Policymakers should consider providing a financial incentive for sustainable funds as existing capital is “too limited in size and scope” to have a major impact on climate change, the International Monetary Fund has warned.

In its semi-annual Global Financial Stability Report, published on Monday, the IMF said that an additional investment of as much as $20tn (£14.7tn) over the next two decades will be required to facilitate a green transition. Alongside this, a mainstreaming of green fiscal policies and greater industry efforts to overcome greenwashing will be required.

The IMF recommends that policymakers should tighten ESG data and disclosure standards, ensure proper regulatory oversight to prevent greenwashing, and consider incentives, including financial enticements, to encourage flows into “transition-enhancing funds”.

In a blog post accompanying the report, IMF officials Fabio Natalucci, Felix Suntheim and Jérôme Vandenbussche said: “Even though sustainability is becoming mainstream in investment strategies, sustainable investment funds still represent only a small fraction of the investment fund universe.

“At the end of 2020, funds with a sustainability label totalled about $3.6tn, representing only 7 per cent of the overall investment fund sector. Funds with a specific climate focus accounted for a meagre $130bn of that total.”

Read more @Pensions Expert