"New Rules for New Horizons": AXA and the UNEP Inquiry call for better alignment between the financial system and a sustainable future

• AXA and the United Nations Environment Program (UNEP) Inquiry into the Design of a Sustainable Financial System organized a high-level Symposium in Paris today, at AXA's headquarters, to discuss New Rules for New Horizons: Reshaping Finance for Sustainability.
• Leading officials from international institutions, private sector representatives and leading academics convened to find solutions to the current five warning signals from the financial system, which are all impacting its capacity to support a sustainable and inclusive economic development model.

This high-level symposium, jointly organized by the UNEP Inquiry and AXA in Paris, gathered participants from various backgrounds, from across the five continents. The discussion acknowledged the numerous regulatory achievements accomplished since 2008 and then focuseds on a range of open issues regarding financial regulation and its efficient, impactful and necessary contribution to sustainable development.

Participants focused on five key warning signals that are all impacting the financial system's ability to support a sustainable and inclusive economic development model:

• A sense of fragile financial stability, stemming from the continuous creation of unchecked pockets of risks, despite progress in regulation and supervision across markets and jurisdictions.
• A perceived lack of control, despite numerous new standards aimed at increasing reporting and transparency discipline across the finance industry.
• Inefficient liquidity, as ultra-abundant liquidity on all financial markets and extremely low interest rates are not boosting public and private long-term investment.
• Cornered emerging economies, with less access to global capital flows and attractive funding sources.
• Time inconsistency, with greater collective needs for long-term and very diverse investments, and yet financial regulations that favour liquid, short-term and homogeneous investments.

The leadership role taken by some emerging economies in better aligning finance and sustainability requirements was also stressed during the event.

The discussion led to the preliminary conclusion that the notion of risk in finance should be widened to take into better account the new and expanding nature of the major challenges societies and economies face today, starting with climate change. This move would aim at incorporating social, environmental and long-term sustainability questions into regulatory and prudential frameworks and guiding the decision-making processes of large financial institutions through the use of revised risk pricing methods.

These five warning signals and their consequences show that much remains to be done. The next steps need not, however, be driven by the rush of short-term crises and a culture of blame. Discussions steered around several imperatives, such as the necessity to drive the governance of rulemaking so as to include more political vision and less institutional fragmentation.

As John Lipsky, senior fellow, School of International Studies Johns Hopkins University & former First Deputy Managing Director of the IMF, said: In the long run we will need a multilateral treaty-based financial regulation authority if we really want to efficiently tackle global sustainability challenges.

Was also debated the fact that as many a sustainable issue is local, both cities and regions need to be brought into the debate - on climate and beyond. These are just examples, but they illustrate that policy makers and regulators, with financial institutions and broader interests and expertise, can work together internationally in designing and implementing a financial system fit to serve 21st century economies.

A video of the key highlights of the day will be available from the 6th of July on.