How Sustainability is Changing The Financial Sector

The Sustainability concept is receiving increasing attention and importance given the acceleration of climate issues and the perceived negative impact that some financing activities have on the environment or in human wellbeing.

While in the past investment and credit decisions were made to balance risks with expected return, a new dimension is now taking priority, based on the notion of 'investing with a purpose'. This means investing and financing activities and businesses that have a positive impact in the environment or the society. At the same time, divesting from businesses that contribute to deterioration is under evaluation. This will have drastic consequences for Banks and other financial institutions, leading to unprecedented changes as loan portfolios/assets under management are originated, re-evaluated, and/or winded up. Other opportunities related to the trading of carbon offsets and development of carbon markets must be considered.

Climate change risks are drastic to the Financial Sector and of extremely importance. They are crucial to the point of engaging the Banks' decision making at all levels, from client acquisition and relationship management, through Top Management - and of course Risk Management and Compliance. Sustainability is now an obligatory integral part of the Banks' strategic planning and operations. New regulatory aspects are being introduced and new Governance and ways of disclosing information and rating institutions are applied.

In this course we will touch upon all the above and also on the controversial topic of why we need Financial Institutions to stop financing flows to fossil fuels. We discuss why Sustainability is as well creating business opportunities and new products and boosting new career functions within institutions. We touch upon the ways banks can navigate to more greener portfolios, analyse how clients may be affected by the increased price of carbon (pollution), the importance of being evaluated by rating agencies for Sustainability parameters, and what does this all mean for the Financial sector's reputation and future. 

Course picture copyright credit to Sandra Bulla.