Sustainable investment fund assets are now up to $3.6 trillion but fall far short of the $20 trillion needed to achieve net-zero carbon emissions by 2050, the International Monetary Fund said in a semiannual report released Monday.
The $3.6 trillion of funds with a sustainability label by the end of 2020 represent just 7% of overall investment assets worldwide. Those with a specific climate focus are just $130 billion, but experiencing record growth, the Global Financial Stability Report said.
As much as 70% of the $20 trillion needed will come from the private sector, while governments can help with regulatory oversight and mechanisms to avoid greenwashing, the report said.
Policymakers can help by strengthening the global climate information architecture, including data, disclosures and sustainable finance classifications. That applies to asset managers and their funds, where "labels have become an increasingly important driver of fund flows," especially in the retail market, the IMF said.
"Once those elements are in place, tools to channel savings toward funds that enhance the transition become important," it said, including enhanced eligibility of climate-themed funds for favorable tax treatment, along with carbon taxes.
Investment funds have stepped up their corporate stewardship on climate issues, the IMF found, voting for nearly 50% of climate-related shareholder resolutions in 2020, compared with 20% in 2015. Funds with a sustainability focus voted for those resolutions 60% of the time, and environment-themed ones came close to 70%.
Fund managers face several challenges, including data gaps, risk of greenwashing by companies, multiple disclosure standards, and few globally accepted taxonomies.
Citing several initiatives to fill these data gaps and develop taxonomies to align investment flows with climate goals, "progress is in sight," the report said.
