The financial services sector has always been the driving force behind economic growth. On top of this, stakeholders in the industry increasingly impact the society and environments in which they operate. Therefore, there is a push for such institutions to take on greater responsibility in engineering positive change; the main idea behind sustainable finance.
What is sustainable finance?
Sustainable finance, according to the EU is “finance to support economic growth while reducing pressures on the environment and taking into account social and corporate governance aspects,” for example inequality, human rights, and management structures. Essentially, sustainable finance is concerned with making investment choices that result in financial returns while still prioritizing environmental, social and governance factors.
Where does investment banking come in?
To attain their development goals, Kenya and other sub-saharan countries need financing, which their domestic resources cannot cover. Investment fund managers can, through impact investing, help to plug this deficit by channeling funds into key industries to spur their growth while still earning a return for their clients.
These include environmental, social and governance (ESG) assets, which are increasingly being preferred for their ability to outperform traditional assets over the long term. By developing innovative ESG based products, investment banks will help impact investing to become a lot more mainstream and accessible.
At the moment, green bonds account for most of the sustainable finance market, but other products, for instance green loans, social bonds and sustainability loans, are beginning to gain popularity. As a result, the market is becoming diversified and can support consumers’ appetites. If investment banks work towards developing such products, the uptake will increase.
Additionally, investment banks with impact investing as a key concern can help manage regulatory and compliance risk within organizations while helping them to adhere to ethical and environmental standards. This will increase the adoption of practices that result in positive ESG change.
In summary, our financial sector is primed to benefit from investments that also offer positive environmental, social and corporate governance growth. Various stakeholders have a role to play in making this a reality. Specifically, investment banks can develop innovative ESG products to improve their consumption by investors. Investment banks can also help to oversee the adoption of ESG friendly practices in corporations.