Sustainable finance drives climate, equity, prosperity and governance goals
This article is part of the “Financing a Sustainable Future” series exploring how companies are taking action to set and fund sustainable goals.
Insider, in partnership with Bank of America, is launching the Financing a sustainable future editorial series to help business leaders and their stakeholders – including employees, customers, shareholders and board members – understand the opportunities and uncertainties that accompany this centuries-old shift in capital markets.
Over the next five months, Insider’s reporting will bring to life the people, organizations and coalitions that are making things happen.
While much of the conversation around sustainable finance focuses on the climate crisis, Insider takes a holistic approach, with content dedicated to each of the four pillars of stakeholder capitalism like defined by the World Economic Forum.
- People: Reflects a company’s equity and its treatment of employees. Metrics include reporting on diversity, pay gaps, and health and safety.
- Planet: Reflects the dependencies and effects of a business on the natural environment. Measures include greenhouse gas emissions, land protection and water use.
- Prosperity: Reflects how a company affects the financial well-being of its community. Measures include job and wealth creation, taxes paid, and research and development spending.
- Governance principles: Reflects the purpose, strategy and responsibility of a company. Metrics include criteria measuring risk and ethical behavior.
A pivotal phase in sustainable finance
The series is incredibly timely. A key moment in the world of sustainable finance happened at the United Nations Climate Change Conference (otherwise known as COP26), in Glasgow, Scotland, in the first two weeks of November 2021 .
A consortium of some 450 banks, insurance companies and asset managers from 45 countries called Glasgow Financial Alliance for Net Zero (GFANZ), which had launched the previous April, announced that it had committed $130 trillion in assets to transform “net zero economy.”
“The architecture of the global financial system has been transformed to deliver net zero,” Mark Carney, leader of the coalition and former head of the Bank of England, said in a statement. “We now have the essential plumbing in place to bring climate change from the margins to the forefront of finance so that every financial decision takes climate change into account.”
GFANZ has its detractors, one criticism being that the coalition has made no mention of the fossil fuel divestment. Either way, the sustainable finance juggernaut is already on the move and becoming an increasingly important consideration for companies looking to raise capital.
To extend Carney’s plumbing analogy, imagine a $130 trillion pool of financial capital ready to flow in the form of lower-cost borrowing to companies that meet sustainability goals.
In order to exploit the advantages of this solution at a lower cost
, companies must demonstrate their sustainability credentials. This is where another abbreviation comes in: ESG, which stands for Environmental, Social and Governance. Companies are adapting ESG standards to signal to investors and financial institutions that they are attaching goals to sustainability statements and adopting a recognized function for investors to monitor their performance.
Sustainable finance goes beyond ESG, although the terms are often confused. It is the new ecosystem emerging from the legacy investment and finance structures that have capitalized on businesses for generations.
Much of the finance conversation focuses on the capitalization of large industries in transition. It’s also about driving innovation from the ground up. The opportunities to finance renewable energy and power industries, and to invest in emerging technologies and climate solutions, are on a scale never seen before.
A community of experts to help us tell these stories
To help us with this ambitious endeavour, we have convened the following advisory board to provide thought leadership and insights into how their organizations are setting goals and moving towards measurable results. We will also be showcasing our council in a series of virtual events, with the first taking place on March 8 themed on how investing in people transforms economies.