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On April 21st U.S. Treasury Secretary Janet Yellen publicly announced her plans for tackling climate change through market stimulation. Specifically, she plans to “direct public investment to areas that can facilitate our transition to net-zero and strengthen the functioning of our financial system so that workers, investors, and businesses can seize the opportunity that tackling climate change presents” and references an estimate of the investment needed for the United States alone to be around $2.5 trillion over 10 years.
She also endorses specific sustainability reporting initiatives, like the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) climate reporting framework and the International Financial Reporting Standards Foundation (IFRS) initiative, that are working towards developing a climate disclosure standard for measuring sustainability.
Ultimately, this has some very positive implications for the future of impact investing. Not only in terms of providing further incentivisation for companies to become more sustainable in their operations, but may also result in fiscally stimulating the green economy. Subsidies for industries involved in highly unsustainable production (such as fossil fuels) will be removed and redirected towards ‘greener’ alternatives. As such the impact investor can expect sustainability to be more popularized within the private sector, and for stocks in more environmentally-friendly companies to rise as a result. Especially since Yellen herself emphasizes that “private capital would be needed” in order to fill the $2.5 trillion gap that is estimated as necessary in order to effectively fight back climate change.
Yellen also notes the growing demand for climate-friendly investments such as green bonds and sustainable assets, which will continue to generate as investors find it more beneficial to not only their conscience but their bank account to invest in companies involved in sustainability measures.
One of the main challenges associated with opening sustainable finance flows is a challenge impact investing has faced for a long time now- the lack of consistent disclosures and measurements needed by investors in order to accurately compare climate-related risk and opportunities across companies. Yellen has stated she will be working closely with both the TCFD, IFRS and the SEC in order to establish a Sustainability Standards Board that will develop a climate disclosure standard. When such a standard is developed, one of the biggest issues plaguing sustainable investment right now could be resolved. Until that point, however, it will be difficult to begin sustainable finance flows that will make the U.S. economy ‘greener’ in the future.