Environmental Sustainability and Global Finance

Tuesday, July 20, 2021, by Dr. Mariya Yesseleva-Pionka, PhD

Back in 1987, when United Nations introduced the definition of sustainability, it emphasised that sustainability is about responding to the needs of the present without undermining the ability of future generations to meet their own needs[1]. In the early 1990s, Triple Bottom Line (also known as People, Planet, Profit) was introduced by John Elkington. He advocated for business reporting, which provides information about the economic, environmental and social performance of business entities[2]. In September 2015, the General Assembly implemented the 2030 Agenda for Sustainable Development that includes 17 Sustainable Development Goals (SDGs) based on the principle of “leaving no one behind”[3]. This Agenda emphasised an all-inclusive approach to attaining sustainable development for all. According to OECD data, many countries are taking action, but progress is insufficient to achieve the goals of the 2015 Paris Agreement. The adoption of renewable energy is on the rise; nevertheless, it still represents 11% of energy supply and 27% of electricity production in the OECD[4].

 

The public disclosure of information about the social and environmental impacts of business operations has become widespread since the early 1990s, typically among large companies worldwide. The Global Reporting Initiative[5] (GRI) provides a conceptual framework and guidance for social and environmental reporting. The GRI Reporting Framework provides direction on reporting an organisation’s economic, ecological and social performance. It was created for application by businesses of any size, sector or location.

 

Climate and environmental impacts will be at the heart of global finance. Can profitability and sustainability co-exist? In answering this question, it is vital to emphasise that long-term profits will not matter if there is no planet. Overall, if we continue to underestimate the importance of environmental resources and our role in promoting sustainable behaviour, this could lead to highly detrimental outcomes for the planet. Thus, there is an immediate urgency for educating everyone concerning climate risk and their role in promoting sustainability.

 

We are already witnessing green start-ups that provide various tools that measure storm and flood risks and assess the level of pollutions created by businesses. In the financial services industries, many green FinTechs successfully combine finance and technology while promoting and embedding sustainable behaviour among customers. For instance, digital banks allow their customers to round-up their transactions to support tree planting, give cash-back for using climate-friendly business services or products, provide green loans for various solar energy projects and deliver a customised analysis of customers’ spending to emphasise their carbon emissions footprint and sustainable behaviour. Other FinTechs provide online app-based wooden credit cards with the portion of profits going to reforestation projects; introduce loyalty programs based on carbon points that can be converted into products and services with selected business partners that promote climate-friendly sustainable behaviour.

 

There is an onset of transformative generational wealth handover from baby boomers to millennials, with new business leaders becoming increasingly attentive to climate risks. Thus, they tend to choose sustainability in business operations. According to an EY study, millennial investors are almost twice as likely to invest in businesses or managed funds that target specific social or environmental goals, and 90% of them want sustainable investing as an option within their pension/superannuation plan[6]. Originally sustainable investing started in equities; however, over the years, government and private companies have been issuing various debt instruments to finance environmentally friendly projects.

 

There seems to be an assumption that carbon footprints and environmental impacts are mainly connected to large organisations. However, the MSMEs account for over 90% of all businesses worldwide. Thus, it is evident that MSMEs collectively are classified as significant polluters globally and there are increasing requirements for these enterprises to participate in and implement sustainable business practices. There is an urgency in educating entrepreneurs, MSME owner-managers and future business leaders in general, on how SDGs require changes to business finance, management and investment.

 

[1] United Nations Brundtland Commission, 1987

[2] www.hbr.org/2018/06/25-years-ago-i-coined-the-phrase-triple-bottom-line-heres-why-im-giving-up-on-it

[3] https://www.un.org/development/desa/disabilities/envision2030.html

[4] https://www.oecd.org/environment/climate-data/

[5] https://www.globalreporting.org/

[6] www.ey.com/en_au/financial-services/why-sustainable-investing-matters

Author

Dr Mariya Yesseleva-Pionka is Global Certificates Manager at ICSB, a Higher Degree by Research Supervisor at Excelsia College and Adjunct Academic at the University of Technology  Sydney, Australia. Dr Yesseleva-Pionka held teaching and senior academic management positions in Central Asia (Kazakhstan) and Australia. She specialised in general investments, personal and corporate superannuation investments while working for Westpac Banking Corporation and BT Financial Group in Australia. She was invited to join The Housing Connection, a not-for-profit organisation in Sydney, Australia as Treasurer and Board Member from November 2019. Her research interests include entrepreneurial finance, traditional and alternative ways to finance small and medium enterprises (SMEs), corporate finance, policies for the small business sector, innovation and SMEs, FinTechs and Blockchain. Dr Yesseleva-Pionka is the Associate Editor for the Journal of the International Council for Small Business (JICSB).