New report recommends policymakers and market practitioners integrate social risks and opportunities into financial strategies

The paper From Fragmentation to Integration: Embedding Social Issues in Sustainable Finance aims to generate momentum within the financial system to tackle inequality and achieve a common understanding of the social impacts of a market-based economy. Drawing insights from the climate agenda, it sheds light on how to catalyze action at the policy and regulatory levels through existing sustainable finance initiatives.

This paper acknowledges that the way the global financial system has evolved has created vast imbalances, which now pose risks to financial markets and economies. Addressing climate change through sustainable finance strategies alone will be inadequate unless interrelated social issues like socio-economic inequality are simultaneously addressed. The report advocates for building on the initial momentum surrounding climate mitigation and adaptation, while recognizing the connections between social and environmental factors, and integrates these considerations into governance and asset allocation strategies to ensure their continued advancement.   

Drawing on research conducted in data from both developed and emerging economies, the report demonstrates the links between social factors and systemic risk and argues that addressing inequality is necessary for long-term market stability and a just transition to a climate-neutral economy.

Based on the collective expertise of several institutions and a global consultation, the paper provides key recommendations for governments, regulators and financial institutions in three key action areas:

  1. Support research on the systemic risk of socio-economic inequality issues for financial stability
  2. Adopt and improve social standards, disclosures and tools
  3. Rethink the macroeconomics determinants of sustainable finance scenarios

According to Marcos Athias Neto, Director of UNDP’s Sustainable Finance Hub, “The report, From Fragmentation to Integration: Embedding Social Issues in Sustainable Finance echoes the need to prioritize environmental and social objectives in multilateral development, the allocation of financial flows, and the design of macroeconomic frameworks to bring debt justice, as well as development finance that leaves no one behind.”

Published by UNDP in partnership with the Financial Conduct Authority, the Predistribution Initiative, ReGenerate, JS Global Advisory and Rights CoLab, the report was presented at the Finance in Common Summit in Cartagena, Colombia. Between 4 and 6 September 2023, the Summit brings together public development banks from around the world to highlight their crucial role in making finance more inclusive and sustainable.