Sustainable Finance and Sustainability Reporting. A Literature Review

Academic Paper , 2022 , 17 Pages , Grade: 2.0

Business economics - Controlling

This paper gives an overview over sustainable finance and sustainability reporting. To keep and expand the balance of green capital supply and demand, we need sustainable financing on a large scale in various industries. Sustainable finance is standards, regulations, and products from an inclusive process of considering social, governance, and environmental aspects when investing. The investment includes but is not limited to climate change mitigation, forests regeneration, human capital, green skills advancement, and regulations for private and public sectors.

Sustainability reporting showcases operations impact on SD’s social, governance, and environment dimensions. It gives corporates a better image of transparency and, for governments, a broader understanding of companies’ risks and opportunities. Companies are on their pathways to minimize their CO2 emissions. Still, we do not have inclusive assessment standards worldwide to provide the public and investors with indicators of whether a company is sustainable or not. However, the International Financial Reporting Standards (IFRS) is working to develop an International Sustainability Standards Board (ISSB) and introduce it to COP26 stakeholders.

1.0 - Introduction

Sustainable development (SD) aims to accelerate better living conditions, sustainable consumption of natural resources, environment-friendly production, and ensure that our planet lives longer for many generations (Roorda, 2017). Governments, the private sector, and international organizations all agree on sustainable development goals (SDGs). As of today, corporates find the concept of sustainability an opportunity for boosting their business, making new partners, and contributing to social, economic, and environmental dimensions of SD. Still, our commitment and actions do not reflect SD. Our ecosystem is in danger, biodiversity extinction is booming, global warming is threatening, deforestation is ongoing, drought and floods are on every corner of our planet, and in fact, we live an unsustainable world with one hope to survive. There are two debates on the current situation, 1) human way of consumption in the planet, Earth requires a U-turn, and 2) technology advancement can improve the situation. The unified part of both groups is a transformation and shift to a better and green world for present and future generations (Keiner, 2006).

To keep and expand the balance of green capital supply and demand, we need sustainable financing on a large scale in various industries. Sustainable finance is standards, regulations, and products (OECD, 2020) from an inclusive process of considering social, governance, and environmental aspects when investing. The investment includes but is not limited to climate change mitigation, forests regeneration, human capital, green skills advancement, and regulations for private and public sectors (Commission, 2021). Sustainability reporting showcases operations impact on SD’s social, governance, and environment dimensions (Sibio & Bhowmik, 2021). It gives corporates a better image of transparency and, for governments, a broader understanding of companies’ risks and opportunities (Ecovadis, 2021). Companies are on their pathways to minimize their CO2 emissions. Still, we do not have inclusive assessment standards worldwide to provide the public and investors with indicators of whether a company is sustainable or not. However, the International Financial Reporting Standards (IFRS) is working to develop an International Sustainability Standards Board (ISSB) and introduce it to COP26 stakeholders (Sibio & Bhowmik, 2021).

This essay discusses sustainable finance and reporting with its related topics, such as which leadership can facilitate it? How to integrate investors to incorporate sustainability? Which sustainability financing and reporting initiatives exist?

2.0 – Background and Scope

Before the concept of sustainable development, at the time of industrialization, our world was endowed with natural resources with limited CO2 emissions and more concentrated on mobile labor and capital as scarce factors. Environment topics were not tangible in discussions and policies. Countries were busy advancing machines with dependency on fossil fuels, urbanization by transforming green lands, and deforestation. Financial concepts were more centered on cash flows. Now, we are on the path of transformation to a green and circular economy with a clear objective to minimize our CO2 emissions in production and consumption. Still, we notice numerous corporates ignoring the transition and putting this transformation to a later date, which the consequence has been shocking. The UN has taken a bold step to address world key issues by adopting 17 SDGs with a deadline of 2030 (Schoenmaker & Schramade, 2019).

SD ensures that present and next generations benefit equally from a well-defined process from available resources and access to good health, clean water, food security, and energy (UNESCO, 2021). Sustainable finance aims to facilitate and enhance the transition to a green economy by allocating funds and investments in sustainable corporates and impactful projects. Finance in sustainable development deals with environmental, social, and economic problems (Schoenmaker & Schramade, 2019). Climate change is now headlines of news and global talks, and corporates must take a critical stand on considering 1.5°C. Failing to minimize carbon footprints leads us to polluted air, contaminated water, food insecurity, and climate migration (WHO, 2021). Transparency in finance can facilitate investors to invest with adequate knowledge in the present and future. The Paris agreement emphasizes this by stating that the flow of finance should follow a consistency of lowering CO2 emissions with climate-resilient policies and strategies. The financial market is a supply channel and group of players at various levels. These include banks, credit market corporates, venture capitals, insurance companies, and pension funds that benefit from investments, lending, and credits. Achieving SDGs requires a high amount of financial resources with significant players in the private sector to transform their operations into more environment-friendly technologies, skills, and working environments. The financial market and economy have been connected in a way that there are risks and interests. For instance, natural disasters reduce insurance companies’ profit while paying a high price to customers. Besides, carbon tax and new laws about climate change impose pressure on corporate investment areas (Möllersten, et al., 2020). The EU Commission has set three objectives for the financial market such as 1) flow of capital into the green economy, 2) incorporation of risk assessment and management into sustainability, and 3) transparency in operations (Commission, 2018).

2.1- Leadership and Sustainable Development

The concept of development in sustainability cannot be integrated well enough without leadership. Leadership in an organization or company unites a group of staff to achieve specific goals. Galton believes that a leader is born with particular characteristics, and sometimes you find them charismatic. Leader in SD aligns human capital, organizational structure, and social development within well-defined administration to achieve common development goals. According to AIESEC, the world’s largest youth-run organization since 1948, leaders for achieving SDGs should possess four key qualities: empowering others, being solution-oriented, self-awareness, and acting as world citizens (AIESEC, 2021). A wise leader promotes optimism, clear vision, creates future imagination, reflects on current challenges as opportunities to fix, and defines milestones in achieving objectives. A leader in SD should pave the ground for cooperation and interaction (Slimane, 2012). Corporate leaders are forced to align their operations with financial value and sustainable outcomes. This pressure comes after the data collected by the World Economic Forum (WEF) in 2020, where 65% of staff favor a sustainable working environment, and 66% of customers are planning to buy sustainable products. There has been a 28% increase in sustainable investment. As detailed in Figure 1, the sustainability DNA requires corporates’ new business models and talent acquisition strategies with stakeholder-centric plans. The sustainability DNA is consists of 21 practices that originate from 10 enablers with a clear objective to facilitate human connection, collective decision making, and accountability for transparency.

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• College: Rhine-Waal University of Applied Sciences
• Course: Sustainable Development Management
• Grade: 2.0
• Author: Sayed Ahmad Fahim Masoumi (Author)
• Publication Year: 2022
• Pages: 17
• Catalog Number: V1176851
• ISBN (PDF): 9783346608895
• ISBN (Book): 9783346608901
• Language: English
• Tags: sustainability, finance, reporting, investment, economy, sustainable financing, business