Climate change is a serious issue that impacts of all. Organizations in all spheres have taken climate change seriously and are working to alleviate this problem. This includes organizations in the financial sector. Sustainable finance allows financial organizations to demonstrate their commitment to sustainability. Let’s discuss more about it.
What is Sustainable Finance?
Sustainable finance is investment that is done considering ESG (Economic, Social, and Governance) factors of a business, project or activity. When an investor funds a project or a business, they mainly consider the financial aspect. The prime concern of the investor is whether they can recover their money and make profits. With sustainability and climate change being key concerns, investing firms today are considering these factors while investing.
An investor would look at the impact that the business or project has on the environment. Apart from the environment, they would also look at the social and governance impacts involved. The investor would take an investment decision only after considering all these factors. This kind of an approach to financing would ensure sustainability.
Sustainable finance is important because of the pressing need to mitigate climate change. Problems like extreme weather conditions and water shortage highlight the serious risks of climate change. Investors are today concerned for the future and want to ensure that their investments do not have a negative impact on the environment. This has led to the growth of sustainable finance.
How sustainable finance impacts climate change?
Sustainable finance ensures investment done in a business or activity does not have a negative impact on the climate. Preference is given to those projects or businesses that promote sustainability. Net zero is a key sustainable finance trend that focuses on zero emission. Firms practicing sustainable finance do not invest in fossil economy that harms the climate.
Another trend is that of impact investing. Investors invest their money in those projects or businesses that have a positive environmental and social impact. It is a popular approach to sustainable finance and in 2022, impact investments were up to 1 trillion dollars.
The focus is on carbon emissions since they harm the climate and worsen the problems arising out of climate change. The use of electric vehicles is being promoted as a sustainable measure. Investors prefer to invest in businesses that make, use, or promote electric vehicles.
Investors are today looking to make a difference. More and more investment firms are now focusing on sustainable finance, so they can play their part in mitigating climate change.
