ESG and Sustainable Finance are Potential Game Changers in the Financial Marketplace

“Value Drivers for Green Banking – ESG and Sustainable Finance Move to Center Stage” is the title of a new report by Global Management Consultancy, Arthur D. Little. Below is a synopsis.

Not long ago, the attention given to environmental, social, and governance (ESG) issues was of marginal interest to all but a few, little more than an esoteric footnote in an annual report.

But thanks to today’s increasing international unease about the impact of climate change on our planet, there’s a growing focus on the environmental and social responsibilities of corporate organizations and their consequent governance. As a result, ESG and sustainable finance have stepped onto centre stage, becoming potential game-changers in the financial marketplace.

This new wave of thinking has been enshrined in a series of landmark agreements, including the United Nations Sustainable Development Goals and the Paris Agreement, both coming on the scene in 2015. These established a global framework for limiting global warming.

By 2019, the European Green Deal from the European Commission (EC) added further weight by setting out plans to make Europe the first climate-neutral continent by the middle of this century. As part of this strategy, last year the EC published the European Green Deal Investment Plan.

This plan would see the injection of €1 trillion (~US $1.2 trillion) over the next decade to encourage Europe’s transition to a climate-neutral, sustainable, competitive, and inclusive economy. On top of these recent developments, there is also the EC’s 2030 Climate Target Plan, which increases the EU’s emission-reduction target from at least 40% to 55% over the next decade, along with the EC’s Renewed Sustainable Finance Strategy, published this past July.

Moreover – in a move that shows individual countries are toughening their stance against what are seen as unsustainable activities – a recent court order in the Netherlands obligated Shell to cut its emissions, a sign of things to come.

This report discusses the opportunities from ESG and sustainable finance as well as the strategic implications for financial institutions. It also addresses various ESG and sustainable finance value drivers before moving on to an examination of increasing climate-related risks.

Prepared by Suzanna Hayek