Greening our global economy

2014 has been another extraordinary year. Turmoil, and worry about turmoil and its consequences have pervaded much of our public debate, whether about jobs, the economy, or civil unrest and terrorism.

For the first time since the financial crisis, these concerns are increasingly global, no longer just about the economic meltdown that has mainly impacted Europe and North America. The economies of most developing countries have slowed, often drastically so. Indeed, we are no longer only concerned about how to get out of a cyclical downturn.

We may be witnessing a more permanent, structural change in our global economy, with some experts predicting "secular stagnation", a period of slow economic growth, and rising levels of technological unemployment of many routinized jobs.

There are however, beacons of light and hope amidst this volatile, unsettling period, of which I wanted to highlight just two, both about climate. Firstly was the unique leadership event in New York on 23 September convened by UN Secretary General, Ban Ki Moon, bringing together more than 100 heads of state, along with chief executives, city mayors, and civil society and labour leaders, to spur renewed efforts on climate change (LINK: http://www.un.org/climatechange/summit/).

The Summit, which catalyzed hundreds of other, simultaneous events around the world, demonstrated the broad base of shared urgency as to the need to advance low-carbon, climate resilient development. As important, was the fact that the assembled leaders were of a common view that acting on climate was not only in the best interests of the global community of nations, but would advance the direct interests of those nations, businesses and communities that took leadership.

The Summit`s message was not, however, that unilateral action would alone get the job done. Co-operation, especially internationally, was needed if the assembled leaders were to go beyond their comfort zones and commit to the targets required to put the global economy on course for keeping global warming below 2C. And that brings me to my second ray of hope.

The recent announcement at the APEC meeting here in Beijing of a deal between China and the USA on climate may be the breakthrough we have all been hoping for in advancing a strong climate deal in Paris in late 2015. China`s willingness to set an absolute cap on its carbon emissions, alongside important commitments by the US, Europe and a growing number of other economies, both offers the prospect of a slowdown in emissions, as well as providing a political signal that could encourage greater collective ambition over the coming year and beyond.

Ambitious leadership is a pre-condition for addressing major global challenges such as climate. The challenge of turning such leadership into practical action is considerable. Reducing the carbon intensity of any economy, for example, is hard work, particularly for developing countries reliant on mining, oil and gas, manufacturing and other energy intensive activities that deliver jobs and economic growth. Significant co-benefits help, which in China includes both the fight against air pollution and water scarcity, and the opportunity to develop a lead in tomorrow`s green technology industries and exports. China has much to do on both fronts, and much to gain.

Considerable finance is needed to speed this transition. Internationally, progress on green finance has been slow to date, but is picking up speed. There is no doubt that wealthier countries should foot a greater part of the bill, especially in supporting the costs of adaptation by poorer developing countries such as small island states. The commitments to the Green Climate Fund, such as the US$3 billion committed by the USA at the G20 in Australia, now along with other commitments by Germany, Japan, Switzerland, the UK and others. Whilst important, they cannot hope to deliver the US$5 trillion a year need for infrastructure investment to keep the global economy on the road, to enable developing countries to realize their development ambitions, and to drive forward the low-carbon, climate-resilient transition.

The UN Intergovernmental Committee of Experts on Sustainable Development Financing has highlighted the need to finance infrastructure, healthcare and education, access to energy and gender equality, as well as global public goods such as biodiversity and climate change mitigation to meet post-2015 development goals. UNCTAD estimate a US$2.5 trillion annual investment gap in developing countries for financing for such development. Inter-governmental financial flows will only be one part of the solution. Furthermore, the financing needs of developing countries will only partly be addressed through international finance, whether public or private. The main source of finance in many developing countries is local.

China`s success in transitioning to a low carbon, climate resilient pathway will, similarly, depend on its rapidly developing financial and capital markets. Fortunately, leading financial institutions, and those institutions with responsibility for the markets` development, are rising to this challenge. The Industrial Development Bank has been the first Chinese bank to embrace the Equator Principles, the international gold standard for effective environmental risk management of project investments, with other policy banks such as the China Development Bank establishing comparable approaches. China`s ICBC, increasingly a global financial player, has joined with other major financial institutions in working with the UNEP Finance Initiative in advancing good environmental practice in its own operations and across the banking community.

China`s move to green its financial sector has not been restricted to the actions of individual financial institutions. The China Banking Regulatory Commission has since 2007 progressed its green credit guidelines, unique amongst banking regulators globally, and year-by-year moving a growing portion of China`s banking assets towards a compliant and accountable approach to environmental assessment and management. The Peoples Bank of China is co-Convening a Green Finance Working Group with the UNEP Inquiry into the Design of a Sustainable Financial System, an international initiative to development policy options to better align financial systems to sustainable development. The Finance Institute of the Development Research Center of the State Council, also has been exploring options for green finance policies and regulations over the last two years, working with the International Institute of Sustainable Development, the UNEP Inquiry and other Chinese and international experts.

Finance has to be scaled up and flow quickly to address climate and other sustainable development goals to be established as part of an international process in 2015. Private capital will be key, increasingly from developing countries for domestic and South-South investing. Greening financial and capital markets is a pre-condition to making this happen, alongside other green economic and industrial policies. China has a unique opportunity to lead this as part of its own financial market development, and in its international role through key policy platforms such as the G20, so supporting the establishment of a sustainable financial system fit of the 21st century.

The author is UN Under-Secretary-General and UN Environment Programme Executive Director.