Despite the ongoing public health crisis, last year was a watershed moment for sustainable financing. As the industry looks back on a year of excellent growth, the attention now shifts to removing the impediments to greater success.
FREMONT, CA: Public concern influences government policies and laws to achieve positive environmental and social consequences. Consumer preferences change, and technological and business model innovation generates markets for more sustainable goods and services.
These variables convince investors that high environmental, social, and governance performance predicts excellent financial performance.
The market for sustainable finance will expand further. The obstacles will determine how rapidly and successfully it grows and how soon we will shift to a more sustainable economic paradigm.
ESG data: The lack of agreement on and availability of relevant ESG data is perhaps the most significant obstacle confronting the sustainable finance sector.
Due to a lack of standards and a scarcity of disclosure rules worldwide, corporate ESG disclosure is voluntary and, as a result, uneven and inconsistent. Companies decide what data to report and whether or not to report. Consensus on ESG disclosure has been difficult to achieve. However, there is hope at the end of the tunnel.
Producing a consensus from an alphabet soup of existing standards and frameworks will be difficult but necessary. It is likely a more iterative process than proponents for sustainable finance would desire.
Financing the net-zero transition: One difficulty confronting the sustainable finance community is its role in financing the transition to a net-zero global economy.
It is more difficult to support today's carbon-intensive industries as they transition to a world with a fraction of today's greenhouse gas emissions.
Alignment: Alignment would benefit investors and market players on various regulatory problems. At the most fundamental level, at the definitional level.
Taxonomies try to provide advice on whether investments are environmentally friendly. However, we are seeing discussions about various taxonomies under progress all across the world.
As most organizations are global and operate across borders, the consequences for financial market participants are enormous. Complying with various requirements can be costly and risky and may not achieve the transparency and reduced risk of greenwashing goals underlying regulatory improvements.
