A Brief History Of Sustainable Finance
WHAT DID IT USE TO BE LIKE?
In the 18th century, an Anglo-Saxon religious community, the Quakers, refused to invest in the arms and slave trades. Without realizing it, a new era of finance was born: sustainable finance. The first financial strategies were based on excluding sectors that did not correspond to certain values.
Over time, and especially from the 1970s onwards, the phenomenon gained momentum. Numerous movements, notably the economic boycott of Apartheid in South Africa proposed to the United Nations in 1962, created an approach to sustainable and responsible investment. Since then, awareness of the challenges of climate change has mingled with these new investment principles. In 1972, the Meadows report “The Limits to Growth” presented the ecological consequences of economic growth. It was not until 2000 that the term “sustainable finance” was explicitly used, a concept in full bloom that laid the foundations for a more respectful financial system. As history shows, sustainable finance has always been in tune with the times and seeks to take into account all aspects of society in addition to financial issues.
It responds to all of society’s concerns and is characterized by what we call ESG (environmental, social, and governance) criteria. This acronym first appeared in 2004 in the United Nations’ “Who Cares Wins” report, under Kofi Annan’s mandate. In 2015, the UN’s 17 Sustainable Development Goals for 2030 marked a significant step forward, setting precise targets for sustainability. That same year, COP21 resulted in the Paris Agreement aimed at containing “the increase in global average temperature well below 2°C above pre-industrial levels,” and making the necessary efforts to limit it to 1.5°C by 2100. All these initiatives are aimed more broadly at the various financial companies, to promote changes in practices that are more in tune with the current challenges facing our world.
OUR TODAY
Sustainable finance refers to all financial practices that promote the common good over the long term. Numerous ambitious initiatives are currently providing a framework for this fast-growing field. Various labels, benchmarks, and standards provide definitions and certifications. For example, the Label ISR, created in France in 2016, guarantees that ISR-labeled funds take ESG criteria into account in their investment process. Innovative new financial tools, such as green bonds, have a fast-growing market. Last but not least, recent regulations are defining a framework and standards for many companies and financial institutions. The European taxonomy provides a clear classification of an economic company’s green activities. The CSRD (Corporate Sustainability Reporting Directive) aims to strengthen and harmonize sustainability reporting standards for companies in the European market.
WHAT WILL TOMORROW BRING?
Sustainable finance is still a work in progress. The future is just around the corner and, as time goes by, we can see that the efforts and demands are becoming ever greater. Many challenges remain. The absence of uniform and universal standards, the problems of greenwashing, and the difficulty and complexity of measuring the impact of companies are all issues that need to be addressed. COP28 in Dubai proved that climate debates have become a highlight of international meetings. While new directives, notably the CSRD, are gradually being applied, they will concern more and more companies, and reporting requirements and, more broadly, alignment with the principles of sustainable finance will be a mandatory pillar for all tomorrow’s stakeholders. Awareness-raising and the quest for knowledge will be essential to support the fight against global warming. Implementing clear strategies and objectives can only be beneficial to every entity.
