Sustainable Finance: A Key Lever for Influencing Positive Change

We believe that finance is a key lever for driving positive change and promoting sustainability. The private sector has a major role to play in transforming the status quo, helping to facilitate the transition from exploiting nature to restoring it. The financial sector is uniquely positioned to encourage this shift by only providing loans, investments, and insurance to companies that manage their natural risks and impacts. Investing in sustainable businesses has numerous financial and social benefits, which is why sustainable finance is gaining traction. Both the SEC and the EU are introducing new regulations on sustainable finance; these rules are designed to provide investors with consistent, comparable, and reliable information about activities labeled as sustainable, as well as to prevent greenwashing.

The European Union defines sustainable finance as “funding to support economic growth and, at the same time, reduce pressures on the environment and take into account social and governance aspects”. Central banks and regulatory authorities can also guide the actions of the financial sector through policies and regulations that define what can be considered sustainable investment or require companies to disclose their climate risks.

Sustainable investment

ensures that companies not only prioritize profits above all else, but also consider how their operations affect the environment and society. Investment in companies and projects with sustainable ESG practices is increasing, as is the demand for finance professionals with experience in this niche. The financial sector will play a critical role in redirecting capital towards a sustainable future by investing, lending, and providing insurance only to companies and projects that mitigate sustainability risks and capture opportunities. So what motivates a company to invest millions or even billions of dollars into sustainability? It requires the disclosure of information on sustainability depending on the level of consideration for sustainability that an institution or financial product has.

Sustainable finance involves making investment decisions that take into account not only financial returns but also environmental, social, and governance factors. Sustainable finance boosts sustainability and mitigates climate risk for the global financial system, which depends on healthy ecosystem services for more than half (55%) of GDP. Clarity in defining what financial activities can be considered sustainable reduces green laundering and helps investors make better-informed decisions based on their sustainability objectives. Organizations are also embracing sustainability because it is increasingly important for customers and investors that the companies they invest in are socially responsible. Thanks to the Stockholm Center for Sustainable Finance, the Global Environment Facility (GEF), and Investopedia, here's a list of essential sustainable finance terms you should know.

As climate change becomes an increasingly pressing issue, more investors are looking to invest funds in both organizations and products that promote a more sustainable future, particularly those that support initiatives against climate change.