Sustainable
Finance
Sustainable Finance
• Sustainable finance integrates environmental,
social, and governance (ESG) criteria into
financial decisions, ensuring economic growth
without depleting natural resources or harming
social well-being.
Pillars of Sustainable Finance
Environmental (E)
• It focuses on the ecological impact of financial activities.
• It involves assessing and mitigating risks related to climate change,
resource depletion, pollution, and biodiversity loss.
• Key considerations include:
• Climate Change Mitigation: Financing projects that reduce greenhouse gas
emissions.
• Resource Efficiency: Investing in initiatives that promote sustainable use of
natural resources.
• Pollution Prevention: Supporting efforts to minimize waste and pollution.
Social (S)
• The social pillar emphasizes the human element in financial decisions.
• It addresses issues such as labor practices, diversity and inclusion,
community engagement, and human rights.
• Important aspects encompass:
• Fair Labor Practices: Ensuring equitable wages and safe working conditions.
• Diversity and Inclusion: Promoting equal opportunities within organizations.
• Community Development: Investing in projects that benefit local
communities.
Governance (G)
• Governance pertains to the internal policies and controls that ensure
transparency, accountability, and ethical conduct within organizations.
• It includes considerations like corporate governance structures,
stakeholder relations, and executive compensation.
• Key elements involve:
• Transparency: Providing clear and accurate information to stakeholders.
• Accountability: Establishing mechanisms for responsible decision-making.
• Ethical Conduct: Upholding integrity and ethical standards in business
operations.
Sustainable Finance Framework
International Agreements on
Sustainable Finance
United Nations Sustainable Development Goals (SDGs):
•A set of 17 global goals that tackle pressing issues like poverty, hunger, health, and climate change,
with financial systems mobilizing resources to meet these goals by 2030.
Paris Climate Agreement:
•A landmark accord signed in 2015 to limit global temperature rise to 1.5°C above pre-industrial levels.
•It calls for massive investments in clean energy and low-carbon technologies, creating opportunities in
green finance.
Task Force on Climate-related Financial Disclosures (TCFD):
•Promotes transparent reporting of climate-related risks and opportunities, helping investors understand
the financial impact of climate change.
European Green Deal:
•The EU’s strategy for achieving climate neutrality by 2050, calling for sustainable investments across
sectors like energy, transport, and agriculture.
United Nations Sustainable Development Goals (SDGs):
Paris Climate Agreement
Task Force on Climate-related Financial Disclosures
(TCFD):
• Recommendations are structured around 4 thematic areas:
TCFD Recommended Disclosure
European Green Deal
Delivering the European Green Deal - European Commission (europa.eu)
Incorporating Sustainability into the Finance
System
• Sustainable Investment Strategies:
• Sustainable Financial Instruments:
• Sustainability Reporting:
• Increasingly, companies are expected to disclose their ESG risks and
performance, allowing investors to make informed decisions. Standards like
the Global Reporting Initiative (GRI) and the Sustainability Accounting
Standards Board (SASB) provide guidelines for such disclosures.
• What is Sustainability Reporting? - ESG | The Report (esgthereport.co
m)
ESG Risk Management
Environmental Risks:
• Climate Change: Risks from climate-related events, such as floods,
fires, and regulations aimed at reducing carbon emissions.
• Resource Depletion: Overuse of natural resources like water and
deforestation can create scarcity and reputational risks.
Social Risks:
• Labor Practices: Exploitative labor conditions or lack of diversity can
harm a company's reputation and lead to legal consequences.
• Human Rights: Violations or community displacement can lead to
protests, legal actions, and operational disruptions.
Governance Risks:
• Transparency and Accountability: Weak corporate governance can
lead to scandals, fraud, or poor decision-making that affects company
performance.
• Executive Compensation: Misaligned incentives can result in poor
business decisions that favor short-term profits over long-term
sustainability.
Key Challenges for Sustainable
Finance
• Greenwashing
• Data Availability
• Short-termism in Financial Markets
• Emerging Markets
• 7 sustainable finance challenges to fix global inequality | World Econo
mic Forum (weforum.org)
• Green NBFCs Show that Financial Profitability and Environmental Purp
ose Can Coexist Effectively (outlookbusiness.com)
• Sustainable farming: The key to unlocking India’s carbon credit potenti
al - The Hindu
BusinessLine
• Microfinance Loans at Rs 4.42 Lakh Crore Need Sustainable Financing
to Boost Income Levels (uniindia.com)
• IFC, Axis Bank partner on $500 million blue finance loan to boost India
’s green projects | Company Business News (livemint.com)
• Sustainable Textiles for Sustainable Development - India | UNFCCC
• Sustainable packaging drives India's $450 billion food industry growth
- Lifestyle News | The Financial Express
