Sustainable finance: a global standard?
Updated: Dec 9, 2021
Since the release of the Brundtland Report in 1987, the concept of sustainability has been at the forefront of political agenda and is now seen in all fields of work. In the sphere of finance, impact investing or Environmental Social and Governance (ESG) is now a vital strategic investment strategy for many. Bloomberg expects ESG assets to exceed $53 trillion by 2025. Despite the benefits of ESG, it has received much criticism. A key drawback is its lacking global standard.
Over 45% of valuation experts state that they believe a lack of standard and recognised measurement system is the main caveat in ESG reporting. Business and financial organisations state how they use different types of frameworks with no single one used amongst them. Those frequently used include Global Reporting Initiative (GRI), Sustainable Accounting Standards Board (SASB) and Task Force for Climate related Financial Disclosures (TCFD). A lack of a consistent approach amongst firms makes it difficult for stakeholders to compare opportunities and can ultimately lead to a decrease in investor confidence.
Despite this, ESG investing can help achieve COP26’s ambitious goals. More investors are now shifting towards sustainable ESG funds and investing in companies that have positive ESG ratings. Such investments help to reach COP26’s targets of net zero by 2050 and ensure global temperatures stay below 1.5 degrees celsius. However, to increase investor confidence, the ESG process must become more rigorous by having greater standardisation.
Overall, sustainable finance is a very promising option for investors and will likely continue to be in the future. It also has the potential to help nations work towards COP26’s ambitious targets although it is vital to ensure it has a global standard.
Jonathan George Zaffar Swinney
References:
Tilney. (2021). The pitfalls of ESG data and how to overcome them. Available at: https://www.tilney.co.uk/news/the-pitfalls-of-esg-data-and-how-to-overcome-them [Accessed 5 November 2021].
UK COP26. COP26 Goals. Available at: https://ukcop26.org/cop26-goals/ [Accessed 5 November 2021].
Ashford, K. (2019). Pros and Cons of ESG Funds. Available at: https://www.forbes.com/advisor/investing/pros-and-cons-of-esg-funds/ [Accessed 5 November 2021].