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Finance has a crucial role to play in tackling climate change. One way to do that is by committing in sustainable finance. Sustainable finance is any form of financial service which integrates environmental, social, and governance (ESG) criteria into business or investment decisions (Schoenmaker, 2017). Not only for climate change, sustainable finance also has an impact on future international business. There are three reasons why committing in sustainable finance can improve the future of international business.
The first reason is sustainable finance can attract many investors because sustainable finance offers more opportunities to give better returns.
Integrating ESG aspects into equity research has proven to be very beneficial, not only from a sustainability perspective but also a financial one. An Oxford University meta-study of 190 academic papers on the relationship between sustainability and firm performance found that 88 percent of the papers concluded that companies with robust sustainability practices demonstrated better operational performance. Moreover, 80 percent of these papers also found a positive correlation between sustainability practices and share price performance (Thuard et al, 2019).
The second reason is sustainable finance makes the financial system becomes better.
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Sustainable finance can improve financial system resilience and stability in managing shocks and strains such as climate change impacts, and facilitate the transition to a low-carbon, resource-efficient and socially inclusive economy. Moreover, sustainable finance underpins improved risk management and financial performance through explicit consideration of environmental, social and governance risks and opportunities in lending, insurance, and investment analysis and decision making (Escarus, 2018).
The last reason is sustainable finance can open opportunities for more jobs and economic growth.
According to European Political Strategy Center (2017), enabling Europe’s sustainable finance by substantially refocusing economic and financial systems is a must for the EU to ensure the competitiveness of its industries and drive job creation over the longer term. For example, a recent study by Cambridge Econometrics for the European Commission has found that delivering a 30% energy efficiency target by 2030 alone could provide as many as 4.2 million jobs over that period or 1.9% of total employment in the EU.
Sustainable Finance: Looking Farther. (2020, Sep 04). Retrieved from https://studymoose.com/sustainable-finance-looking-farther-essay
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