Building a Greener Future: Why an Effective Sustainable Finance Landscape Matters

Building a Greener Future: Why an Effective Sustainable Finance Landscape Matters

 

The article named as, The Importance of the implementation of an Effective Sustainable Finance Landscape, on 11 June 2024 published by the DailyFT and signed by a DailyFT Contributor (PhD - MSU Malaysia; MBA; AIB, MCIM, PGDp, SLIM, Certify Lending IFS UK), informs and allows comprehension of an issue that can be called essential and it is associated with the implementation of the effective sustainable finance landscape. It focuses on incorporating Environmental, Social, and Governance (ESG) factors, Corporate Social Responsibility (CSR), and Sustainable and Responsible Investment (SRI) in the financial decisions regarding climate issues, higher transparency, and raising long-term capital funds to develop green economy and resilience.

The article picks up the fact that a powerful sustainable finance system is a pressing need to curb climate change, depletion of resources, and stability of economies posed by industrialization and globalization. Based on the World Meteorological Organization, it mentions that the deaths of almost 2 million people and losses to the economy of $4.3 trillion are attributed to climate and weather-based catastrophes between 1970 and 2021. ESG (Environmental, Social, and Governance), CSR, and Sustainable and Responsible Investment (SRI) bring environment and ethical frameworks to financial judgment, an approach called Sustainable finance. The article singles out the emergence of green bonds, sustainability-linked bonds, green banking, and circular economy financing as some of the emerging financial products to mobilize capital to promote sustainable economic growth.

It is important that Sri Lanka develops a sustainable finance environment that would secure its long-term economic resilience and systemic integration with the global capital markets. In the current volatile, uncertain, complex, and ambiguous (VUCA) world, the financial systems could not remain restricted within the use of conventional metrics such as revenue or profit. By integrating ESG factors into investment decision-making, financial intermediaries are likely to mitigate systematic risk, such as the risk of disruption due to the change in climate, reputational risk, and exposure to stranded assets and become aligned with the international expectations of investors.

To the financial markets in Sri Lanka, sustainable finance provides an avenue to streams of diversified capital inflow. The example of green bonds and sustainability-linked bonds sell renewable energy and sustainable transportation projects, as well as waste management, to institutional investors at home and abroad; they also open new sources of finance. Such capital flows will be able to reduce the interest rate on green projects, reinforce the green bond market in the country, and boost Sri Lanka as a respectable investment entity. Besides, the disclosure should be promoted, especially within such frameworks as Global Reporting Initiative (GRI) and Sustainability Accounting Standards Board (SASB), since it helps to increase investor trust by mitigating the threat of information asymmetry and greenwashing.

But there are obstacles to the shift towards a strong sustainable finance system. Failure in progress is usually encountered by weak sustainable financial literacy among the stakeholders, limited appetite to risk, and uncertainty over risk-return trade-offs. Low operational costs, common to clean energy and circular economy projects, often work against them, as they end up paying over-priced credit risk because of insufficient data and the obsolescent credit rating practices. These distortions have the potential to limit the ability of capital to move toward sectors that are important in the climate transition and the economy of diversification in Sri Lanka. Also, there are risks of greenwashing by companies that overstate their environmental qualifications to acquire funding. To review these, there ought to be sustainability measurements that are quantifiable, measurable and separately audited that can help in the sustenance of the ESG markets.

Sustainable finance achieves greater goals of fiscal and monetary perspectives on a macroeconomic level. By investing the money into green infrastructure and energy-efficient projects, Sri Lanka will be able to skip its reliance on fossil fuel complaints thereby helping free up foreign exchange through its balance of payment. Besides, sustainable investments employ workers in new areas, ensuring inclusive growth and stable domestic consumption.

ESG investing momentum can be witnessed globally. The analysis conducted by BlackRock revealed that more than 80 percent of sustainable funds beat the conventional portfolios in the year 2020 due to the COVID-19 pandemic and thereby indicating that sustainable investments are capable of generating competitive returns despite disruption to the market. In the case of Sri Lanka, ESG factors are not a luxury to integrate into the financial systems of the country anymore but a condition of gaining access to global liquidity, achieving SDG-related financing goals, as well as being resilient to climate and economic shocks.

It needs a broad strategy which includes policies innovation, investor education and working together with multilateral forums such the UN Environment Programme Finance Initiative (UNEP FI) and the International Platform on Sustainable Finance (IPSF). In this way, Sri Lanka will be able to successfully mobilize capital, to preserve its environment, and achieve long-term sustainable growth.

Sustainable finance is critical in the stability of the Sri Lankan economy, system of sustainable environment and integration with the global economy. Greenwashing, risk mispricing, and low literacy rates are only some of the current obstacles, but with ESG, green bonds, and reporting frameworks the best-rewarded projects can have their capital mobilized. Sustainable investments are not only profitable but also resilient, meaning that Sri Lanka has to focus on the reinforcement of regulatory and market infrastructure as a means to introduce sustainability as a keyword in financial innovation and national prosperity.

Original post Link - https://www.ft.lk/financial-services/Importance-of-implementing-effective-sustainable-finance-landscape/42-762891

Author - Nehan Chamod