What is Sustainable Finance?

Traditional vs. Sustainable Finance

We believe that our global financial system needs to improve. Sustainable Finance tries to achieve this by evolving Traditional Finance.
Traditional Finance focuses on Return and Risk, while Sustainable Finance includes environmental and social issues to measure Impact. We can think of this graphically.
[Insert Graph of Return v Risk (x&y) and Return, Risk, Impact (x,y,&z)]

Why does Traditional Finance fail?

Our current economic models were developed based on a set of false assumptions, such as, natural resources are infinite, and carbon emissions are not harmful. These models did not factor in environmental and social concerns. To this day, labor and capital are the only scarce production factors to optimize in economic production. The problem is that the mindset derived from the Industrial Revolution in the 19th century is no longer tenable.

Where does Sustainable Finance step in?

The world of finance now realizes that we must consider more than just financial performance. We must also consider the impact we have in the form of Environmental, Social, and Governance (ESG) factors when we analyze companies and investments. The reasons for this change in mindset are many:
  • Sustainability is a new business imperative thanks to its proven value-add
  • Customers are becoming increasingly worried about global issues like climate change
  • Investors realize they can address societal challenges with their decisions
  • Regulation is forcing changes to business models and reporting standards
https://www.gov.uk/government/publications/investing-in-a-better-world-results-of-uk-survey-on-financing-the-sdgsA survey by the UK government suggests that a lack of information and knowledge are the main barriers for individuals to engage in sustainable investing. My goal is to provide information in an easily understood way and introduce the concept of sustainable investing to more people.

Sustainable Investing is along a Spectrum

Source https://missioninvestors.org/resources/fundamental-terms-and-concepts-impact-investing
Bain & Co.

Want to learn more?