Sustainable finance is an emerging phenomenon but gaining momentum in the business world and finance. In this interview, journalist WILLIAM KUMWEMBE engages finance expert Partha Dutta, a Chartered Accountant with extensive international experience, on the concept of sustainable finance and on how Malawian and African firms, can fully embrace it.
Firstly, what is sustainable finance all about?
Sustainable finance refers to financial activities that integrate environmental, social, and governance (ESG) criteria into investment decisions and strategies. The goal of sustainable finance is to promote long-term sustainable development while considering the impact of investments on society, the environment, and corporate governance practices. This can involve various approaches, including: Socially Responsible Investing (SRI): SRI involves selecting investments based on ethical criteria, such as companies’ environmental practices, labor standards, and human rights records. Environmental, Social, and Governance (ESG) Investing ESG investing evaluates companies based on their performance in areas such as environmental sustainability, social responsibility, and corporate governance. Investors use ESG criteria to assess the non-financial risks and opportunities associated with their investments.
Give us a break-down, what does impact investing entail and further what are the other aspects of sustainable financing?
Impact investing focuses on generating positive social and environmental impact alongside financial returns. Investors actively seek out opportunities to invest in projects or businesses that address specific social or environmental challenges. On the other end there is Green Finance. It specifically refers to financial products and services that support environmentally sustainable projects and initiatives. This includes investments in renewable energy, energy efficiency, sustainable agriculture, and other green technologies. And then there is Climate finance which involves directing capital towards projects and initiatives aimed at mitigating and adapting to climate change. This can include investments in renewable energy infrastructure, carbon capture and storage technologies, and climate-resilient infrastructure.
What is the main aim of sustainable finance?
Overall, sustainable finance aims to align financial markets with broader sustainability objectives, such as combating climate change, promoting social equity, and preserving natural resources, while still generating financial returns for investors.
Why is sustainable finance relevant?
Mounting regulatory and financing pressures are placing sustainability at the forefront of the investment world. Climate regulation has propelled the finance revolution. Enhanced climate-related disclosure requirements will push organisations to formally adopt sustainability principles. In the EU, new CSRD standards supported by the Green New Deal enforce adherence to strict climate-related rules and targets. Globally, the 2015 Paris Agreement underscored the plethora of countries ready to commit to a greener, cleaner future. The investment required to support a decarbonized world is immense. The UN estimates that global investment needed to achieve UN Sustainable Development Goals (SDGs) is between $5 trillion and $7 trillion annually.
What are the roles of the DFI, such as the development banks, in financing sustainable development?
Supporting countries to identify and access diverse sources of financing such as; the Global Environment Facility (GEF), Climate Investment Funds (CIF), Adaptation Fund. Pioneering and promoting the use of innovative instruments and mechanisms to support rapid transition to a green economy such as; the Climate for Development in Africa Fund (ClimDev Africa) and the proposed Green Facility for Africa (GFA). Fostering partnerships (NorthSouth, South-South, Public-Private, etc…)
What are the opportunities for sustainable finance in Africa?
Africa has abundant renewable energy resources, including solar, wind, hydro, and geothermal energy. Sustainable finance can support the development of renewable energy projects, such as solar and wind farms, hydropower plants, and geothermal facilities. These investments can help improve energy access, reduce reliance on fossil fuels, and mitigate climate change while creating jobs and stimulating economic growth.
Infrastructure Investments: Africa faces significant infrastructure deficits, particularly in transportation, energy, water, and sanitation. Sustainable finance can be directed towards infrastructure projects that promote sustainable development, such as green transportation systems, energy-efficient buildings, and water and sanitation infrastructure. These investments can improve quality of life, support economic development, and enhance resilience to climate change and natural disasters.
Sustainable Agriculture: Agriculture is a critical sector in many African economies, providing livelihoods for millions of people. Sustainable finance can support investments in sustainable agriculture practices, such as organic farming, agroforestry, and climate-smart agriculture. These investments can improve food security, increase agricultural productivity, conserve natural resources, and promote resilience to climate change. Financial Inclusion: Many people in Africa lack access to formal financial services, such as banking, savings, credit, and insurance. Sustainable finance can support initiatives that promote financial inclusion, such as microfinance institutions, mobile banking solutions, and community-based savings and credit schemes. These investments can empower underserved communities, stimulate entrepreneurship, and drive economic growth.
Conservation and Biodiversity: Africa is home to a rich diversity of ecosystems and wildlife, but many species are threatened by habitat loss, poaching, and climate change. Sustainable finance can support conservation efforts, such as protected area management, wildlife conservation, and community-based natural resource management. These investments can preserve biodiversity, protect ecosystems, and promote sustainable tourism, which is a significant source of revenue for many African countries.
Climate Resilience and Adaptation: African countries are particularly vulnerable to the impacts of climate change, including droughts, floods, and extreme weather events. Sustainable finance can support investments in climate resilience and adaptation measures, such as early warning systems, climate-resilient infrastructure, and agricultural insurance schemes. These investments can help communities build resilience to climate risks and minimize the impact of climate-related disasters.
