ESG and sustainable finance: What criteria are included in sustainable finance?
The ESG (Environmental, Social, and Governance) is a framework for evaluating the sustainability of an organization. This includes analyzing environmental risks, social responsibility, and governance in financial reporting. It has become more popular within the last few years due to its success in helping organizations make better decisions about their investment strategy. One example of this is that some companies use ESG factors, ESG objectives, and ratings when deciding which stocks they want to buy or sell on a stock exchange.
The word “sustainable” is often used to describe something that will last for a long period of time. Sustainable finance means investing in and making decisions about money with the interests of future generations at heart, as well as considering the social impacts and environmental impact investments may have along their life cycle.
ESG can help with sustainable finance because it helps investors understand how financial institutions and corporations impact society as well as the environment.
According to JB Tanqueray, founder and CEO of Finlight, an end-to-end, highly secure portfolio consolidation software that streamlines complex data processes to store, extract and consolidate all asset data.; and Dr. Tiphaine Saltini CEO of Neuroprofiler, a company that helps financial advisors better assess the risk profile of their clients for business and regulatory purposes.through MiFID II – compliant and gamified online questionnaires based on behavioral finance; sustainable investing and sustainable finance can be really beneficial contributors to financing sustainable growth, there are although 4 key points that need to be addressed:
1) Investors should be aware that sustainable investments are not risk-free
Sustainable finance initiatives and socially responsible investing may be very beneficial for society and climate change, but they could also have a negative impact on the financial stability or performance of an organization, which could affect their investments. This means asset managers and fund managers undertaking investment decisions should take into consideration additional factors like fundamental and technical analysis of the investment assets.
2) The complexity of ESG regulation
Sustainable finance and sustainable investments can be more complicated than traditional investing, which might make it difficult for some investors to get started for their investment portfolio. Sustainable finance regulation and EU taxonomy regulation, especially after the Paris agreement for climate change adaptation, includes a lot of new terminology for financial services companies and financial market participants, that would need to be thoroughly learned before beginning any sort of green investment strategy and responsible investment.
3) Although environmental risks are mutual for all people, ethical and social standards are not.
The financial sector can easily measure sustainability risks in terms of the environment since most people have similar environmental considerations. On the other hand, not all people share the same cores and values concerning their ethics and social standards. Social and governance ESG factors are the most difficult to be accepted since they are not mutually respected by everybody.
4) ESG standards are not easily quantifiable
ESG ratings and reports vary in terms of how they evaluate and rate corporations. The lack of consistency and comparability can pose a major challenge for investors to embrace sustainable finance and a sustainable economy into their ESG investing. ESG Sustainable investment can be achieved through a common set of standards and frameworks.
We know that ESG investing is increasingly difficult to assess, which can lead to missed opportunities. That’s why we created InvestGlass; a digital tool for assessing ESG investment challenges in an easier and faster way than ever before. To help you with the impending 2021 challenge of evaluating how your investments might fare under different policies, make sure you contact us today! If it sounds like something you need, let us know–we’re here to help!