High-Level Expert Group on Sustainable Finance (HLEG) highlights the key role finance will play in achieving the Paris Agreement goals

This week, the European Commission welcomed the final report by its High-Level Expert Group on Sustainable Finance (HLEG), which sets out strategic recommendations for a financial system that supports sustainable investments.

Here, we interview Riyong Kim Bakkegaard, Interim Director, Decision Metrics and Finance (DMF), Climate-KIC about the report.

How is sustainable finance situated in the larger discussion around climate change?

“Finance is key to meeting the challenges of climate change. Historically, the costs of climate change have been external to the modern-day financial system, and therefore, it’s not that there’s a lack of finance but it’s that more financial flows need to be directed to pro-climate assets.

Climate technologies and policies are key to reducing emissions and adapting to climate change. Channelling financing to pay for these emissions reductions and adaptation strategies are the next challenge.”

What are some of the biggest challenges in the climate finance space?

“Climate risk and damage is imminent with the onset of climate change impacts, which are already starting to manifest. Adequate financing to adaption strategies is going to be challenging, and returns relative to investment can be uncertain.

Here, at this point, is the heart of the challenge of financing climate change—when costs and risks of climate change cannot be adequately measured, and it doesn’t marry up to the current mechanics of the financial system. In the end, this means investment in climate change adaptation will be very unattractive due to the financial markets short-termism as well as non-monetary benefits.

This is precisely why EIT Climate-KIC works on innovations in metrics, ratings, and standards that can help overcome some of these issues and shift financial flows to green bankable assets.”

What kind of impact might the report have?

“It’s the first policy direction and brief that has been released on this topic, which elucidates how the EU can become world-leading on sustainable finance. It’s clearly the kind of direction that is needed, as meeting this finance challenge for climate action is going to need a coordinated effort.”

What do you think the report does well?

“Its been good in consulting the broader partners in this field, through a series of discussions, panels, and consultations with stakeholders, and through meetings in member states to really understand needs and priorities. So that buy-in is there.

The report highlights major issues such the short-termism, and that it undermines sustainable finance. Importantly, it also talks about how financial reforms can only meet their full potential if they’re matched with policy changes. This creates a mandate for policy-makers, which is imperative if we are to truly transform the financial system.”

What’s your stance and what do you think EIT Climate-KIC’s role could be?

“This important report is the first step in positioning Europe as a clear leader in the sustainable finance stage, and gives guidance for partners and agents working in this field on where efforts should be concentrated for a coordinated European effort.”

As a pan-European network, EIT Climate-KIC is in a strong position to help Europe achieve the recommendations outlined in the report. This year, EIT Climate-KIC will embark on an ambitious programme of work, together with its partners, to position it as a front-runner in championing the innovation that is needed in this space.”

What do you think might be missing?

“I think this report is a very solid step in setting out actions at the EU level, on the policy-side, and for financial actors. Let’s see how far we get in mainstreaming climate in the financial markets.”