This article was first published on Thomson Reuters Regulatory Intelligence, 29 April 2019
The themes of environmental, social and governance (ESG) and sustainable finance are featuring increasingly within the conventional finance sectors - giving rise to much confusion as to what these terms encompass.
Sustainable finance is essentially a movement to address a perceived inadequacy in the current economic model by requiring private actors to acknowledge the importance of factors and outcomes, other than the pursuit of profit in their business models.
Environmental, social and governance can be said to be the three sub-themes encapsulated by sustainable finance. They in turn encompass matters as wide ranging as carbon regulation, health and safety, financial inclusion, corruption and bribery to board diversity.
Sustainable finance and ESG require a company to take a more holistic approach to its business by taking responsibility for ESG issues arising from its operations. This often means that private actors are being asked to espouse standards beyond what is required of them by law. There have been many studies that demonstrate a better economic outcome for business models that incorporate ESG.
In this article, Chinyelu Oranefo explores the concept of sustainable finance in the EU and what it means for the finance industry.