Episode 1: What Does Sustainable Finance Mean? | Sustainable Finance | SDGPlus #Finance

so i’ve been hearing this term sustainable financing a lot these days and i wanted to ask you what it meant but then i realized i’m not entirely sure what financing is you know what that is actually a complicated question but if i had to really summarize it let us take the

example of banks people like us take our earnings to the bank and deposit as Savings these banks take our Savings and lend it to companies the banks expect the company to return this money with interest thus making a Profit the main goal for these

traditional financial institutions is to maximize Profit of course there have always been socially and environmentally responsible banks but they were never mainstream however in recent years we have started to see a change in this space banks are now slowly going beyond maximizing

Profits to actively investing in sustainability this type of investment is what they call sustainable financing okay that makes sense so the rise of sustainable financing is because traditional banks are also starting to adopt it okay and if i had to define it in a nutshell

sustainable financing is all about investing money into projects that are sustainable right technically that is true but oversimplifying its definition can lead to misunderstanding of the concept the notion of sustainable financing covers a wide range of Investments and it is

important to understand what each of them are to explain this better imagine a spectrum of sustainable financing at level 0 you have traditional Profit driven financing then at level 1 you have environmental social and governance Risk Management in this level

financial institutions are screening out Investments that could potentially bring negative outcomes oh so something where banks will not invest in companies that actively do harm like producing tobacco or having a track record for being involved in animal testing or like human

rights violations corruption gambling that kind of thing that is exactly it so now moving on to level two you have sustainable impact investing here sustainability factors and Profit both drive investment decisions these include investment in carbon reduction projects like

renewable energy poverty reduction through micro financing waste reduction projects like building recycling plants and so on feels like a win-win situation precisely so now moving to a level three you have impact first investing as the term suggests social and environmental interests take priority

over Profit impact-first investing goes well beyond avoiding harm and managing risks so i’m guessing the aim here is to use the power of investment to do good for society and environment and not to worry too much about making a Profit very much so but the

fourth and final level sustainable philanthropy takes this generosity even further this is where Profit is completely disregarded in favor of social and environmental solutions all right so where do some of the big banks of the world sit on this spectrum of sustainable financing

that is a difficult thing to answer because it is hard to place a bank in this spectrum for example bank a could make an investment in renewable energy and simultaneously invest in fossil fuels each investment you make positive or negative moves you either left or right of the spectrum okay if not

individual financial institutions and Investments how is sustainable financing as a whole doing like globally with the un sustainable development goals as a benchmark i can answer this question fairly confidently the un estimates the gap in financing to achieve the sdgs is at 2.5

trillion dollars per year this indicates that sustainable financing is far from being mainstream this is not to say that progress has not been made take the example of the energy industry global financing investment in renewable energy has been increasing by five percent each year with 316 billion

dollars invested in 2019. however this news doesn’t sound good when you realize that between 2016 and 2019 private banks funded a total of 2.7 trillion dollars in fossil fuel projects this pattern of counterproductive financing will not help us achieve sustainability or the sdgs okay wow

that’s a lot to take in but there’s a clear message here sustainable financing is an investment strategy that is still in its infancy and that means it has tremendous potential here’s a quick recap traditional banks are now slowly going beyond maximizing Profits

to actively investing in sustainability sustainable financing covers a wide range of Investments broadly there are four types of sustainable investment sustainable financing has a lot of potential but it still has a long way to go before it can help us achieve the sdgs thanks for

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