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Why sustainable finance is critical to the future of the financial industry

Financial institutions can align and contribute to building a safer and brighter future in the long term.

By Deepa Narwani, Content Manager

The financial industry holds immense power in raising awareness and funding several aspects of sustainability. This could be by allocating resources for research and development of alternative energy sources or supporting businesses that follow sustainable practices.

Each stakeholder would have a different definition of sustainable finance. Still, to put it simply, these are investment decisions that consider the environmental, social, and governance (ESG) factors of an economic activity or project. For example, some environmental factors include using sustainable resources; social factors comprise consumer protection or diverse hiring practices; governance factors mean efficient management and, for instance, following accurate and transparent accounting methods.

What is Sustainable Finance?

Recently, in a conversation with AQMEN365, Maria Maisuradze, Founder and CEO at Ed4S Academy, described Sustainable Finance as the use of money directed towards people and organisations that contribute to the regeneration of our planet and reduction of social injustice. She said: “This means allocating capital mindfully, towards the real economy and financing progress towards achieving the Sustainable Development Goals (SDG) of the United Nations.” She is the founder and CEO of Ed4S Academy, a sustainable global finance teaching platform, where she leads strategies to make ESG and sustainable finance education accessible to anyone.

Maria Maisuradze

Founder and CEO

Ed4S Academy

Achieving SDGs would contribute to healthier financial systems, safer societies and an environment in which humanity can thrive.

Benefits of going green

From reduced risks, boosted bottom line and the ability to attract and retain top talent, investors, and customers, the benefits of going green in the finance industry are multi-fold.

To incorporate ESG investments, first and foremost, financial institutions need to be aware of the context in which they operate, both internal and external. Therefore, everything starts with assessment, analysis, moving on to measurement and targets and collaboration with peers, governments, and other stakeholders. Moreover, while deciding on investments, these institutions also need to consider whether the project identifies, plans for, and actively mitigates its impacts on the communities and the natural ecosystems.

Financial institutions can align and contribute to building a safer and brighter future in the long term and benefit from the progress or lose their competitivity and social license to operate, Maisuradze emphasised.

“Over 178 countries have committed to the Paris Agreement and the SDGs, which reflects that both these governments and their people are keen to move forward on this agenda,” she said. 

“But, above all, the sustainability strategy must be fuelled by the internal purpose of being a better corporate citizen and not from a desire to improve marketing strategy. Achieving SDGs would contribute to healthier financial systems, safer societies and an environment in which humanity can thrive.”

Supporting Sustainable Finance

Complexity and interconnection of numerous social and environmental issues and lack of comparable ESG data, are a few of the challenges facing the industry.

Governments could start by setting ambitious targets, providing guidance, clarity and transparency and project confidence. A few examples include implementing a Carbon tax, introducing mandatory sustainability reporting, and financing green transition.

In the near future, the financial industry will collaborate with peers, governments, and companies that it is funding to achieve some of the sustainability goals. No one organisation will be able to transition and contribute to sustainable development by itself. “I can also see an increasing number of engineers and scientists joining financial institutions to support finance professionals in their work,” added Maisuradze.

Join AQMEN365’s Sustainable Finance digital event to get exclusive insights into how the global financial community is taking action and increasing the level of investments in sustainable projects.