Sustainable finance refers to the process of taking environmental, social, and governance factors into account when making financial decisions, leading to sustainable economic activities and projects.
This idea aims to support financial growth while also promoting sustainability and ethical practices.
Sustainable financing is also a method of earning money while benefiting the planet and the society we live in.
“Climate risk is investment risk,” as stated by BlackRock CEO Larry Fink in a 2020 letter to CEOs.
This captures the essence of sustainable financing, highlighting that global challenges such as climate change are not merely social challenges, but also financial and economic challenges which will massively affect the economy.
One method of sustainable financing is green bonds, which are a form of investment in projects that are environmentally friendly.
For example, the UK government raised £10 billion during their first green bond in 2021 to support a variety of projects that promoted renewable energy.
This included the funding of public transport improvements aimed at reducing greenhouse gas emissions and pollution levels by developing electric and hybrid buses, which also contributed towards the UK’s goal of becoming a carbon-neutral city by 2030.
This displays the effectiveness of green bonds, as only projects that are beneficial to the environment will receive funding, forcing other projects and businesses that want investment to become more climate friendly, resulting in a more sustainable economy.
However, a very prominent challenge of sustainable financing is greenwashing.
Greenwashing is when companies exaggerate their commitment to sustainability.
This can be seen in many companies that try to look more sustainable than they actually are through misleading and false advertisements to the public and media.
This is damaging for the sustainability of the economy, as companies can still have high levels of pollution and emissions while falsely advertising themselves as sustainable.
It is also very difficult to find out whether a company is overstating their sustainability efforts or not, as there is no effective method of accurately measuring the economic, social, and governance factors of a project.
As a response to this issue, the EU has new regulations in place that make companies submit a clear report of their projects to increase transparency and accountability in sustainable finance.
Sustainable financing takes into consideration economic, social, and governance factors when making financial and investment decisions, which leads to more sustainable projects being funded.
This has many advantages, such as lower carbon dioxide emissions, increased usage of renewable energy, and less pollution.
But this idea is only effective when done with responsibility and accountability, as the countless companies that indulge in greenwashing for their own financial gain will cause the UK to become less sustainable and will contribute to the rising levels of climate change.
However, if this idea is implemented efficiently, it will result in a far more sustainable economy, which will improve various factors of the standards of living in the UK, such as the cleanliness of the environment.
