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Banking on the future: The power of sustainable finance

Sustainable finance, in its simplest form, is a way of managing money that takes care of our planet while achieving our business objectives. It’s about making smart financial decisions that positively impact the environment and society, not just today but for posterity.

For banks, sustainable finance means supporting projects and businesses that promote the sustainability of our world.

 These could include funding renewable energy projects, eco-friendly buildings, or empowering our local communities. Banks become partners in a mission to make the world a better place through sustainable finance.

And for customers, sustainable finance means you can put your money where your values are. When you save, invest, or borrow from a bank that cares about sustainability, you are making a positive impact too. It’s like your money gets a superpower to create a greener and more prosperous future for everyone.

This article, seeks explore why sustainable finance matters, the role of banks and financial institutions, and how customers, can be a part of this exciting journey towards a more sustainable and prosperous world.

 Importance of sustainable finance

Why does sustainable finance matter, you might ask? The answer is clear: our planet is at a crossroads. Climate change, biodiversity loss, and resource depletion threaten the very fabric of our existence. To address these challenges, a transformation in the way we allocate and invest capital is not just an option—it’s a moral responsibility.

Banks, as custodians of vast financial resources, bear a unique responsibility – not to be only profit-driven entities, but architects of societal change as well. By embracing sustainable finance, banks can channel capital towards projects that not only generate returns but also foster environmental sustainability.

Trends in sustainable finance

Green Bonds and ESG Investing: Green bonds are not just a financial instrument; they are a promise to our planet. The demand for these bonds is surging as investors recognise the immense value in supporting environmentally responsible projects.

Banks can seize this opportunity by offering green bond funding opportunities to ESG-focused investment portfolios, aligning financial growth with sustainability. Recently, impact investing has been extended to marine-focused outcomes now termed as Blue Funding/ Blue Bonds.

Sustainability bonds and social bonds: These instruments are designed to raise capital for projects that have positive social and environmental impacts. Sustainability bonds are typically used to fund environmentally responsible projects, while social bonds are focused on social and community development initiatives. They offer an avenue for both governments and corporations to raise money for projects that align with sustainability goals, such as clean energy, affordable housing, or healthcare infrastructure.

Carbon Pricing: Carbon pricing is gaining momentum as a mechanism to incentivize emissions reduction. Banks are increasingly considering carbon pricing in their lending and investment decisions. By adopting stricter criteria and encouraging carbon reduction efforts, they contribute to a lower-carbon future.

Sustainable Development Goals: Banks are aligning their strategies with the United Nations’ Sustainable Development Goals. By investing in projects that directly address these goals, such as clean energy initiatives, affordable housing, and access to clean water, they demonstrate their commitment to global sustainability.

 The role of banks in promoting sustainable future includes support for Innovation. Under this, banks can provide vital support for innovation in sustainable technologies. By offering favorable financing terms and partnerships with clean tech startups, they can accelerate the development and adoption of sustainable solutions.

Adapting to Regulatory Changes is another role. Regulatory bodies worldwide are increasingly focusing on sustainable finance. Banks must stay informed and adapt to evolving regulations, ensuring compliance, and demonstrating a commitment to responsible financial practices.

One other important role is Stress Testing for Climate Risks: Banks should incorporate climate-related stress tests into their risk management processes. This helps in identifying vulnerabilities and developing strategies to mitigate climate-related financial risks.

Engagement with Stakeholders is also a very crucial role: Engaging with stakeholders, from customers and employees to shareholders and local communities, is essential. Banks should actively seek input and feedback to ensure their sustainable finance initiatives align with the needs and expectations of all stakeholders.

As a customer, you have the power to drive change through your choices. When you save or invest with a bank that values sustainability, you are implicitly saying, “I care about our world.” Your money becomes a force for good, helping projects that create jobs, fight climate change, and make your community better. When you patronize green products such as green mortgages, you contribute to environmental sustainability in a tangible way. For corporate clients, partnering with banks on sustainable initiatives can be highly beneficial. Banks can provide financial support and expertise to help corporations implement sustainable practices and projects that help reduce their carbon footprint, enable them to become more energy efficient, and save overhead costs.

And here is the cool part: sustainable finance is not just about helping the environment; it can also make good financial sense. Green investments often perform well, and banks that care about sustainability tend to be more stable and forward-thinking.

In the end, sustainable finance is a win-win. It is about making money while making the world a better place. Banks should no longer be just places to stash cash; they should be partners in a mission to build a greener and more prosperous future. This small change in the way we think about money can lead to big changes for our world. Let us invest in a future that is not just financially sound but also environmentally and socially responsible. Together, we can make a world of difference.

The writer is Managing Executive, Corporate and Investment Banking, Absa Bank Ghana

BY ELLEN OHENE-AFOAKWA

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