The beginning of sustainable finance

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As the industrial revolution and technological advances have driven the world's booming economy and population growth, there has been increasing pressure on society and the environment. People are beginning to realise the need for a shift towards low carbon and sustainable development. In particular, for the prosperity of people, the planet, in 2015 the United Nations released the 2030 Agenda for Sustainable Development, which also includes 17 Sustainable Development Goals (SDGs), proposing three dimensions of sustainable development, economic, social and environmental (United Nations, 2015).





Why is sustainable finance important?

The financial sector leads the process of allocating investments to sustainable development, guiding the transition to a circular, low-carbon, sustainable economy in organisational decisions. At the same time, considering sustainability itself can benefit companies, as sustainability often means lower costs and greater efficiency. In addition, there is a growing public interest in companies that pursue social responsibility. Today, sustainability thinking in the financial sector has greater business value and more supporters.


What is sustainable finance?

Sustainable finance is the process of considering environmental, social and governance (ESG) factors when making investment decisions in the financial sector, resulting in more long-term investment in sustainable economic activities and projects (European Commission, 2021). The early days of sustainable finance revolved around the rise of the ESG concept, and as society and policy evolved, the meaning of sustainable finance became more embedded, because it is needed to provide sufficient financial resources for the transition to a more sustainable society and a climate-neutral economy (Migliorelli, 2021).

Practice and future

The European Union (EU) is a model of commitment to sustainability and in 2014 the European Parliament approved the Non-Financial Reporting Directive, which requires large companies based in the EU to disclose information on sustainability with their operations. The Sustainable Financial Disclosure Regulation (SFDR) and the EU Classification Regulation were issued in 2019 and 2020, and IFRS is also developing standards for sustainability reporting (European Commission, 2021). There is a trend for companies to disclose sustainability reports. In the financial sector, more practitioners are being influenced by stakeholders to take ESG into account within their own business. For example, KPMG can provide ESG services in areas such as asset management, insurance, banking and financing.

In the following blogs, I will focus specifically on sustainable financial development in the banking sector.





References

European Commission (2021). Corporate Sustainability Reporting. [online] European Commission. Available at: https://ec.europa.eu/info/business-economy-euro/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en.

Migliorelli, M. (2021). What Do We Mean by Sustainable Finance? Assessing Existing Frameworks and Policy Risks. Sustainability, 13(2), p.975.

United Nations (2015). Transforming Our World: the 2030 Agenda for Sustainable Development | Department of Economic and Social Affairs. [online] United Nations. Available at: https://sdgs.un.org/2030agenda.

‌Bakken, R. (2021). What Is Sustainable Finance and Why Is It Important? [online] Harvard Extension School. Available at: https://extension.harvard.edu/blog/what-is-sustainable-finance-and-why-is-it-important/.


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Sustainable banking products

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