Increasing pressure on the environment, damages to ecosystems and environmental changes are presenting a global challenge. Integrating sustainability considerations into the financial system can play an important role in meeting the objectives agreed upon in the United Nations’ Sustainable Development Goals (SDGs) and the Paris Climate agreement. Therefore, the inclusion of sustainability criteria in the financial sector are essential to address the future challenges – this also includes the establishment of financial market structures that create incentives for large-scale shifts in investments and a more future-friendly capital allocation.
As part of the growing awareness that a shift in the financial industry is needed, sustainable finance is increasingly gaining attention from global financial and political actors as well as the broad public. But what does it mean?
Sustainable Finance aims at integrating environmental, social or governance (ESG) criteria into financial services. Decisions about investments and capital expenditures should take those criteria into account, while being beneficial to both the investor and society at large. Moreover, the sustainability risks that may impact the stability of the financial system should be made transparent. However, the future-oriented investment strategies should be based on valid data as well as medium to long term risks and returns. While this previously was a niche investment strategy, the approach increasingly reaches the mainstream of international financial markets.
An important component of Sustainable Finance is Green Finance, which refers to raising capital and financial investments into companies, services, products and projects that accelerate the development of an environment friendly and climate-resilient economy – an undertaking to which technological innovation and digital finance are essential to. By using big data, artificial intelligence and the internet of things Green FinTechs present innovative and efficient opportunities to further the greening of the financial system while mainstreaming the green finance approach by making sustainable financial services more accessible.