While sustainable finance might seem a new idea, it’s been around for more than two decades. In recent years, it’s gained considerable ground because it upholds values that society insists on. 

Nuria wants to get more out of her savings and is thinking about investing in a company that shares her ethical and environmental values. “Socially responsible” investment is just one of many aspects of sustainable finance.

What is sustainable finance?

The economy plays a pivotal role in society and must fulfil its needs. Sustainability poses one of mankind’s biggest challenges: how to grow steadily all while causing no harm to the planet, easing the devastation wrought by climate change and bridging the gap with more vulnerable groups.

To get where we need to be, the public and private sectors must work together and we must all act responsibly. Banks understand this and have been pushing for sustainable investment to build a more responsible future.

From an ethical standpoint, sustainable finance is about taking social and environmental factors into account when investing. Banks have created ESG products to meet the needs of those who want to invest more sustainably and help steer society towards responsible development. 

ESG criteria tell us how a company operates in terms of: 

• E for Environment: It refers to business practices that have a direct or indirect impact on the environment, especially in terms of greenhouse gas emissions, preservation of biodiversity, renewable energy and energy efficiency.
• S for Social: It refers to business practices that affect society. Here we delve into companies’ values and compliance in regard to employee rights, salaries, diversity and inclusion and customer satisfaction.
• G for Good Governance: It refers to business management, transparency, internal regulation and procedures, especially in relation to a company’s goals to bridge the salary gap, break the glass ceiling and eradicate discrimination on the grounds of gender, age, religion, sexual orientation and disability.

Types of sustainable finance

Many ESG financial products have a social purpose and promote sustainable growth and development:

• Sustainable investment funds: Investment schemes that put our money towards projects that uphold our ethical values. Many invest in companies that innovate and improve energy efficiency and social conditions. 
• Green and social bonds: Debt instruments issued by organizations to fund their socially responsible projects.
• Social venture capital: Investment in companies whose purpose is to create solutions to social and environmental issues. Investors expect returns and sustainability.
• Green loans: An advance of funds for activities that help the environment, like purchasing efficient domestic appliances, low-emissions vehicles and other eco-friendly items.

Want to find out more about sustainable finance? Read this article (in Spanish) by Finanzas para Mortales (Finance for Mortals).

Why invest in sustainable finance?

To address society’s needs and concerns, the financial sector is undertaking a transformation, driven by initiatives like the Net Zero Banking Alliance (NZBA), in which Santander (a founder member) and other banks have committed to shifting their portfolios towards more sustainable products in order to reach net zero emissions.

The EU and government agencies have also reinforced their commitment through policymaking to fight climate change and foster the inclusion of vulnerable groups.

Investors are also adamant about ethics and environmental values and prefer that their portfolios include companies with eco-friendly and socially responsible business models.

Studies show that people are demanding more sustainable finance. The Otro consumo para un futuro mejor (“Alternative consumption for a brighter future”) report by Nueva Economía e Innovación Social (NESI) and the Organización de Consumidores y Usuarios (OCU) concluded that, in Spain, 73% of people make financial decisions based on sustainability criteria. 

Investments in sustainable finance enable us to have a positive impact on the planet and society. They help companies that adopt renewable energy and more humane and responsible business models. To find out more about sustainable investment, check out this Openbank article (in Spanish).