Sustainable Finance Is Here to Stay
By Rajul Mittal, Principal Consultant, Synechron
As per the European Commission, the achievement of the Paris agreement’s climate and energy targets for 2030 require additional yearly investments of EUR 180 billion. As the financial sector plays a key role in facilitating capital flows, the EU is working on integrating sustainability considerations into financial policy frameworks (referred to as ‘sustainable finance’). Sustainable finance is referred to as ‘the process of taking due account of environmental, social and governance (ESG) considerations in investment decision-making, leading to increased investments in longer-term and sustainable activities.’ The above definition shows that there is a paradigm shift from purely looking at profit as a key performance indicator to a broader view of including also environmental and social aspects.
Adoption of sustainable finance is important not only for its positive environmental and social impact but in order to stay relevant in a changing economic landscape. By 2020, millennials will make up 35% of the global workforce. Interestingly 17% of millennials prefer to invest in companies that meet the highest ESG standard versus 9% amongst older generations. With this demographic becoming more interested in eco-friendly initiatives, financial institutions should also consider the importance of sustainable finance with relation to both staff and client acquisition as well as retention.
All this translates into businesses needing to frequently restructure business outlook and strategy, to align with a new generation of customers, staff as well as service providers.
We all need a place to work and live, which in simple terms constitutes the “real estate” market. Sustainable finance has far-reaching consequences for real estate, which for some reason is not yet part of the mainstream dialogue. For example, commercial real estate in the Netherlands is required to have a minimum energy efficiency label of ‘C’ by 2023 based on the new energy performance certificate (EPC) regulation. Similarly, the ‘green supporting factor’ or a ‘brown penalizing factor’ for banks depending on the kind of underlying real estate asset, can directly impact real estate related lending and in turn all of us as consumers.
Sustainable finance is here to stay, and it is going to have a real and significant impact, not only on businesses but also on us as individuals. Time has come to take a note of it and act accordingly, this is the least we owe to mother nature and future generations.
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