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What is Sustainable Finance?

Posted by
Swiss Finance Institute
on
Friday, September 23, 2016 - 12:15

The upcoming SFI Annual Meeting (register now) is about Sustainable Finance Moving Center Stage. In this post we discuss how sustainability relates to finance.

While there is probably not one single definition of sustainable finance, people typically agree on a number of aspects characterizing it. The two most common aspects of sustainable finance are that they have to do with:

 

  • lasting and long-term impact, or the sustainability factor,
  • and the interrelationship between environmental, social, and governance (ESG) issues, on the one hand, and financial issues such as financing, lending, and investment decisions, on the other.aa

Sustainable finance is not only concerned with how financing and investment decisions influence ESG issues, but also with how ESG issues might influence investment decisions and asset valuations.

 

On the investment side, there are at least five forms of sustainable investments, as defined by the Global Sustainable Investment Alliance (GSIA). The GSIA groups these investments into the following approaches: screening; integration; sustainability-themed investing; impact or community investing; and corporate engagement or shareholder activism.

 

On the lending and financing side, sustainable finance is very much about the financing of green and sustainable infrastructure, green real estate, and more broadly the financing of sustainable development. These cover many areas of lending and financing, and we will highlight various forms in following blog posts.

 

Thus, sustainable finance looks at how investing, lending, and financing interacts with environmental, social, and governance issues over a given period of time.  And while traditionally the focus of sustainable finance has been on how to make a profit while investing with a "green" conscience, the question is now often turning to how smart green investments lead to profit and benefits for environmental, social, and governance issues.

 

Faculty expertise provided by: Prof Philipp Krueger