Sustainable finance is a concept that has been gaining traction in recent years, as the world has become increasingly aware of the need to protect the environment and promote social responsibility. Sustainable finance is the set of regulations, standards, regulations and financial products that pursue an environmental objective. It allows the financial system to connect with the economy and its populations by financing its agents and, at the same time, maintaining a growth objective. Green finance is a subset of sustainable finance and covers a wide range of financial products and services, such as investments, banking and insurance products.
The predominant financial instruments in green finance are debt and capital. To meet growing demand, new financial instruments, such as green bonds and carbon market instruments, have been established, along with new financial institutions, such as green banks and green funds. Investments in renewable energy, sustainable infrastructure financing and green bonds continue to be the areas of greatest interest within green finance activities. The three main pillars of sustainability are environment, social responsibility and economy.
These three pillars are also informally referred to as people, planet, purpose and profit. Corporate sustainability reports are a process by which companies periodically publish sustainability objectives and their progress in achieving them. Sustainable finance extends its scope to all three components of ESG; therefore, it is the broadest term and encompasses all financing activities that contribute to sustainable development. It is recommended that the new classification create incentives for the least sustainable sectors to invest and collaborate in meeting the international environmental commitments assumed by the European Union.
In addition, a common set of minimum rules on green finance is essential for redirecting capital flows towards green and sustainable investments, as well as for market and risk analysis and reference. Promoting green finance on a large scale and economically viable helps ensure that green investments are prioritized over investments that continue as before, that perpetuate unsustainable growth patterns. A sustainable financial system is one that creates, values and manages financial assets in ways that shape real wealth to meet the long-term needs of an inclusive and environmentally sustainable economy. Therefore, sustainable finance is one of the pillars on which the EU Green Deal focuses and, in addition to its own investments, the Commission also wishes to promote private investment by introducing taxonomic regulation.
