FOLLOW THE MONEY - SUSTAINABLE FINANCE IS ENSUING AN ENORMOUS REALLOCATION OF CAPITAL
Our Sustainable Snapshot series provides short sharp high-level insights into the sustainability mega-trends shaping our world.
Sustainability parameters are setting a new tone for all businesses going forward.
Recent government announcements across the globe aimed at meeting the Paris Agreement (below 1.5-degree target) and the UN Sustainable Development Goals are having huge impacts on the current business landscape. In addition to growing government intervention, business and institutions are also taking a role in transforming unsustainable production and consumption patterns.
Right now, for most companies, there is a growing business imperative to address sustainability. Material risks companies face are broadening and becoming more complex with the realities of climate change, global health pandemics and rising industrialisation. These mounting risks are seeing a global movement emerge driven by capital markets, governments, community and various stakeholders calling for transparency and accountability across ‘environmental, social and governance’ (ESG) to better understand the impact of business and industry on the environment and our societies.
Investors / stakeholders - Investor appetite is increasingly moving away from short term gains to longer term purpose, in addition, there is enormous reallocation of capital occurring towards the ‘green economy’.
Risk management – As a result of climate change and energy transition, there are physical (extreme weather), transition (technology, market shifts) and regulatory (government policy/ carbon tax) risks that will see many companies under pressure to operate. Social risks include diversity & inclusion, talent and workforce considerations.
Regulation – Government, industry and institutions are waking to the costs of inaction. The EU taxonomy comes into force in January 2022 and is essentially a tool to help investors understand whether an economic activity is environmentally sustainable. Many other countries, are similarly looking to enforce new compliance and disclosure measures in the near future.
Customers / Vendors / Employees – As markets are being disrupted and new markets rapidly emerge, organizations that integrate sustainability into their business stand to realise benefits as consumers and stakeholders reward those that demonstrate the social licence to operate. There is also growing acceptance that it is also just the right thing to do.
Sustainable finance is defining a new approach for making investment decisions
Sustainable finance is considered to be of essential importance for the transformation process towards the transition to a low-carbon economy and a sustainable financial system. The global efforts aim to create an environment which meets the following key objectives:
Re-orient capital flows towards sustainable investment in order to achieve sustainable and inclusive growth
Manage financial risks stemming from climate change, environmental degradation, and social issues
Foster transparency and long-termism in global financial and economic activities
To read more about Sustainable Finance - please download our Sustainability Snapshots - Sustainable Finance publication here.