The Concept of Sustainable Finance

Sustainable finance is considered a part of a global movement that aims to spread the concept of “sustainable development”. It refers to banks’ financing of projects that take into account the environmental component of society, such as clean and renewable energy projects, as well as projects that take into account the social element of small, medium, and micro industries and labor-intensive projects that create more job opportunities, reduce poverty rates and raise the standard of living in the most in need areas. Furthermore, adhering to the general framework of governance, consolidating transparency, and supporting monitoring, follow-up, and evaluation systems in order to achieve sustainable benefits for both project owners and society as a whole.

Given what is beyond corporate governance and social responsibility, sustainable finance is not considered only a means of mitigating the negative externalities of business practices but rather calls for the design of investments and regulations to directly achieve sustainable development goals.

Thus, sustainable finance can be defined as any type of financial services and financial management that integrates environmental, social, and governance (ESG) criteria when making investment decisions.

Environmental, social, and governance practices, for short, ESG, describe the three main areas of concern that have been developed as key factors for measuring the sustainability and ethical impact of investing in a company or business.

ESG is considered the umbrella term for the standards used in what has come to be known as socially responsible investments.

The ESG objectives have become the ruler of funding trends; hence it can be considered that the tripartite sustainability governance objectives are a more specific ordinal measure through which the sustainability of projects and activities can be assessed. It is not a substitute for sustainability reports, but rather a complement to them.

The different dimensions of the three-dimensional sustainability of the ESG objectives can be identified in the following axes:

Environmental Issues: waste and pollution, resource depletion, greenhouse gas emissions, deforestation, and climate change.

Social Issues: employee and worker rights and diversity, working conditions, communities, health and safety, and conflict.

Governance-related Issues: tax strategy, executive rewards, donations, political pressures, corruption and bribery, diversification of the board of directors and its structure. Since the demand for insurance is a demand derived from economic activities, the three objectives of sustainability governance themselves have become a criterion for evaluating the extent of sustainability of insurance activity.