“Investing in sustainable finance is not just about returns; it’s about securing a better future for generations to come.”
Sustainable Finance refers to Investment and Banking Practices or collectively Financial Practices that Integrate Environmental, Social, and Governance (ESG) criteria into financial decisions. The goal is to mobilize capital towards more sustainable businesses and projects while managing risks posed by issues like climate change.
In the recent years, Sustainable Finance has seen remarkable growth, driven by increasing recognition of global challenges like resource scarcity, pollution, and inequality. There is also greater awareness of the exposure of mainstream financial assets to sustainability-related risks – risks that can impact returns. The COVID-19 pandemic has further revealed vulnerabilities in social and economic systems of the entire world as a whole.
Financial Institutions are responding through various commitments and initiatives. These include increased lending and investment in areas like renewable energy, as well as enhanced risk analysis methodologies that incorporate climate change and other ESG risk factors. Many major investment firms are providing more sustainable investment products for clients looking to put their money to work for both societal good and financial return. For an example, did you notice that government of every nation allow subsidies and come up with schemes to promote the production of Electric Cars?
Policy and regulation also aim to scale Sustainable Finance. Governments are providing incentives, guidelines and rules to direct capital towards sustainable development. Regulators are also demanding improved climate risk disclosures so investors can make informed decisions.
While there is a significant progress, the Financial Sector has a long way to go to fully align with Global Sustainability Needs. The UN estimates that achieving its Sustainable Development Goals will require $5-7 trillion as an annual investment. This presents a powerful opportunity to transform finance. As the face of substantial capital, banks and investors are into developing innovative financing mechanisms for sectors like clean energy infrastructure in emerging markets. The potential for returns through new Technologies and Business Models is vast.
The Global Financial System manages hundreds of trillions in assets – representing tremendous influence over societal outcomes. Sustainable Finance channels this influence towards the Environmental Stability, Social Equity and Economic Prosperity needed today while preserving these possibilities for generations to come. Though the road will not always be smooth, by aligning investment decisions with sustainability, finance can nurture lasting well-being on a healthy planet.
Sustainable Finance with India
Coming to India, the first weeks of 2023 opened with a flurry of sustainable finance announcements. The year’s budget identified green growth as a priority, with spending earmarked for hydrogen power, energy storage and renewables, and for making agriculture more nature-friendly. The government also issued its first green sovereign bond, raising $1 billion at a lower cost of capital than conventional debt. The Reserve Bank of India, announced that it will be issuing new guidelines on climate stress testing, climate disclosure and green deposits at banks. In the capital markets SEBI, has been pursuing green bonds and corporate disclosure for quite a while. It has now updated its approach and released new frameworks for blue (ocean) and yellow (solar) bonds, as well as its own ‘dos and don’ts’ to prevent greenwashing.
Interim budget 2024, unveils plans for the launch of the Blue Economy 2.0, which is aimed at promoting climate-resilient activities & sustainable development in coastal areas. This will focus on the expansion of coastal aquaculture & mariculture which plays a vital role in meeting the growing demand for seafood while reducing pressure on wild fish stock.
Considering Technology in Sustainable Finance, Fintech innovations, blockchain, and data analytics play a pivotal role in assessing and monitoring ESG criteria. These technological advancements empower investors to make data-driven decisions aligned with sustainability goals. Single-Click access to data and information about ESG compliances collectively is a smart move towards the management and analysis of progress.
Sustainable Finance for Chartered Accountants
Investing in businesses and projects with sustainable ESG practices is already on the rise, as in the demand for finance professionals with expertise in the niche yet rapidly growing fields. When we see the recent reports stating that its already one of Asia’s most demanding fields.
As the world grapples with environmental and social challenges, sustainable finance has emerged as a crucial area that demands attention. Chartered Accountants (CAs) are well-positioned to play a pivotal role in this field, leveraging their financial expertise and ethical responsibility to contribute to a sustainable future. The role of CAs in this landscape could be:
- ESG Reporting, Assurance and Advisory: CAs can play a critical role in ensuring transparency and accountability in ESG reporting. With a strong foundation in financial reporting and auditing, CAs can help businesses develop comprehensive ESG reports, providing stakeholders with a clear understanding of the organization’s environmental and social impact. Assurance services in this area can enhance credibility and trust.
- Assist in Green Financing: The rise of sustainable finance has given birth to various green financing mechanisms. CAs can assist businesses in navigating this landscape by providing expertise in areas such as green bonds, carbon credits, and sustainable investment funds. By understanding the financial intricacies of these instruments, CAs can help their clients make informed decisions that align with sustainability goals.
- Compliance and Regulatory Expertise: The regulatory landscape for sustainable finance is continually evolving. CAs can stay abreast of these changes and guide organizations in ensuring compliance with relevant laws and standards. By helping businesses navigate the regulatory environment, CAs can mitigate risks and contribute to the development of a robust and responsible financial sector.
Thus, it can be summed up that, acceptance and employment of Sustainable Finance is the key to a brighter and innovative future of the Nation and the world as a whole. Only through Sustainable Finance, the natural resources and climate can be preserved and which would help us to sustain our planet and the human race.