Sustainable finance refers to the integration of environmental, social, and governance (ESG) factors into financial decision-making processes. The goal of sustainable finance is to promote sustainable economic growth and development by encouraging financial institutions to consider the long-term environmental and social impacts of their investments and lending practices.
Sustainable finance can take many forms, including green bonds, social impact bonds, and sustainable investment funds. These financial products are designed to direct capital towards projects and companies that are committed to environmental and social responsibility.
Sustainable finance is a collection of financial regulations, standards, norms, and products with an environmental focus. It enables the financial system to connect with the economy and its people by financing its agents while going to pursue a growth goal. With the adoption of the Paris Climate Agreement, parties were encouraged to make “finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.” Furthermore, sustainable finance has already played an important role in the European Green Deal and other EU International agreements, but its importance has grown since the COVID-19 pandemic.
The concept of sustainable finance is gaining momentum worldwide, as governments, financial institutions, and investors recognize the importance of promoting sustainable economic development. In recent years, there has been a significant increase in the issuance of green bonds, which are used to finance projects with environmental benefits. The United Nations has also launched the Sustainable Development Goals (SDGs), which provide a framework for sustainable development and have been incorporated into many sustainable finance initiatives.
Sustainable finance is the process of taking environmental, social, and governance (ESG) considerations into account when making financial investment decisions, resulting in increased longer-term investments in sustainable economic activities and projects (European Commission). It has grown into a powerful global movement led by regulators, institutional investors, and asset managers.
The United Nations adopted the 2030 Agenda in 2015 to guide the transition to a more sustainable and inclusive economy. This commitment includes 193 member countries and includes 17 goals and 169 targets. SDGs aim to address current global challenges, such as environmental protection. Sustainable finance has emerged as a critical pillar for achieving these objectives. Overall, sustainable finance aims to align financial decision-making with broader environmental and social objectives, in order to promote sustainable and inclusive economic growth.
