Sustainable Finance is here to stay
The debate on environmental issues and sustainable development has gained traction over the past decade, and with it the concept of sustainable finance. Sustainable finance is the provision of financing to investments taking into consideration Environmental, Social and Governance (ESG) factors.
There are three key drivers pushing financial institutions to gradually invest responsibly:
- New business opportunities, mainly due to the significant increase in client demand for sustainable products and services
- Risk: inclusion of ESG criteria in analysis and decision-making processes and in internal risk management to manage climate change-related risks in particular, and improve returns
- Regulatory requirements
What does "ESG" stand for?
Environmental issues
- Climate change
- Greenhouse gas emissions
- Resource depletion (incl. water)
- Waste and pollution
- Deforestation
Social issues
- Working conditions (incl. child labour)
- Local communities
- Health and safety
- Employees relations and diversity
Governance issues
- Executive pay
- Bribery and corruption
- Political lobbying and donations
- Board diversity and structure
- Tax strategy
Responsible investment
When managing assets, financial institutions are increasingly adopting a responsible investment approach that sees investors include ESG factors when deciding on what to invest in and in the role they play as owners and creditors.
What defines Responsible investment?
- Importance of environmental, social and governance (ESG) factors
- Long-term sustainable returns
- Stable, well-functioning and well governed social, environmental and economic systems
Main responsible investment strategies
Financial institutions gradually follow one or a combination of more responsible investment strategies. The approaches are diverse and offer various ways of addressing sustainability issues, depending on an organisation's commitment level and on the weight given to financial performance or impact orientation.
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