The G20, comprising 19 countries and the European Union, collectively represents 85 per cent of the global economy, putting it in a prime position to make a real difference to the global economy through cooperation.
At the same time, G20 countries are also responsible for 76 per cent of the world’s greenhouse gas emissions (GHGs), making them an important group in the transition to a sustainable and low-carbon future. This year, at the G20 Forum in Brazil, the spotlight is on how we can ‘build a just world and a sustainable planet’ through global governance reform and better policy connectivity at the G20.
In July 2024, the United Nations Environment Programme Finance Initiative (UNEP FI) submitted three input papers to the G20 Sustainable Finance Working Group, advocating for a nature-positive economy and a just transition. Here are the key recommendations where G20 countries can take action:
1. Enhance transparency in corporate and financial sector nature-related disclosure and just transition plans.
Transparent and comprehensive nature-related disclosures by corporations and the financial sector are essential for tackling global biodiversity loss. The Kunming-Montreal Global Biodiversity Framework (GBF) highlights the importance of corporates assessing and mitigating their impacts on biodiversity.
UNEP FI recommends that G20 countries enhance corporate disclosures by covering financial risks and dependencies related to biodiversity alongside the social impacts of their transition strategies. By aligning disclosure approaches with this framework, G20 countries can ensure that businesses assess, disclose, and reduce biodiversity-related risks and negative impacts.
Additionally, financial institutions should be encouraged to disclose their transition plans, including credible decarbonisation targets and strategies to address social risks. This comprehensive approach ensures that economic transitions are not only environmentally sustainable, but also socially equitable.
2. Support SMEs with the assessment and voluntary reporting of nature-related issues, especially in emerging markets.
Small and Medium Enterprises (SMEs) make up about 90 per cent of businesses and account for 50 per cent of employment worldwide according to the World Bank, and many SMEs are integrated into the global supply chains of larger companies.
However, SMEs often lack the knowledge and bandwidth to take effective action to address environmental impacts and dependencies themselves; they need guidance and support from larger value chain companies, local banks as credit providers, and policymakers.
G20 countries should consider supporting simplified, proportionate and flexible disclosure standards that are compatible with SMEs’ capabilities. This support will enable SMEs to contribute meaningfully to biodiversity goals while informing their own sustainability transitions.
G20 ministries may also consider strengthening supply chain transparency through comprehensive due diligence laws that require companies to trace, report and mitigate adverse environmental and social impacts in their supply chains.
3. Develop nature-positive and interoperable sustainable finance taxonomies.
Taxonomies offer countries a way to ensure that local assets, activities, projects, and entities labelled as “green”, “social”, and “sustainable” make a substantial contribution to achieving international goals and national development strategies and priorities. They have become a tool to help direct flows of capital to green and sustainable projects in over 40 countries.
UNEP FI calls on G20 countries to integrate nature objectives into green or sustainable finance taxonomies and ensure their alignment with international frameworks such as the Paris Agreement and the GBF.
However, the multitude of national taxonomies available may prove challenging for corporations, banks and investors in understanding how each taxonomy is aligned with environmental science, and where the similarities and differences lie across jurisdictions. While acknowledging that not all G20 countries have sustainable finance taxonomies, to ensure efficient cross-border green-related finance flows, they should at least ensure interoperability of policies and frameworks that are based on taxonomies.
Finally, green or sustainable finance taxonomies should not only focus on environmentally sustainable activities, but also include social safeguards and objectives to support a just transition.
4. Support credible investment products and markets for Nature-based Solutions (NbS), including enhancing market integrity for credible biodiversity credits.
In recent years, several novel financial instruments have emerged to raise capital for biodiversity and ecosystem restoration, including nature bonds, sustainability-linked bonds, use-of-proceeds bonds, sustainability-linked loans, impact-focused investment funds and biodiversity credits.
While this is a positive development, there is a risk that the lack of standardisation and guidance might lead to unsubstantiated environmental claims or greenwashing, which is a key concern facing the implementation and scaling up of NbS. For example, G20 countries may promote the development and usage of standards and/or labels to ensure the measurability and verification of environmental claims.
Biodiversity credits offer an innovative mechanism for financial actors to finance conservation, restoration and interventions addressing drivers of biodiversity loss.
To support the scaling of the emerging biodiversity credits markets and to mitigate trade-offs, G20 countries should draw lessons from the carbon markets to avoid the risk of low integrity and low-quality credits, as well as poor supply and demand, slow uptake, high costs, adverse social and environmental outcomes and potential market failures. G20 governments should thus ensure that biodiversity credit markets are aligned with national and international global best practices.
5. Tailor regulatory approaches to local contexts
While global and interoperable sustainable finance frameworks are key to advancing our global goals, a one-size-fits-all approach to regulation is insufficient for addressing the diverse impacts of the transition across regions, sectors, and communities.
A universal regulatory framework cannot sufficiently address the different regions’ diverse socio-economic and environmental contexts. UNEP FI emphasises the importance of tailoring regulations to local contexts, especially concerning Indigenous Peoples and local communities.
In particular, G20 countries should prioritise Indigenous Peoples in designing and implementing Nature-based Solutions (NbS). This involves respecting their rights, integrating their traditional knowledge, and ensuring their meaningful participation in decision-making processes. By doing so, regulations can foster inclusive and equitable transitions that benefit all stakeholders.
Conclusion
The G20’s role in shaping global economic policies is more crucial than ever. By adopting UNEP FI’s recommendations, the G20 can lead the world toward a nature-positive and socially equitable future.
This involves enhancing corporate and financial sector disclosures, tailoring regulations to diverse local contexts, developing interoperable sustainable finance taxonomies and creating regulatory frameworks to scale finance for Nature-based Solutions. These steps are pivotal in aligning economic growth with environmental stewardship and social justice, setting the stage for a resilient and inclusive global economy.
As the world watches, the G20’s decisions in Brazil could mark a turning point in our collective journey towards sustainability. The time for action is now, and the path forward is clear: a just transition that leaves no one behind and a thriving natural world that supports all life.
Read the series of three input papers, where UNEP FI offers tangible recommendations for the G20 Sustainable Finance Working Group towards a nature-positive economy and a just transition.
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