Green and sustainable finance covers a wide range of activities, including raising money to finance (e.g. issuing bonds or other financial products) or providing capital for green projects which promote environmental sustainability. Apart from bringing environmental benefits, these investments can also help to promote technological innovation, facilitate the development of green industries, and create business opportunities for the financial sector.
Profit returns are often the primary concern of investors and enterprises. Driven by the aggravating problem of climate change, the risk of extreme weather and even catastrophic impact on the globe has been increasing, ignoring environmental and social interests for the sake of returns is no longer an appropriate investment philosophy. Corporate Social Responsibility (CSR) has been in the focus in recent years, whereby companies are expected to “give back to society” and play their responsible part in society and the environment while making profits.
Given environmental and extreme climate change can pose significant risks and uncertainties for enterprises, the entire financial community, including international organisations, regulators, market practitioners, and investors around the world, have been advocating green finance or sustainable investment in recent years, encouraging the public to seek returns from green projects and financial development that brings social, economic and environmental benefits. Investors now tend to incorporate social and environmental issues into their investment process, and select projects or businesses with a sustainable future.
In response to climate change, the United Nations adopted the Paris Agreement in 2015, which aims to limit global warming within 1.5 and 2 degrees Celsius over the 21st century. Many countries and regions have also pledged to achieve net-zero emissions by mid-century. Green and sustainable finance plays a pivotal role in supporting the transition to a net-zero and sustainable economy.
Green financial products genereally refer to a series of investment products issued for environmental and sustainable development goals, including green bonds, green loans, green funds, ESG funds, etc. The funds raised are generally reinvested in renewable energy, pollution control, food security, agricultural production, green buildings, transportation and infrastructure, sustainable water treatment, energy efficiency improvement, sustainable resource management, and various environmental protection projects, such as waste management and sustainable forestry, etc.
Enterprises and investors around the world are increasingly focusing on the environmental, social and governance (ESG) development standards. ESG advocates pursuing sustainable goals and investing in companies that take environmental, social, and governance factors into consideration. Companies that do not adopt ESG in their operation may not only face the risk of endangered supply chain but also bring negative impact to the companies’ reputation and future development.
Learn more about ESG.Responsible investing is an investing approach that considers the impact of ESG factors on long-term investment returns and their sustainability. Responsible investment can be grouped into two board categories: 1. Consider ESG factors when constructing investment portfolios, 2. Investors drive companies’ capital allocation to improve ESG risk management or develop into a more sustainable business model that emphasises investor participation and enables shareholders to vote in the general meeting.
Relevant investor organisations have also been set up internationally, such as the UN-supported Principles for Responsible Investment (PRI), which encourages the adoption of the six principles of responsible investment and advocates companies’ compliance with ESG requirements.
Little Thrifty has been actively practising money management recently and plans to use his savings to invest in financial products to add value to his assets. Since he has limited knowledge about green and sustainable finance, he consulted his teacher.
HKEX's Sustainable and Green Exchange is one of the websites that allows the public to learn about investment products related to green and sustainable finance. Unlike traditional investment products, these investment products are related to green and sustainable development projects, and railway development project is an example. These projects not only have a considerable potential return on investment, but more importantly, they are conducive to environmental protection. Railways can be developed into a low-carbon public transport network by using electricity as fuel to help reduce carbon emissions. Investing in these projects may obtain a significant potential return, and can also contribute to environmental conservation.
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