2021, a year of structural changes towards a sustainable financial system

In April 2021, the Glasgow Financial Alliance for Net Zero (GFANZ) was created, a coalition of 450 financial institutions with $130 trillion in assets, hosting the Net Zero Banking Alliance and with banks representing 40% of the banking system. Unimaginable a few months ago, it was a clear message to governments and companies that the financial sector is ready to finance this transformation.

Secondly, 2021 saw the return of the United States to the Paris Agreement, which clearly had many implications. I would particularly highlight the creation of the International Sustainability Standards Council with a mandate to set a global standard.

In Europe, a robust sustainable taxonomy began to take shape, and it was also the year that the Commission’s new strategy was born, with a particularly remarkable new vision for the transition. For the first time, it will focus on how to mobilize not only more investment in purely sustainable activities, but also on how to support the economy as a whole.

Three major challenges await us: the total integration of emerging countries, biodiversity and capital, and human rights.

Finally, a fourth structuring milestone was the integration of climate change into banking supervision practices, with the ECB is leading the way with the establishment of the expectations guide and its first top-down stress test. These first steps were supported by the start of the work of the Basel Committee.

So what can we expect in 2022? Well, the realization of all these initiatives has blossomed in 2021, but in my opinion, the circumstances will not yet be right for the fourth wave of structural change, for which we will have to wait a few more years. And what will be the triggers at that time? I believe that we still have three major challenges to overcome: the total integration of emerging countries, biodiversity and capital, and human rights. Make no mistake: the time will come, and it will come sooner rather than later.

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Don F. Davis