Sustainable finance is the practice of integrating environmental, social and governance (ESG) criteria into financial services to bring about sustainable development outcomes, including mitigating and adapting to the adverse effects of climate change.
Companies that commit to addressing these urgent issues will realize greater business opportunities in the future and this will achieve higher returns for their long-term shareholders. Many influential institutional investors and asset managers are starting a powerful movement to add (ESG) standards to their criteria for capital allocation. As long-term stewards of capital, they recognize a need for making strong connections both with their customers and other stakeholders as environmental and social challenges increasingly impact the way we live and work.
Activities that fall under the heading of sustainable finance, to name just a few, include sustainable funds, green bonds, impact investing, microfinance, active ownership, credits for sustainable projects and development of the whole financial system in a more sustainable way.
How Are Banks Aligning With ESG Criteria?
#1 Sustainable Financing and Investing
Financial institutions play a big role in the allocation of finance and lending services to many big companies and governments globally. Naturally, they have a huge amount of responsibility to prevent environmental or societal damage and actively introduce practices that protect them.
Low-carbon and sustainable sectors such as green fintech also have higher chances of having financial institutions investing in and lending to them. Investing in, financing or partnering with these green companies drives the growth of a new industry with the aim of supporting sustainability objectives and plans.
#2 Sustainable Culture
Banks are introducing practices that promote ESG development and integrating sustainability as a priority. For a culture that puts sustainability first to evolve, employees must prioritise sustainability both at work and in their personal lives. For this behaviour and lifestyle to be encouraged, companies should help their staff to enquire knowledge and tools to live more sustainable lives.
It should be made clear to employees that sustainability is a crucial factor impacting the future success of the business. It is important for companies to incorporate creativity into the ways they integrate ESG. Senior management as leaders should head the sustainability culture in order for it to be a success.
#3 Sustainable Products and Services
With sustainable tools and products provided to customers, they can be better educated and equipped to make more financial decisions that can positively impact the environment. Internally or externally, the financial institution has the responsibility to educate all stakeholders and parties that they are interacting with.
The Monetary Authority of Singapore had also come up with a Green Finance Action Plan to support Singapore’s transition to a Sustainable future. Through this plan, there are 4 strategies planned out.
Firstly being strengthening Singapore’s financial sector resilience, there will be guidelines on environmental risk management and financial institutions will have to go through stress tests under different scenarios of changes to climates, assess and monitor any environmental risks.
Secondly, markets and solutions will be developed for a sustainable economy, schemes such as Green Bonds and Loan Grants will be implemented to reduce borrowing costs and defray additional expenses of having reviews. This will also promote the development of sustainable lending frameworks where processes can be simplified.
Thirdly, technology will be incorporated to allow Sustainable finance flows to be trusted and efficient. There will be a Global Fintech Innovation Challenge to encourage innovative solutions to be developed to help financial institutions to cope better during the pandemic and still be able to perform during climate changes.
Lastly, knowledge and capabilities should be acquired in sustainable finance. There will be Asia-focused climate research and training provided by the Singapore Green finance Centre, talents will be groomed in the sustainability and green finance industries. There will also be sustainable finance verification to review and rate services. This is in order to support corporates in building capabilities and ensure all financing instruments’ integrity.
What Are The Benefits Of Banks Incorporating ESG?
Having business practices and processes aligned with ESG criteria is beneficial for stakeholders and financial institutions’ overall performance. Some of the benefits of incorporating sustainable business practices include:
#1 As a financial institution, Implementing a sustainability strategy can allow the company to position itself as a trusted advisor on green financing. This will increase loyalty and drive engagement with customers, leading to increased trust from customers.
#2 When companies do not align ESG criteria with their business strategy, consumers who are environmentally conscious may choose not to support them and this may lead to the bank having a damaged reputation.
#3 Employees, especially millennials and Generation Z these days, will want to work for companies that care for a positive impact on the world and have goals aligned with their personal lifestyles. Through being a sustainable business, these financial institutions can then attract the best talent and improve their employer branding.
In Conclusion
In order to not compromise the well-being of our future generations, we should and can do more to reverse the environmental impact. To start, financial institutions should encourage all businesses to contribute to this movement and mend their practices, processes and even their human resources before funding and loaning to them. Educate them to start small by drawing up a sustainability developmental plan and implementing it step by step, communicating the importance of being sustainable to all stakeholders. Only by seeing efforts made, the bank can then financially support them.
At Aventis, we provide Sustainability workshops. Come meet our industry experts for the following course:
Responsible Sourcing, Supply Chain Management & Sustainable Procurement.
Starting & Managing Corporate Sustainability & ESG Strategy
Effective Guide To Sustainability Reporting
Discounts are available when you sign up in groups of 3 or more! Feel free to reach out to Ms Germaine at 6720 3333 for more details!
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