Accelerating Sustainable Finance in SL through private sector participation

Sri Lanka declared its commitment to achieving the 17 Sustainable Development Goals (SDGs) in 2015. Since then, the country has made several national pledges and commitments to achieve environmental, social and economic goals in line with the SDGs. These ambitious commitments require greener and more sustainable capital markets and financial systems and a private sector investing in environmental and social priority sectors.

While the link between climate-related goals and finance may not be immediately apparent, the financial sector is an important leverage point for a sustainable transformation. Investments aligned with a country’s climate goals can make an important contribution to environmental and climate protection.

In line with the current and evolving global and regional trends and opportunities, accessing the untapped potential of the sustainable finance market can only be done through empowering financial sector institutions and corporate leaders through comprehensive competence and knowledge development on climate-relevant issues and priorities and their interrelationships with the financial sector and investment choices.

Environment, Social and Governance (ESG) is often used in business as a key metric in making investment decisions and also serves as a reference for companies reporting the impacts of their businesses. ESG has become a globally recognized consideration in investment decision-making and is increasingly the focus of companies’ strategic and operational agendas. With issues such as climate change, ethical supply chains, environmental damage and global welfare becoming more critical, investors and regulators are now focused on ESG aspects that positively contribute to solving current global issues.

Many economies, especially in Asia, have implemented different policies to incentivize the private sector to issue green bonds. In Asia and the Pacific, financial entities are the main issuers of green bonds having a 50% share in the market compared to 17% share of the governments. Global cooperation and international standardization have had a positive impact on the issuance of private green bonds.

Countries like Indonesia have implemented a series of sustainable finance initiatives as an effort to create an inclusive and globally competitive capital market. The Indonesia Stock Exchange (IDX), became a part of the Sustainable Stock Exchanges and launched ESG focused indices, aiming to improve the transparency of listed companies’ ESG performance and to drive the implementation of SDGs as a part of Investor’s decision-making process.

Recent research has found that green investments significantly contribute to businesses’ green innovation. Therefore, in addition to bridging the SDGs funding gap, a sustainable capital market will facilitate green innovation, which is fundamental to keeping pace with the global economy.

In view of above, a 3-day Sustainable Finance training targeting the private sector stakeholders was successfully conducted recently by the Central Bank of Sri Lanka in partnership with the Sustainable Development Council, the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP), the Global Green Growth Institute (GGGI) and the Luxembourg Green Exchange (LGX) and LGX Academy (the world’s first and leading exchange dedicated to sustainable finance) in Colombo.

The objective of the training was to support the private sector in developing a better understanding of sustainable finance instruments, best practices on compliance, and ESG risk identification and management. To build staff capacity in both government and the private sector to understand sustainable finance as a distinct segment of the market, increased awareness of various emerging asset classes, and enhanced cooperation between the public and private sectors are citical. Strong links between financial markets and key actors in the real economy can create an enabling environment that looks at sustainable finance as the new business-as-usual.

Delivering the Opening Remarks at the event, the Senior Deputy Governor of the Central Bank, T. M.Y.J.P Fernando stated that sustainable finance has ceased to be a mere aspiration; it has become a necessity and as the main regulator of the financial sector, the Central Bank is committed to creating an enabling environment for the advancement of sustainable finance in Sri Lanka through laying the necessary foundations and the private sector must build upon the initiatives and drive the momentum forward, benefitting from efforts of the financial sector institutions to green the economy.

Speaking at the event, the Director General of the Sustainable Development Council, Chamindry Saparamadu highlighted that developing greener and sustainable capital markets and financial systems and channeling private capital flows towards environmental and social priorities are vital to achieve country’s development goals whilst remaining within the planetary boundaries. Ms Saparamadu further noted that this requires all key stakeholders ie regulators, financial sector institutions, and corporate leaders to work with a shared vision and understanding.

The training was attended by representatives from Banks, Non-bank Financial Institutions, Insurance Companies, leading Business Chambers and officials from the Central Bank and the Securities and Exchange Commission,