## Financial Regulation: A Reactive Tradition
Traditionally, in the world of finance, regulation has always been a reactionary measure. Typically, it arises as a direct response to a specific event or crisis. Consider Basel III, born from the financial turmoil of 2008, or AML/CFT rules crafted in the shadow of the Riggs Bank scandal and the 9/11 attacks. Such incidents often spark swift and comprehensive reforms. However, climate change has not had the privilege of a singular, defining moment. Consequently, regulation remains sporadic.
### Climate Change: A Different Kind of Emergency
While many perceive climate change as an urgent crisis, it presents unique challenges. Unlike financial catastrophes with clear starting points, climate change is a gradual, unfolding disaster. This makes it tricky to pin down a definitive moment to prompt regulatory action. Moreover, reaching a universal agreement that it constitutes a crisis is complicated by geography, political landscapes, and numerous other factors. Nevertheless, industry and global leaders have reached a consensus: change is essential.
## A Self-Driven Initiative
Interestingly, efforts to combat climate change have been largely led from within the financial industry itself. Although governments and bodies like the [International Sustainability Standards Board (ISSB)](https://www.ifrs.org/groups/international-sustainability-standards-board/) strive to establish guidelines, most tangible outcomes arise from industry-led initiatives. The ISSB provides standardised accounting language, yet much of the impetus for change originates with the financial entities.
Banks have taken significant strides of their own. They’ve aligned their portfolios with the Paris Climate Agreement, targeting net-zero greenhouse gas emissions by 2050. Interim targets set for 2030 underscore their commitment. Many institutions have also embraced the [UN’s 17 Sustainable Development Goals (SDGs)](https://sdgs.un.org/goals), which cover a broad spectrum of environmental, social, and governance (ESG) aspects.
### A Complex Journey
This journey towards sustainability is wide-ranging and intricate. There’s no singular method; various entities plot diverse paths. Transaction banking, in particular, is a complex conundrum. It relies heavily on global networks and supply chains. These fragmented participants play vital roles in facilitating transactions. As such, additional consideration is necessary when applying sustainability and net-zero principles. Furthermore, many non-climate SDGs hinge on transaction banking. This prompts a philosophical query: Is clean, affordable energy more crucial than obliterating poverty or hunger?
The priorities differ across regions, yet financial institutions must harmonise these disparities. In this endeavour, not-for-profits significantly accelerate progress. Recently, [BAFT](https://www.baft.org/document/baft-transaction-banking-sustainable-finance-product-and-reporting-matrix/) introduced their Transaction Banking Sustainable Finance Product and Reporting Matrix. It offers valuable guidance on sustainable finance products in transaction banking. The matrix encapsulates the principles, considerations, and reporting applied in sustainable finance products, allowing banks to chart their unique courses.
## The Need for International Cooperation
International agreements afford a framework for sustainability, but wider collaboration is imperative. The recent decades and years highlight one vital aspect: sustainability necessitates multi-organisational collaboration. Whether it’s whitepaper research translating into sustainability standards or insightful questionnaires shaping future leadership decisions, the path is fraught. Yet, despite its unpredictability and tumult, the journey to sustainability is achievable.
