2019 will be remembered as the year in which, among other things, the ‘Fridays For Future’ phenomenon spread across the globe. The message was clear: climate change and disregard for the environment must be addressed. Key to that is a fundamental shift towards an economy rooted in sustainability is no longer a nice-to-have, but a necessity.
As pronounced by the United Nations Brundtland Commission in 1987, the defining feature of sustainability is the ability of “meeting the needs of the present without compromising the ability of future generations to meet their own needs”. At the very basic level, sustainability is thus concerned with balancing out the needs of today’s society against tomorrow’s, underpinned by the strategic allocation of finite resources, including financial resources.
Traditionally, the allocation of financial resources has been determined principally by reference to financial metrics, adopting a somewhat narrow approach to financing, with limited regard to the wider socio-economic impact.
This article is the first in a series aimed at illustrating the role of finance in shaping a sustainable economy
In a bid to challenge this traditional approach, this article is the first in a series aimed at illustrating the role of finance in shaping a sustainable economy, zooming in on an array of sustainable finance tools motivated by environmental or social principles, rather than by financial returns exclusively.
Traceable to the World Bank’s first green bond issued back in 2008, the sustainable finance industry has undergone a gradual evolution. A number of key institutions and stakeholders have since pronounced themselves. Among them, the European Commission, whose ‘Action Plan on Sustainable Finance’ (2018) established a comprehensive strategy aimed at: reorienting capital flows towards sustainable investment; managing financial risks stemming from climate change, environmental degradation and social issues; and fostering transparency and long-termism in financial and economic activity.
Locally, having recognised the European Commission’s vision on the role of finance in sustainable development, the MFSA has, on February 26, declared its commitment to making sustainable finance a key priority in its strategy.
The importance of developing a sustainable finance market that offers benefits to both the financial market participants concerned and the long-term sustainability of the planet can be said to have been generally acknowledged. However, a strategic mindset change is yet to fully unfold, and the political impetus necessary for this drive to reach its full potential could well do with more traction.
In future instalments of this ‘sustainable finance’ series, we will explore ways of developing, and key features of, a sustainable finance market.
This article forms part of Camilleri Preziosi’s ‘Sustainable Finance’ series, in which members of the firm’s Capital Markets and Finance practice groups explore and evaluate the emerging trends and opportunities in the sustainable finance economy. For further information, contact malcolm.falzon@camilleripreziosi.com.