The Rise of Sustainable Finance - #ClimateReady

As the demand for sustainable finance talent intensifies globally, Stephen Nolan, Managing Director, UN Financial Centres for Sustainability (FC4S) Network and Promoter of the Sustainable Finance Skillnet discusses Ireland’s growing reputation as a global leader in addressing the sustainable finance skills agenda. 

In 2020, the world lost nearly two million people to the Covid-19 pandemic. The health of more than 90 million people globally was affected, lifestyles dramatically changed, and humanity was forced to rethink its natural fragility and its relationship with the environment. With the economies of most, if not all countries in the world, brought to a standstill, millions of jobs, incomes, and savings were negatively affected, with governments scrambling to halt economic freefall.  

Unfortunately, these challenges still persist today. However, as we continue to grapple with the effects of the pandemic, we should also consider how best we can rebuild when the crisis fades, and normal economic activity becomes possible once more. And with many of the world’s economies rebooting, we must ensure this period is utilised to rethink the structure of the economy, and to plan for how the economy can be further aligned with a resilient, low-carbon future.  

In this context, greater mainstreaming of the sustainable finance agenda will be key. Sustainable finance was, until recently, regarded as a boutique topic. Financial establishments offered specially designed investment funds for clients with a conscience, but these were rarely offered to mainstream clients. Most financial managers felt that sustainable finance, embracing Environmental, Social and Governance (ESG) factors was a temporary fad that would soon fade – in effect, a modest ripple. 

However, investments integrating ESG factors have outperformed the rest of the market during the pandemic. Indeed, 2020 saw a significant surge in capital allocation directed towards sustainable finance activities. ESG–aligned Exchange Traded Funds (ETFs) grew from under $59bn at the end of 2019 to just over $174bn end 2020. Equities were not alone as, in 2020, green bonds issuance hit a record $269 billion. Euronext Dublin ESG bond listings for 2020 surpassed €28 billion in cumulative issuance, the highest annual figure to–date.  

Furthermore, the recent wave of innovation brought on by the sustainable finance agenda has touched not only the established financial players like banks and investors – it can be found right across the spectrum from measurement, standards, and norm-setting on the one extreme, to digital financial technology (fintech) on the other, and embraced insurances, pension funds, stock exchanges, debt markets, rating agencies, central banks, and other regulators. No part of the financial or capital markets has remained untouched. While this reorientation of the financial system towards sustainability is only in its beginning, the trend is clear.  

The Talent Challenge

The need to identify talent requirements and upskill financial services professionals with sustainable finance skills; in effect support the development of new products and services utilised to mobilise the trillions required to finance Ireland and Europe’s transition to a low-carbon economy, is constantly growing. Accordingly, within firms, the demand for sustainable finance skills and talent is growing rapidly.  

However, in meeting this challenge, recent joint research by the UN and Deloitte highlight that organisations are finding it difficult to hire sustainable finance staff. Left unaddressed, this could cost them significant economic losses both through relative prices (increased salaries due to relative scarcity of talent) and lost opportunities. The most in-demand skills, pressing learning needs, and desired outcomes from training show that the upskilling in sustainable finance requires a systematic approach by firms. These findings align with the need to advance skills to assist in product-development and bring sustainable finance into the core strategy of organisations.  

Ireland’s Response  

In 2019, Skillnet Ireland and Sustainable Finance Ireland (formerly Sustainable Nation Ireland) commissioned Deloitte to undertake an analysis of Ireland’s financial services sector sustainable finance readiness – an action of government’s Ireland for Finance Action Plan 2019. The findings highlighted that sustainable finance is not a short-term trend, but a permanent shift from ‘niche’ to ‘mainstream’ representing an entirely new focus in finance. It recommended, that in addition to changes to third level programmes, sustainable finance must be part of professional education and continuous professional development for finance professionals, underpinning new product and services development. 

A Greener Horizon

On the back of this important analysis and with the support of Skillnet Ireland, the Sustainable Finance Skillnet was launched late 2019.  

Overseen by a Steering Committee representing all segments of Ireland’s financial services ecosystem, across 2020 the Sustainable Finance Skillnet supported over 1,400 professionals through a wide range of learning opportunities.  

Activities included the development of a global first-of-its-kind EU Taxonomy course which enables investment professionals to gain a firm understanding of the EU taxonomy and its practical implementation to facilitate sustainable investment. The Sustainable Finance Skillnet also partnered with CFA Ireland to launch the CFA UK Certificate in ESG Investing in Ireland, delivering the benchmark knowledge and skills required by investment professionals to integrate ESG factors into the investment process.  

Under government’s Ireland for Finance Action Plan 2021, the Sustainable Finance Skillnet has been tasked to further develop sustainable finance skills programmes for professionals in the Irish financial services sector. In 2021, Sustainable Finance Skillnet has developed a course to address the EU’s Sustainable Finance Disclosure Regulation (SFDR), which launched in March. 

An Example for Others to Follow  

In late 2020, voicing her admiration for the work of the Sustainable Finance Skillnet, European Commissioner Mairead McGuinness stated that: “Ireland’s initiative for improving skills and expertise for greening the financial system is setting an example for others to follow”.  

Today, the Sustainable Finance Skillnet is increasingly namechecked as a blueprint for other global financial centres, so that they too can address their sustainable finance skills needs. With this, Ireland is becoming increasingly recognised as a global leader when it comes to the sustainable finance skills agenda. 

For more information on Sustainable Finance Skillnet, visit https://sfskillnet.sustainablefinance.ie/.