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Banking and Finance

How The Finance Sector Can Help Contribute Toward Global Sustainability Goals

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The finance sector, which encompasses a broad range of corporate businesses currently holds an enormous amount of influence when it comes to promoting sustainability and environmental practices around the world. 

With national governments and globalized communities seeking innovative ways through which it can better promote Environmental, Social, and Governance (ESG) initiatives, major finance leaders are now spearheading a wave of change in an ongoing effort to support these goals. 

In recent years, the climate crisis, ranging from deforestation, rising sea levels, and above-average temperature fluctuations has only led more companies, and governments to introduce ESG-related policies. 

While progressive environmental policies have steadily been filtering through to smaller, mid-tier businesses, the overarching influence of corporate sectors such as finance plays a key role in the successful application and defined decision-making of ESG goals. 

Growing environmental concerns, alongside issues related to social and governance, have led sector leaders to adjust their approach to finding viable, long-term sustainable solutions that can be multiplied and introduced to businesses in different industries. 

With the climate crisis at the center of the political and economic debate, the finance sector now holds a key position in how future businesses, investors, and governments can monitor and promote ESG practices. 

Investing in ESG-based businesses and jobs 

Interest in businesses and projects related to ESG practices have in recent years enticed investors and private institutional players. In the finance sector alone, there has already been a strong growing demand for finance professionals that carry expertise in developing and implementing environmental initiatives that can be adapted across a multitude of industries. 

Nayan Ramani, a Product Manager at Google, and an experienced  fintech professional with an interest in next-generation AI/ML-driven products believe that companies in the finance industry should be looking to develop jobs that primarily focus on sustainability-driven achievements. 

“While the people who will perform these jobs play a crucial role, there should also be more focus on how banks and financial institutions invest their capital in companies and smaller enterprises that have a working and functioning ESG policy in place,” Ramani shares. 

Ramani’s work encompasses expertise in Payments infrastructure stack, and he has led a cross-functional team of finance, compliance, business controllers, designers and engineers to implement large scale financial systems that help organizations meet the financial reporting and SOX compliance requirements. 

For ESG investing to be successful, the finance sector should lead by promoting the businesses that are already on track to achieving carbon emission goals. 

Improving sector ESG reporting 

ESG reporting remains a catalyst for many governments that want to achieve their sustainability goals within a predetermined time frame. Though in recent years there have been some changes introduced to help companies, investors and economists perform these reporting duties more seamlessly, it’s only possible through continuous investment in the right tools and resources that these efforts will become possible. 

The finance sector will need to uphold its ability to model ESG contracts and perform analysis of companies’ balance sheets, and bottom-line performance based on profit-and-loss implications. Financial institutions can build on top of their existing structures, by developing inclusive practices, climate risk assessments, and facilitating insurance considerations.

“ESG reporting will continue to remain a stronghold for governments and national agencies that are pursuing environmentally-driven goals,” says Ramani. Between 2014 and 2017, Ramani was part of a team that helped to conduct predictive analytics and financial risk modeling. Additionally, he has helped develop and communicate product management efforts to help drive regulatory compliance on several multi-million dollar projects. 

Fostering sustainability policies

Currently, there is no standardized outlook in terms of sustainability policies, as industries have largely been left to develop and implement rules and regulations based on performance and environmental goals. Often these goals can either be determined by the entity itself, or perhaps governments are misguided and out of reach. 

For sustainability policies to be realistic, all the while achievable, financial institutions can consider how their policies can be mirrored on a primary level, and help model a foundation for continuous growth. 

With this in mind, it would include financial entities to develop a more broad industry standard that oversees not only corporate leaders but focuses on smaller businesses at the same time. 

The more financial institutions play their part in developing the tools and resources business owners, entrepreneurs, and startup founders can leverage, the faster these policies can be ingrained within the business and mature over time. 

Partnering with environmental organizations 

Environmental organizations are rapidly seeing widespread support and growth, as businesses support these entities to achieve ESG standards or protocols set out by overarching sector leaders or government policies. 

On the back of this, large-scale development of environmental programs will require extensive financing which would for the most part stem from corporate and private institutional investors. 

The Intergovernmental Panel on Climate Change (IPCC) estimates that around $2.4 trillion of global GDP will need to be invested annually in the global energy system between 2016 and 2035 if countries look to limit global warming. Even more surprising is the 60% of the world’s stock market capitalization required to help completely mitigate global warming and persisting environmental threats. 

Ramani says that although businesses play an individual part in helping to support more sustainable efforts, their collaboration with global organizations would mean that climate goals set out by communities such as the United Nations Framework Convention on Climate Change will not only be a long-term investment, but it would also mean that sectors can deliberately play their part in the improvement of the climate crisis. 

Final thoughts 

Though there is still a lot of development needed to ensure that the finance industry can pivot itself and other businesses towards more sustainable and environmentally-driven practices – the sector remains a key player in how businesses and owners can shape and adjust their business models to align themselves with climate issues. 

While it’s true that the sector does hold a lot of influence over future ESG-based initiatives. Its ongoing monetary involvement through effective investment and sustainability-driven practices can help develop a platform through which other entities can be more proactive in their pursuit of environmentally conscious efforts.

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CEOWORLD magazine - Latest - Banking and Finance - How The Finance Sector Can Help Contribute Toward Global Sustainability Goals
Jacob Wolinsky
Jacob Wolinsky is the the founder and CEO of ValueWalk LLC. What started as a hobby 10 years ago, has turned into a well-known financial media empire with millions of monthly visitors focusing in particular on simplifying the opaque world of the hedge fund world. Before doing ValueWalk full time, I worked as an equity analyst first at a micro-cap focused private equity firm, as well as an analyst at a small/mid-cap value-focused research shop. After that, I worked in business development for hedge funds. I live with my wife and four kids in Passaic New Jersey.

Full Disclosure: I only invest in broad-based ETFs and mutual funds. I no longer purchase equities to avoid even the appearance of a conflict of interest.

Jacob Wolinsky is an opinion columnist for the CEOWORLD magazine. You can follow him on LinkedIn.