Sustainable development and the financial sector
Responsible business approaches taking into account environmental and social impacts of financial decisions have become both widespread and more comprehensive over the past years. Many banks, for example, are now taking the negative impacts associated with the projects they finance more seriously, and for many financial managers and analysts sustainability concerns factor more prominently in their investment decisions.
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What has led to the shift ?
The driving force behind sustainability in the financial sector has been increased NGO pressure and the resulting public interest in the financial sector’s impacts, as well as the facilitating role of internal advocates within many financial institutions. The moral and ethical rational is very obvious. Decisions about which company to invest in or which project to finance can have huge impacts on sustainable development. There is, however, also a strong business case for the financial sector to become more sustainable. Sustainable companies or projects have proven to perform much better in the long run which is an important aspect for investment or project finance decisions. In addition, increased awareness of the costs of climate change have given sustainability – particularly environmental sustainability – more prominence in the financial sector.The major frameworks
Two major international responsibility frameworks have been developed. The first one is the Equator Principles which governs project finance decisions of a number of major commercial banks, e.g. decisions to finance projects such as dams or pipelines where the revenues generated by that particular project generate the repayment. Another major framework are the Principles for Responsible Investment (PRI) which provide a menu of possible actions for incorporating environmental, social and governance issues into mainstream investment decision-making. While these frameworks and other initiatives have brought about positive change in the financial sector, there are still a number of obstacles to overcome.Recommended Reading...
