Sustainable Finance

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 Many of us must have heard policy makers encouraging a green economic recovering and prioritising economic and financial policy to avert climate change. This brings us to the emerging traction towards sustainable finance and green products that aim to promote climate change related environment solutions and to fund environment-friendly projects.

Green bonds are one of the ways wherein investors can directly invest in fighting climate change along with fixed returns. Traditionally, bonds give investors a fixed return for a fixed term and funds generated by it could be used for general corporate purposes often not known to bondholders. Unlike these, proceeds from green bonds are earmarked for green projects related to renewable energy, sustainable waste management, clean transportation and other activities that offset greenhouse gas emissions and provide businesses with enough returns to satisfy the interest payments of a green bondholder.

There are also new parameters upon which investors are increasingly deciding their investment decision. This is known as Environmental, social and governance (ESG) investing. ESG is investing in companies that score highly on environmental and societal responsibility scales calculated by third party like ESG research firms. The environment component includes a company’s impact on the planet in both positive and negative way, social aspect deals with the companies’ culture, policies and attitude towards its employees, suppliers, customers and the society at large and lastly governance comprises of how shareholder-friendly versus management-centric the company is, diversity policy, transparency with shareholders and varied topics under corporate governance. While in India ESG parameter is at a nascent stage, globally the idea of impact investing is being steadily entrenched among investors. Being responsible citizens, we, the younger generation should play a role in popularising this concept in India.

Often suspicion over economic gains arising from such a shift towards sustainable finance are raised. To allay such fears, an Oxford University study, has found positive correlation between diligent sustainability business practices and economic. With many countries pursuing green policies, central banks also supporting sustainability projects and an expected 55% growth in 2021 in this sector according to Credit Agricole Group, we must collectively make this paradigm shift towards sustainable finance.



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