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Facing the climate crisis: The path to a sustainable economy

By Mary O'Dea, CEO of IOB

This week sees the launch of the National Sustainable Finance Roadmap – an ambitious framework to drive progress on Ireland’s climate goals and establish the country as a centre of excellence for sustainable finance.

This is a milestone in Ireland’s sustainability journey and the roadmap will be an important catalyst for progress, innovation and positive change in the financial services sector in the coming years.

During the pandemic lockdown, I remember thinking about the effect it might have on the sustainability agenda. As we begin to emerge from this challenging time, it’s clear that sustainability is the priority for the sector.

The pandemic has brought us face to face with a global crisis. Now, we must face up to an even greater existential threat – climate change.

As Mark Carney, UN Special Envoy for Climate Action and Finance, said, “we cannot self-isolate from the climate crisis”.

A clear and present danger

If we needed a reminder of just how critical the stakes are, then the last three months have certainly provided that.

The release of the latest report from the Intergovernmental Panel on Climate Change made it clear that the impact of climate change is already here and rapidly worsening.

Closer to home, the Environmental Protection Agency, Met Éireann and the Marine Institute’s joint report on climate change painted a picture of its impact in Ireland. Our own country has already warmed by almost one degree.

What does that mean for Ireland? Well, our changing climate will lead to more erratic weather conditions with increased storms and rainfall, along with water shortages in summer.

It will impact on farming and agricultural practices. As an island, Ireland is also particularly vulnerable to the rise in sea level – we will face increased risks of flooding along coastal regions.

Of course, this all pales in comparison to the potential global impact of climate change. Last month, The World Bank warned that 216 million people could be displaced by 2050 if urgent action is not taken.

That is precisely what is required now from all of us– urgent action. We have the goals and targets, let us now measure our progress in mitigating climate change by our actions and results.

For the financial services sector, there are two areas of critical focus; risk management and green financing.

Recognising the risk

The Covid 19 pandemic put risk management front and centre globally. Climate change is a systemic risk - it impacts all sectors of the global economy.

It is increasingly being recognised by scientists and political leaders as a ‘threat multiplier’– it exacerbates the likelihood and impact of mass immigration, political conflict, famine, housing issues and, of course, extreme weather events.

Ensuring that the economic risks associated with climate change are properly accounted for is critical to safeguard clients, customers and the sector itself.

Given the systemic nature of climate risk, it should not be treated as a new category of risk, but instead should be incorporated into all existing risk management frameworks and approaches.

Driving green investment

To enable a transition to a low-carbon economy, the sector needs to drive significant investment in green projects.

The government alone cannot finance and achieve the targets for emissions reductions - the financial sector’s support is essential. The costs involved are substantial – Ireland’s transition to clean energy alone is estimated to cost over €40 billion.

As we look to reduce greenhouse emissions, green investment and innovation will accelerate our move to a sustainable economy and lessen the economic risks of an abrupt transition.

We have already seen great progress in this space, with the introduction of green bonds, green business loans, green mortgages and the rapid growth of ESG practices in Ireland and globally.

Despite the imperative arriving from a doomsday scenario, this is an exciting and transformative time for the sector as a massive economic shift takes place. The products being introduced today will play a role in safeguarding generations to come.

Developing talent

To enable and drive progress in these areas, building the knowledge and capacity of the sector will be critical. World class sustainable finance training and development will ensure that the sector has the talent and expertise needed to facilitate the transition to a sustainable economy.

This is a key pillar in the Sustainable Finance Roadmap, which recognises Ireland’s existing leadership in this area through the work of the Department of Finance, Sustainabe Finance Ireland, Skillnet Ireland and, I’m proud to say, IOB.

This is a priority area for IOB as we expand our supports to meet the evolving needs of the industry and our members.

We continue to grow our portfolio of programmes, short courses and micro-learning content across sustainability topics such as risk management, SustainTech, climate change, biodiversity, non-financial disclosures and sustainable reporting.

Responding to the crisis

How the financial services sector responds to this urgent call for action will define the sector forever.

Just as it responded to the pandemic, the sector must respond to this crisis with urgent action and agility.

Let us all be able to look back 20 years from now and remark on how effective the response was in stemming potential disaster.

Over the past decade we have witnessed a transformation in how we do business in financial services. With the move to increase sustainable business practices and embrace ESG, it’s making us reconnect with why we do business.

We can’t have a functioning economy without a functioning planet. Sustainability must become a shared purpose for all of us working in financial services.

Together we can help Ireland, and the world, transition to a sustainable financial system.