This new trend is here to stay. In fact, it is the future of finance. With more and more investment products being made available to investors that prioritize the environment, it is time to talk to your bank or financial advisor about how invest sustainably. There are also books, research, media outlets focused on green finance so it is much easier to get educated about the space.
Technology is also upping the game, with several sustainable investment apps now available to us. Ultimately it is about being proactive about your financial and investment decision making, being more conscious about where you want your money to go.
Finally, climate change is getting the media attention it so urgently deserves. The clock is ticking for serious action and that means action from all corners. This is where finance comes in. Finance, green finance in particular, is the lynch pin … and here’s why by Jessica Robinson, a leading expert on sustainable finance and responsible investing, and author of Financial Feminism: A Woman’s Guide to Investing for a Sustainable Future.
Starting with the basics
Green finance – in its simplest form – is money, capital, flowing to projects, companies, assets and initiatives that are focused on transitioning our economies and societies to a low-carbon future. It is a broad term that encompasses private sector activity that is environmentally friendly, or rather, environmentally progressive. We need huge amounts funding if we are going to have even a chance of hitting our ambition under the Paris Climate Agreement.
Importantly, green finance is also part of a much bigger universe. You may have heard of sustainable investing or impact investing – an investment discipline that considers environmental, social and corporate governance (ESG) criteria to generate long-term competitive financial returns alongside positive societal impact.
Green and sustainable finance is taking the world by storm. There is a new class of investors actively seeking out companies that address daunting social and environmental challenges while also delivering financial returns. These companies fall into a wide range of industries and sectors – ranging from food to transportation, from healthcare to education – the universe is extensive. And everyone can get involved.
What’s the buzz and why does it matter?
One of the many things the COVID pandemic has taught us is that the world is more interconnected and more vulnerable to global shocks that have huge ripple effects at a local level. The one positive to come out of the pandemic is that it has strengthened investors’ commitment to addressing global challenges, with climate change being to most pressing.
The investment choices we make – whether as individuals or as companies and financial firms at an institutional level – shape the future world we want to live in. While the concept has been around for a while, for many, it has taken a long time for the penny to drop – we can actually use our money, our investment decisions, to bring positive change in the world.
So what is holding us back?
Despite this, it has not been plain sailing. The rise of green finance has faced significant challenges along the way – largely due to the lack of data to support the argument that putting money into green and sustainable companies and funds does not result in lower financial returns. However, the good news is that this has changed – we have more and more concrete evidence that investing with the environment in mind tends to outperform the wider market.
Now the biggest issue we face is that of greenwashing which is leading investors – big and small – sometimes down the wrong path. Greenwashing occurs when labels on financial products are not properly assigned, or maybe stretching the truth. This gives the investor a false sense of comfort, not to mention the damage it does to the reputation of the green finance industry. Regulators are looking at ways to stamp this out – but it means for us as investors we really have to do our due diligence. This means looking into the specific companies that a fund invests in, checking out their sustainability reports, looking at third party opinions and ratings, researching what NGOs are saying.
