ESG Investment and Sustainable Finance
The Covid-19 pandemic has given a strong boost to the economic scenario, and in this regard, the benefits of companies have also increased. Compared to how it was seen until recently, investing according to ESG criteria today is, for experts, a model capable of returning extended value also to subjects outside the investment, and the only way to fair progress.
Finally, the strong correlation between economy and environment is emerging: just think of the fact that every company, for any process, depends on natural resources and continuing to run out of stocks without a correct allocation of resources can only lead to an increase in the price of raw materials. Then, they generate costs to be incurred for environmental and health damage (such as Covid) and therefore economic crises. The exploitation of resources-externalities-crisis is a vicious circle. In fact, a sustainable business model is profitable precisely because it responds to social-environmental needs that will never have an end for man.
Sustainable finance makes a link, in a long-term vision, between financial performance and the creation of a shared social value. It also includes the mitigation of environmental risks and inequalities generated by economic activity. The assets managed according to the criteria of sustainability work because they lead to critically think about the "quality" of the proposed strategies and their "need", or rather whether to respond to a structural change in the market and social needs or are a passing fad.
The empirical analysis conducted by international scholars states that strategies based on the ESG criteria offer a benefit in terms of portfolio risk reduction, compared to traditional investment models. The strong relationship that binds environmental well-being to progress and economic equilibrium therefore emerges.
This is because companies with business models defined on ESG criteria and SDGs are the only ones able to respond to social-environmental problems and needs, with products and services suitable to solve them. Furthermore, it allows to reduce the risk of rising prices on raw materials, due to the exploitation of resource stocks and their incorrect allocation. This cycle involves enormous externalities that generate costs related to environmental and health damage (such as Covid) which in turn cause economic crisis by fueling a vicious circle.
Economic prosperity is not a harm, but it becomes a beneficial consequence for human progress if the money is used for the benefit of the community. We must look at the quality of the profits, that is, both how to obtain them and how to use them once they are acquired.
Sustainable finance is the application of the concept of sustainable development to a financial activity. Sustainable finance aims to create value in the long term, by directing capital towards long-term activities that, in addition to generating an economic surplus, are also useful for society and do not compromise natural resources and the environment in general.
Sustainable development means that we must continue to grow, but with an eye on future generations. Indeed, there is more: environmental and social projects can become the engine for the development of our economy. Here the world of finance, which in the imagination of most people is just greedy speculation, becomes much more. In other words, sustainable finance is capable of changing (for the better) the world, by shifting resources towards responsible activities towards the planet and people.
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About the author
Giulia Faleri is Cofounder at the Italian startup Vezua, the omnichannel sustainability marketplace. She is also a board member of the Italian holding 76 Investimenti. She is a young changemaker of Ashoka network for the EU GEN-C Project promoted by Horizon EU and Agenzia Italiana Giovani. She’s among the youngest female entrepreneurs and is now working in Dubai as UAE Partnership Facilitator for Companies and UAE Investments Advisor.