When we talk about sustainable finance, we must consider the development of a new sustainable finance framework based on the ESG revolution concerning environmental, social and governance criteria. Specifically:
Environmental
- Climate change
- Biodiversity and natural capital
- Water cycle and oceans
- Re-engineering: From linear to circular
- Environmental impacts
- Product redesign
Social
- Social equity
- Human rights
- Diversity, equality and inclusion
- Demography and depopulation
- Migration
- Labour rights
- Health and well-being
Governance
- New council responsibilities
- Good governance practices
- Due diligence
- ESG risk analysis and financial impact
- ESG purpose and commitments
- Sustainability strategy
- Talent and people strategy
- Accountability and reporting
All of these are joined by finance in the broad sense of the term:
- ESG risk assessment (Mitigation and Adaptation)
- Carbon transition investments
- Taxonomy
- Green and social finance
- ESG Due Diligence
- EU Funds
It is important at this point to know that within the global agenda, there is an integration of ESG risks by management authorities that can be summarised as follows:
- Business models and strategy -> Expectation 1. Institutions are expected to incorporate into their business model, strategy and risk appetite framework those risks that may be material in the short and long term.
- Governance -> Expectation 2. The Board of Directors or Governing Council is expected to be ultimately responsible for integrating these risks into the overall strategy and establishing the necessary mechanisms for their review.
- Risk management -> Expectations 3, 4, 5, 6 and 7. Institutions are expected to consider these risks in an integrated manner in their current risk management procedures and to adopt a comprehensive approach to their identification, assessment, monitoring and control.
- Disclosure -> Expectation 8. Institutions are expected to publish relevant information on material risks in their IRP, considering their particularities and time horizons.
The above arises in a developed map of entities, institutions and initiatives with a leading role. The map could be approximated and differentiated as follows, based on the so-called “Global Frameworks”:
Sustainability frameworks
- UN SDG
- GRI
- CDP
- Science Based Targets
- Natural Capital Coalition
- GreenHouse Gas Protocol
- Equator Principles
- Task Force on Climate-related Financial Disclosures
- Integrated Reporting
- Taskforce on Nature-related Financial Disclosures
Initiatives and coalitions
- Transition Pathway Initiative
- UNEP
- Carbon Pricing Leadership Coalition
- RE100
- World Benchmarking Alliance
- PRI
ESG Ratings and Indices
- Bloomberg
- ISS ESG
- S&P Global
- FTSE4Good
- Dow Jones Sustainability Indexes
- MSCI
Sustainability standards
- IFRS
- ISO
- SASB
- Climate Disclosure Standards Board
- Partnership for Carbon Accounting Financials
ESG regulation and transparency
- EFRAG
- The Sustainable Finance Disclosure Regulation (SFDR)
- EU Taxonomy Regulations
Green and Social Finance Frameworks
- The Green Bond Principles
- The Social Bond Principles
- The Sustainability Bond Guidelines
- The Sustainability-Linked Bon Principles
- Green Loan Principles
- Sustainability Linked Loan Principles
The challenge of sustainable finance involves the implementation of a comprehensive agenda to be developed in the above ecosystem as well as a new and powerful regulatory package on sustainability, including the European Green Pact, the 2030 Framework on Climate and Energy, the Sustainable Finance Action Plan itself, the Circular Economy Action Plan, the EU Biodiversity Strategy, the updated Bioeconomy Strategy, the EU Hydrogen Strategy, the EU Energy System Integration Strategy, the New Industrial Strategy for Europe, the SME Strategy, the European Skills Programme, the Annual Sustainable Growth Strategy, the Due Diligence Directive, the Corporate Sustainability Reporting Directive or the Regulatory Technical Standards Regulation among others.
