As efforts to tackle the pressing threats posed by climate change intensify, so has the pressure on financiers and investors to contribute to the solution.
As suggested in the first instalment of our eight-part ‘Sustainable Finance’ series, the impetus for the sustainable finance movement is growing out of the perceived inadequacy of an economic model fuelled exclusively by self-interest and financial return with little or no regard to the environmental and social consequences of investments.
It has taken a global health crisis of unprecedented proportions to get many to take a collective pause and reflect on what, from the status quo, may merit a re-think. As factories and stores shut their doors and streets and skies cleared up, a real-life test case for decarbonising the world’s economy emerged. One prominent question in this respect is: what role does sustainable finance play in achieving this goal?
The COVID-19 pandemic hit at a time when, it can be said, sustainable development goals were finally gaining traction. As world leaders grappled with this global health crisis, priorities have had to be adjusted, and resources reallocated.
The narrative that emerges from this is that the solutions to the two crises could, and should, be integrated into one coherent response.
The response to any COVID-induced recession must be tinged with a green focus
As the world wound down, CO2 emissions fell sharply as never before. The impact on carbon output (for the better) was immediate.
But this planetary breather is no cause for celebration if the unprecedented global disruption caused by COVID-19 will not prove enough to teach us that our way of life renders us vulnerable.
The emergence of COVID-19 as ‘a public health emergency of international concern’ prompted radical state intervention across the globe, unprecedented in size and scale. A similar approach, drastic as it may be, is required to confront the environmental emergency, yet despite the mounting evidence of the devastating effects of climate change, world leaders have generally been far less engaged in adopting effective measures to avert the environmental crisis.
The concern in this respect is that, post-pandemic, direct capital towards other imminent global needs will be in short supply. The challenge is therefore that of ensuring that the response to any COVID-induced recession, despite being posited against a pandemic backdrop, is tinged with a green focus. Recovery strategies aimed at building much-needed resilience in the private sector would do well to weave environmental, social and governance (ESG) considerations into investment decisions.
A push towards sustainable bond and loan financing as a source of lending offering a different slant to mainstream corporate debt, would also merit careful attention. By contrast to traditional finance, sustainable finance looks beyond financial return, and considers financial, social and environment returns in combination. In the coming weeks we will explore how sustainable finance is crucial in the drive to ‘Build back better’.
This article forms part of Camilleri Preziosi’s ‘Sustainable Finance’ series, in which members of the firm’s Capital Markets and Finance teams explore and evaluate the emerging trends and opportunities in the sustainable finance economy.