of Foreign and European Affairs of the Grand-Duchy of Luxembourg. The ADA Chair is the sole academic Chair devoted to law and regulation of inclusive finance worldwide.


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