Sustainable finance serving a responsible Future
Understanding sustainable finance: Key principles and challenges
Sustainable finance is a concept that integrates environmental, social, and governance (ESG) criteria into investment decisions. The goal of sustainable finance is to promote investments that contribute to sustainable economic development, environmental protection, and social well-being.
Sustainability is omnipresent in our daily lives
Sustainability is a key concept of our time, widely popularized since the 1987 Brundtland Report. This report defines sustainable development as meeting the needs of the present without compromising the ability of future generations to meet their own needs. Global awareness of this issue was reinforced in 2015 with the signing of the 17 Sustainable Development Goals (SDGs) by the 193 UN member states, setting a course for a better and more sustainable future for all by 2030.
A major indicator of the urgency to act is Earth Overshoot Day, which marks the date when humanity has exhausted all the resources that the Earth can produce in one year. In other words, it is the moment when we begin living on credit from the resources of future generations. In 1970, this day occurred at the end of December, but in 2024, it occurred on August 2nd. Two main factors explain this evolution: global population growth, increasing from 3.7 billion in 1970 to over 8 billion in 2024, and changes in our lifestyles, which have increased our ecological footprint.
The challenge of sustainability is to find a balance between essential needs (health, food, education, employment, income, etc.) and respecting the environmental limits of our planet. The "doughnut" theory, developed by Kate Raworth, illustrates this quest for balance between social well-being and planetary sustainability.
The challenges of sustainable finance:
The transition to a sustainable way of life involves rethinking how we consume, travel, live, and even eat, to make it compatible with the ecological limits of the Earth. Beyond psychological barriers, this transition has a significant economic cost. For the climate transition alone, the estimated cost ranges from 30 to 65 billion euros per year. Public investments alone will not be sufficient to finance this. This is where sustainable finance comes into play, bridging the gap between project developers working for this transition and investors capable of funding these initiatives. In France, household savings are estimated at over 6,000 billion euros, representing a considerable potential to finance this transition.
To meet this challenge, sustainable finance is structured around three major pillars:
• Green finance: It specifically targets the fight against climate change and environmental protection. This includes financing for renewable energy, energy efficiency, the circular economy, and environmentally friendly construction, among others.
• Socially responsible investment (SRI): This approach integrates non-financial criteria, such as environmental, social, and governance (ESG) factors, in addition to traditional financial criteria (profitability, dividends, rates, income, debts, etc.). SRI aims to direct investment flows towards companies that are not only profitable but also virtuous for the planet.
• Solidarity finance: Its goal is to finance projects with a strong social impact. Actors in solidarity finance include foundations, cooperatives, associations, and crowdfunding platforms.
Thus, sustainable finance represents a strategic lever to address environmental and social challenges by connecting investors with change-driving projects. It offers investment prospects that reconcile financial profitability with a positive impact on society.
Jean-Christophe Jouannais
Sustainable Engineer at Societe Generale Private Banking France
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