Sustainable finance has become a top priority for many governments

As sustainable finance becomes increasingly mainstream, Ireland is perfectly positioned to leverage its green credentials and become a global leader in this rapidly surging area.

The Government has identified sustainable finance as one of its priorities within its Ireland for Finance 2025 roadmap, and measures are already under way to build on our international reputation as a global financial centre and our already considerable strengths in sustainable finance, including the creation of an international sustainable finance centre of excellence.

With close to €160 billion in sustainable-related assets already managed or listed here, Ireland has been at the forefront of efforts to mainstream the sustainable finance agenda through a number of significant initiatives. According to Marc Aboud, director of sustainability at Deloitte, the majority of measures Ireland is taking in the name of sustainable finance are following the footprint of the EU and other international institutions. Sustainable finance is a top priority for many governments, and for good reason, he says.

“Looking at the numbers, the UN has estimated that the world will need to spend between $3 trillion and $5 trillion annually to meet the Sustainable Development Goals (SDGs) by 2030, and the ongoing Covid-19 pandemic has increased that estimate by an additional $2 trillion annually,” says Aboud.

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Some of this investment is already coming to life at an EU level, with the European Green Deal aiming to mobilise €1 trillion in sustainable investments via the European Green Deal Investment Plan (EGDIP). “As well as assisting in greenhouse gas reduction targets this capital provides a huge opportunity for the financial sector in Europe,” Aboud says. Across the Atlantic President Joe Biden has signed into law a $430 billion (€423bn) bill seen as the biggest climate package in US history, designed to cut domestic greenhouse gas emissions.

Given the level of investment required, governments not only see this as a risk, but also a significant opportunity as we transition to a low carbon economy, Aboud says. “The sustainable finance landscape will inevitably come into increased focus as the climate crisis escalates.”

As the financial sector adapts to this changing reality, increased funding for developing nations and an enhanced focus on biodiversity will be underpinned by an increased scope of regulation in sustainable finance, he adds.

CEO of AIB Colin Hunt agrees. “Against the backdrop of a challenging global environment of energy insecurity, rising inflation, and extreme weather in many regions, keeping alive the Paris Agreement’s target to limit global warming to 1.5° Celsius is more critical than ever,” he says.

Sustainable finance has an important role to play in that effort, with rapidly growing momentum in recent years, he notes; for example, the issuance of green, social, sustainable and sustainability-linked bonds rose from roughly 2 per cent of global bond issuance at the start of 2018 to a peak of over 12 per cent at the end of 2021, while flows into environmental social and governance (ESG) bond funds rose from a net of $4.2 billion in 2018 to $102 billion in 2021.

“In Ireland we have seen the Government chart the course to sustainability in the financial services sector with the national sustainable finance roadmap – with Minister McGrath reaffirming budgetary commitments to sustainable finance upskilling in the recent budget,” Hunt adds.

“2022 will mark the first full year of the Sustainable Finance Roadmap to support the Irish sustainable finance industry in capturing the opportunities from the transition to a net zero future, including developing strategies to meet climate-related disclosure obligations, development of a national sustainable fintech strategy, launch of an international sustainable finance centre of excellence, and climate risk and sustainable finance fora including all key stakeholders.”

The sustainable finance centre of excellence, one of 18 key actions identified in the sustainable finance roadmap, launched this month. Mark Jordan is chief strategy officer at Skillnet Ireland and also executive lead on the sustainable finance centre of excellence project. He explains that the new centre brings all of Ireland’s expertise in this area together for organisations to utilise, while working to grow our talent base in the area of sustainable finance.

“The concept of the centre for excellence and knowledge hub is that it will function as a one-stop-shop, Jordan says. “Organisations will come to it for information and analysis on research, policy, and advocacy, and it will also be a place for companies to exchange innovation and ideas.” As the centre evolves it will allow for the building of a “knowledge capital”, he adds. “The industry experts will use this centre as a repository to get information but also place information for future use and it can then serve as a forum or marketplace for future collaborations.”

Upskilling and talent development will be a key output of the ambitious centre, and talent programmes will be co-created by the participants. “It will also be open to any sector,” Jordan says.

Jordan says he sees industry experts naturally “gravitating” towards the centre as the demand for sustainability becomes impossible to ignore. “We see Ireland moving forward to position itself as a leader in this space. While there is this big movement towards greenness and sustainability there is no one place to go to achieve this – this will centralise all our knowledge in this area.”

“Access to skills and talent and fostering innovation are the key drivers to positioning Ireland as a leader in sustainable finance,” agrees Aboud, who says it is vital that support continues to be provided for educational programmes across the financial sector, ranging from baseline technical knowledge to in-depth regulatory and disclosure expertise.

Ireland has a thriving fintech and innovation scene and the drive towards sustainable and green finance provides a significant opportunity in this respect, he adds. “It is imperative that the fintech and innovation ecosystem develops in tandem with the mainstreaming of sustainable finance and the regulatory agenda,” he says. “This ecosystem will be a key stakeholder that can positively impact the evolution of sustainable finance.”

And how will we measure our success in this area? The true marker of successful change will be in five to 10 years’ time, Aboud says. “This will be when we no longer refer to ‘sustainable finance’ as a term and it is ingrained into BAU [business as usual] as simply ‘finance’.”