Chapter 22 Summary

22.1 Sustainable Finance

• The sustainability initiatives by financial institutions are known as sustainable finance or green finance.
• Sustainable Finance denotes financial systems, services and products that integrate environmental, social and governance (ESG criteria) into business and/or investment decisions such that current social, environmental, and livelihood needs do not compromise the ability of future generations to meet their own needs.
• “Green finance” is a broad umbrella term that refers to the major shift in financial flows required to support projects that benefit the environment and society by reducing pollution or tackling climate change.

22.2 Global Initiatives towards Sustainable Finance

• The Paris Agreement is a legally binding international treaty on climate change that brings the world together to combat climate change.
• The main focus of the Paris Agreement is lowering greenhouse gas emissions through a system of pledge and review. The parties to the Agreement are sovereign states who agree to take action to meet an ambitious goal: to hold the rise in global temperature “well below” 2 °C and to try for 1.5 °C.
• The Sustainable Development Goals (SDGs) are a set of 17 goals, with 169 targets, that are “a blueprint to achieve a better and more sustainable future for all.” All 193 of the world’s countries have committed to these goals, which are to be achieved by 2030.
• The United Nations-supported Principles for Responsible Investment (PRI) is another important large global sustainability initiative. The PRI was designed to help the finance industry – asset owners, investment managers and service providers – to become more sustainable by integrating ESG into investment and operating decisions.
• There are some other large initiatives as well, like Climate Action 100+, Net Zero Asset Owner Alliance, Net Zero Asset Managers, etc.

23.3 The World Bank Toolkit for Green Financial Systems

• The creation of stable, sound and transparent financial sectors requires mobilizing capital towards green growth objectives. The toolkit provides a detailed and practical implementation of six different areas (toolkits) to green the financial system.
  • Strategy and coordination
  • Understanding and awareness of climate/environmental risks and opportunities
  • Financial regulation and central banks focus on improving the stability and soundness of the overall financial system
  • Increasing transparency
  • Greening financial institutions
  • Green financial tools and instruments

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