What is Sustainable Finance?

Sustainable finance has several definitions. One of the most commonly adopted is the one proposed by the  G20 Sustainable Finance Study Group , which says:

Sustainable finance can be broadly understood as financing as well as related institutional and market arrangements that contribute to the achievement of strong, sustainable, balanced and inclusive growth, through supporting directly and indirectly the framework of the Sustainable Development Goals (SDGs). A proper framework for sustainable finance development may also improve the stability and efficiency of the financial markets by adequately addressing risks as well as market failures such as externalities.

What are sustainability risks?

According to the  Regulation (EU) 2019/2088 on sustainability‐related disclosures  in the financial services sector, sustainability risks are defined as environmental, social, or governance (ESG) events or conditions that, if they occur, could cause an actual or a potential material negative impact on the value of the investment.
 
What are sustainability impacts?
An event or condition related to environmental, social, and employee matters, respect for human rights, anti‐corruption, and anti‐bribery matters that, if it occurs, could cause an actual or a potential material negative impact on the value of the investment.
 
What are adverse impacts?
 
Negative impacts on sustainability factors (i.e. environmental, social, and employee matters, respect for human rights, anti‐corruption, and anti‐bribery matters) resulting from investments.
 
For example, certain investments might contribute to the violation of indigenous peoples’ rights and/or the maintenance of discriminatory practices within corporate structures. These impacts might not necessarily be converted into a sustainability risk—have a material negative impact on the value of the investment—because the risk evaluation focuses on how rights holders and the environment are affected. Note that the concept of adverse impacts is closely aligned with how risk is used in the OECD Due Diligence Guidance for Responsible Business Conduct. In the words of the OECD, assessing “adverse impacts […] is an outward-acing approach to risk,” focusing on assessing the likelihood of adverse impacts on people, the environment, and society that an enterprise may cause—and not about risk for the investor or the financial institution itself.
 
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To successfully adjust their practices to these new regulatory expectations, financial institutions are compelled by regulators to act regardless of the fact that different jurisdictions are adopting different approaches.

On top of this complexity, the implementation deadlines are often short, especially when considering the far-reaching impacts these regulations have on financial institutions’ products and processes.

We have unique expertise when it comes to preparing ESG assessments to address sustainable finance and corporate responsibility topics in the context of financial institutions’ operations.

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