November 28, 2019
The concept of sustainable finance broadly encompasses all those financial activities and initiatives that are directed towards achieving social, environmental and economic sustainability, in addition to immediate financial gain that is generally assumed to be the necessary outcome of any financial activity.
Contemporarily, and in the modern period, on the whole, ideas of sustainability concerning financial activity are generally encompassed under the broad concept of environmental, social, and corporate governance (ESG). Interestingly, in the 1960s and 1970s, laissez-faire economists such as Milton Friedman argued against emerging notions of financial sustainability and government regulation, noting that these were ultimately detrimental to the financial performance of firms and larger national economies. Nevertheless, by the late 1980s and early 1990s, new theories based on the sociological ramifications of sustainable or unsustainable finance began to gain new ground, not only compelling businesspersons to consider then new concepts such as corporate social responsibility but also form new partnership conclaves with governments and NGOs towards fulfilling environmental and social challenges. By the beginning of the 21st century, concepts of responsible investment and ESG became more relevant and acceptable, as earlier theories of the incompatibility of sustainability and financial returns were debunked, and there was an increasing awareness regarding the close connection between financial activity and climate change, for instance.
While the ESG paradigm has become a necessary component for any financial practice that might be considered as feasible and practical, the concept of sustainable finance is becoming an essential component and concept in global finance.
Sustainable finance can be broadly described as those set of ethical concerns and practices that are dedicated to social and environmental prerogatives alongside financial gains that are made from any business activity (BNP Paribas, 2018). Currently, the following can be considered as the set of broad areas involving efforts towards creating sustainable finance: