Sustainable finance, ESG and green transitions
Sustainable finance has become increasingly significant in the financial world. Climate change is increasingly recognised as a risk for the financial system. So sustainable investments and financing are a benefit. Incorporating Environmental, Social and Governance frameworks and data when making investments and planning projects and activities is part of initiatives such as the European Green Deal investment plan as well as post COVID-19 global recovery. The E of ESG is particularly relevant in light of climate change and calls for the financial sector to contribute to climate change mitigation and recovery. How can sustainable finance be part of climate action?
The European Union offers a few ideas. The European Invesment Bank issued green bonds back in 2007, the first of their kind. There’s also the European Green Deal. Approved in 2020 by the European Commission, the plan has three main goals: I) to reduce Europe’s greenhouse gas emissions by at least 55% by 2030, ii) be the first climate neutral continent by 2050 and iii) plant an additional three billion trees by 2030. Financing these goals and the transition to a sustainable European economy is an integral part of the plan. But it’s not just Europe. According to the 2020 OECD Business and Finance Outlook report, there is over $40 trillion dollars in ESG investing.
Is putting a price on carbon the solution to bringing down emissions? Read more here.
There are tangible benefits to adopting sustainable finance models. As the OECD report on ESG investing and climate transition puts it: “they (ESG practices) could also support risk management to reduce the impact of climate change and other sustainability risks on corporate performance over time, and navigate a shift to renewables strategies which could bring new growth opportunities over time.” As the effects of climate change become more pronounced with rising temperatures, weather-related disasters and disruptions, adopting environmentally sound practices and approaches to investments is viewed more as a necessity. Not only does it help ‘future-proof’ economies to adapt to and become more resilient in a new climate reality, it is also a part of climate mitigation efforts. Financing solutions and initiatives is key to moving away from a carbon-based economy.
Who is getting involved in sustainable finance? Both private and institutional investors and traditional financial institutions have incorporated ESG frameworks. In Europe, banks are still the primary source of green infrastructure finance at 80% of the sector. With organisations such as the International Sustainability Standards Board and Principles for Responsible Investment, likeminded investors have guidelines, resources and networks to support and inform their work.
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