Introduction
Back then, it is
known that investors focus mainly on financial returns, regardless the impact
their investments have on society and the environment. Now, it is a different
story. Environmental and social issues continue to be the main highlights of
today’s news globally and there is a significant rise of interests made from stakeholders
including the investors.
Apart from that,
in many case studies, sustainable funds are observed to be outperforming
conventional funds, such as during the covid-19 pandemic period. So, this
creates a win-win opportunities situation for investors to reap financial
return and at the same time do good for the society and environment.
What is Sustainable Finance?
The short
definition of sustainable finance is investment or financing that considers
environmental, social and governance (ESG) factors into account on top of
financial returns. Terms such as green financing and also social impact
financing also constitute the sustainable finance spectrum; the former is
related to finance activities that stimulate economic growth while
simultaneously reduce environmental risks and impacts, and the latter is
related to the positive impact created in regards to specifics group of the
society.
Why is it a big deal?
The struggle to
combat climate change impacts varies from ecosystem and biodiversity restoration
as well as how we manage natural resources. But this is not enough. Sustainable
finance can be the answer to get the win over climate change impacts. Globally,
the economy requires up to USD800
billion each year to mitigate the climate
crisis by 2030. This is a huge amount. Thus, private entities and public
entities around the world have to collaborate on the sustainable finance
agenda.
Financial
institutions are the key players when it comes to sustainable finance through
capital allocations towards sustainable projects and programmes. Financial
institutions can provide critical financial support for companies towards
sustainable investments and operations.
The role of
financial institutions in sustainable finance has been on the rise. On top of
that, there is a growing trend for companies to come up with business
strategies and commitments that are linked to sustainability i.e.to create
positive impact on the environment and society. This results in rising demand
for investment through sustainable finance.
Though financial
institutions have a vital role to play, sustainable finance initiatives also
depend on the involvement of non-profit organisations (NGOs), regulators,
investors and governments. Innovation for sustainable finance product offerings
depend highly on the alliance of all these entities.
Companies are getting serious with sustainable finance
Sustainability
in general, brings significant values for companies. Furthermore, there has
been greater expectations from employees, to investors, clients, and regulators
towards the integration of ESG factors into business model.
Employees demand
for a more sustainable business working environment and operations, especially
the younger workforce where sustainable values on top of attractive packages
are core for them to stay with a company. On top of that, employees also want
to affiliate working with companies that invest in projects and programmes
through the funding from sustainable finance.
Investors and
clients also want to move towards ‘greener’ portfolios where financial returns
would also come with positive environmental impact. They want that ‘added’
value so they know they are making a difference in this world.
Regulators all
around the world are becoming more and more aggressive in setting their
expectations across all sectors to adopt sustainable business.
All of this
means that, there is both opportunities and risks elements of sustainability
integration for companies which indicates that sustainable finance is important
for key and external stakeholders for a company.
That is why,
sustainable finance is here to stay.
All views and opinions expressed on this site are by the
author and do not represent any particular entity or organisation
