June 2023
Let’s shed light on projects your bank invests your money in, types of sustainable financial investments and look at certificates so that you can make more informed decisions while choosing your green banks.
WHAT IS SUSTAINABLE FINANCE?
First, let's understand the meaning of the term 'sustainable finance.'
According to the EU, ‘sustainable finance’ considers environmental, social and governance (ESG) considerations when making investment decisions in the financial sector. It leads to more long-term investments in sustainable economic activities and projects.
In simpler terms, it brings forward the best of both traditional and ethical/philanthropic finance. While conventional finance is focused only on financial performance without considering social impact,
and ethical finance is focused only on social and environmental performance,
sustainable finance combines both approaches.
Thus sustainable finance encourages financial institutions such as banks, insurers and investors to consider ESG factors while seeking profits and reducing risks.
You must be wondering why a financial institution would want to consider its investments' environmental impact.
WHY WOULD A FINANCIAL INSTITUTION CHOOSE SUSTAINABLE FINANCE?
Well, besides the responsibility towards the environment, it can be because of the following reasons:
Government intervention: Environment-friendly policies by the government can force financial institutions to adopt a sustainable framework.
Financial benefit: The shift towards sustainable practices such as renewable energy, circular economy, etc., provides ample opportunities to gain profits while minimising risks.
Consumer preference: If the customer base of a financial institution wants to invest only in sustainable projects, the institution would have no choice but to undertake environment-friendly projects to protect its business.
Yes, you guessed it right!
As a customer, you have the power to bring a change to your financial institution’s portfolio by making sustainability your preference.
And how can you do that?
By choosing to invest your money in Green Banks →!
Types of sustainable investments
Sustainable Investment types underline the different approaches or strategies for investing in companies, projects, or assets that prioritise environmental, social, and governance (ESG) factors. These approaches are designed to generate positive financial returns while positively impacting society and the environment.
ESG Investing
It is the consideration of the ESG (Environmental, Social and Governance) factors alongside other financial factors in screening potential investments. Financial returns are given weightage in this investment. Here are some ways to invest:
GREEN BONDS
The money an investor lends to the bond issuer goes to finance environmentally friendly projects, such as sustainable water and wastewater management, public transportation, pollution prevention and control etc. One of the environmental standards/frameworks to authenticate the bond as green is the “Climate bond standard.” It’s an internationally recognised framework for identifying and labelling green investments.
CLEAN ENERGY INVESTMENTS
These are investments in the companies developing or deploying clean energy technologies, such as solar or wind power.
SUSTAINABLE REAL ESTATE INVESTMENTS
These are investments done in properties built to high environmental standards, such as LEED or BREEAM certification, or properties located in transit-friendly areas, which can reduce the carbon footprint of transportation.
Socially Responsible Investing (SRI)
SRIs are ESG investments but are done with specific ethical considerations. The investor might opt out of certain assets because they do not align with the investors’ ethics and values, such as firearms production, tobacco or other addictive substance production, environmentally damaging substance production, etc.
Impact Investing
Impact investing aims to produce tangible results beneficial to society and the environment. Positive outcomes are crucial to this type of investment. Example: Investing in non-profit research in energy efficiency, eliminating water scarcity etc.
CERTIFIED SUSTAINABLE INVESTMENTS
Certifications and standards can establish a bank's credibility with sustainable investments by independently verifying their environmental and social performance. Certificates offer a control mechanism that guarantees you certain correctness of the promises.
However, no certification or standard can guarantee a company or fund's social or impact performance. Always conduct your due diligence and research before making investment decisions.
Investment certificates
In the following, we compiled an overview of the most common certifications granted to watch out for. If you decide on an investment, check out if the investment is certified. If not, dig deeper to determine the “whys” and search for alternatives.
GLOBAL INVESTMENT CERTIFICATIONS
B Corporation Certification
Recognises companies that meet high social and environmental performance standards, transparency and accountability.
Carbon Disclosure Project (CDP)
A global environmental disclosure platform that enables companies and cities to measure and manage their environmental impacts.
Equator Principles
A risk management framework financial institutions use to assess and manage project environmental and social risk.
ESG Ratings
Various ratings and rankings evaluate companies' environmental, social and governance performance.
Global Reporting Initiative (GRI)
A sustainable reporting framework that helps organisations disclose their economic, environmental, and social impacts.
EU Certifications for Investments
EU Ecolabel
Recognises products and services with reduced environmental impact throughout their life cycle.
EU Green Bond Standard
Assures that a bond issue meets strict environmental and transparency criteria.
EU Taxonomy
A classification system that helps investors to identify environmentally sustainable economic activities as defined by the EU.
Social Enterprise Mark
A UK-based certification recognises social enterprises meeting high social and environmental impact standards.
UN Principles for Responsible Banking
A Set of six principles that guide banks in aligning their business strategy with the United Nations Sustainable Development Goals.
WHAT TO DO NOW?
Choose a set of available Sustainable Banks →.
The investment type is personal. Check a Bank’s Investment Profile →.
Choose a profile that aligns with your investment principles.
After you decide on an investment type, check for Certifications → to ensure a bank’s investments’ credibility.
LEarn more
Check our sources: Bibliography →
