3. Sustainable Finance

Sustainable finance is a growing field of finance. The concept of implementing financial tools to address social and environmental issues is not new. Grants, mutual finance, concessionary finance are being used to promote social perspective in the economy. However it is a recent development where financial institutions have started to look into integrating environmental and social aspects with financial return. This modern integration has multiple titles which are used interchangeably, however they all can be best grouped under “Sustainable Finance”.

“Sustainable finance generally refers to the process of taking due account of environmental, social, and governance (ESG) considerations when making investment decisions in the financial sector, leading to increased longer-term investments into sustainable economic activities and projects.”

It can be further divided into two sub-categories:

• Negative sustainable finance which is an exclusion strategy that involves investments assessed on the basis of material risk profile of ESG dimensions ( i.e. “do not harm”). Such screening results in divestment from or avoidance of high ESG risk investments. One example is screening on the basis of carbon intensity of the company and moving investments from high carbon to low carbon intensive companies.

• Positive sustainable finance is an integration strategy that focuses on investments with the potential for significant, additional environment and social impact which are generally linked to the UN's Sustainable Development Goals. It provides additional capital for positive impact as well as focuses on identifying potential start-ups or impactful companies. An example is investment in companies providing green technology such as solar energy or carbon capture technologies.