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Sustainable finance: the start of a revolution

14/11/2017

​By Ian Lavis, on behalf of Praxity

Sustainability is becoming the buzzword of boardrooms as companies pay more attention to environment, social and governance (ESG) issues.

While maximising returns on investment remains the objective for most businesses, there is increasing focus on the impact on the planet and the plight of future generations.

Business leaders are looking at ways to combine financial, social and environmental concerns to create a more sustainable world, and to demonstrate this through corporate reporting.

The shift towards ‘sustainable finance’ is gaining pace around the globe, driven by economic and finance organisations, and forward-thinking businesses.

Latest developments include:

an A4S (Accounting for Sustainability) world summit in November 2017 bringing together global leaders from business and finance to agree actions to speed up the transition to a sustainable world.

an online platform to help businesses implement corporate reporting on ESGs has just been launched by The World Business Council for Sustainable Development.

calls for sweeping changes to Europe’s financial system from EU’s High-Level Expert Group on Sustainable Finance.

increased focus on ‘green finance’ whereby investments are made in more sustainable companies.

Avoiding global catastrophe

The idea behind sustainable development is to make the planet viable in future. It means taking united action so that future generations have adequate food, water, energy and other resources.

Sustainable finance is about the financial world and businesses in general putting social, environmental and governance issues to the top of the agenda. This is a big ask but there is a growing belief that it’s the only way to avoid potential global meltdown.

Dirk Schoenmaker, Professor of Banking and Finance at Rotterdam School of Management, Erasmus University, and a Senior Fellow at the European economic think tank Bruegel, says in his Bruegel blog: “The main task of the financial system is to allocate funding to its most productive use, but a shift to sustainability means changing our ideas about what is ‘productive’. Finance can play a role in allocating investment to sustainable companies and projects and thus accelerate the transition to a low-carbon, circular economy.”

Two imperatives

The EU is so concerned by sustainability it has created the High-Level Expert Group on Sustainable Finance. In its interim report, the Group says there are two imperatives for Europe’s financial system:

“The first is to strengthen financial stability and asset pricing, by improving the assessment and management of long-term material risks and intangible factors of value creation, including those related to environmental, social and governance (ESG) issues. The second is to improve the contribution of the financial sector to sustainable and inclusive growth, notably by financing long-term needs such as innovation and infrastructure, and accelerating the shift to a low carbon and resource-efficient economy.” 

The Group’s full report on sustainable finance is expected in December 2017.

Inspiring business leaders to drive action

Sustainable finance isn’t just being taken seriously in Europe. Global initiatives are under way to raise awareness and drive action. 

The World Business Council for Sustainable Development has launched The Reporting Exchange to allow companies to share knowledge on corporate reporting on ESG issues. The free online resource allows anybody interested to find out about the reporting requirements across the world and the resources available to support and manage the implementation of those requirements.

On a broader scale, an A4S world summit on 15 November 2017 will explore the practical actions available to achieve a sustainable economy. The event will be addressed by His Royal Highness The Prince of Wales, who says: “It is not necessarily a choice between making money on the one hand and ‘doing the right thing’ on the other. On the contrary, once it is recognized that ‘business as usual’ is unsustainable it follows naturally that those organisations which start to develop resilient business models will be the ones that succeed”.

Funding low-carbon projects 

Green finance is also gaining momentum in the form of funding initiatives. The Sustainable Finance Collective Asia (SFC Asia), for example, is a funding platform formed by financial institutions to accelerate the funding of proposals around the themes of circular economy, sustainable energy and social impact. Similarly, The Lab is a global public-private initiative to accelerate funding for low-carbon projects, while reducing private investors’ risks and improving financial returns. The Lab is focused on climate-friendly investments in developing countries, especially India and Brazil.

The willingness to adopt sustainable finance is here. The revolution is under way. Now it’s a question of just how far finance and business leaders are prepared to go. 

Useful links

Interim report of the EU High Level Expert Group on Sustainable Finance: https://ec.europa.eu/info/sites/info/files/170713-sustainable-finance-report_en.pdf

A4S Summit 2017: https://www.accountingforsustainability.org/en/activities/events/A4S-summits/2017/A4S-summit-2017.html

The Reporting Exchange global resource for sustainability reporting: https://www.reportingexchange.com/

How to make finance a force for sustainability: http://bruegel.org/2017/07/how-to-make-finance-a-force-for-sustainability/

SFC Asia: http://www.sfc-asia.com/

The Lab: https://www.climatefinancelab.org/​

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