Sustainable finance: definitions, objectives and semantics
Sustainable finance, green finance, responsible finance, ESG criteria, SRI investments, etc. – how do you make sense of it all? The semantic field of sustainability is constantly expanding. Here are some definitions and information about sustainable finance for players in the Swiss financial sector. Before getting started, it is important to know that there is no formal definition that is universally recognised by all players.
What is sustainable finance ?
Sustainable finance refers to investment processes that consider environmental, social and governance (ESG) criteria. The aim is to reconcile economic performance with positive impacts on these ESG criteria. Sustainable finance therefore consists of supporting and financing economic and sustainable projects.
What is responsible finance ?
The term responsible finance is often used synonymously with sustainable finance. Sometimes the expression “sustainable and responsible finance” is also used.
For example, the sustainable and responsible investments offered to customers favour investments in projects or companies that are :
- environmentally friendly, which means no/low fossil fuels and a low carbon footprint ;
- attentive to working conditions and human rights ;
- that have a proven tax and anti-corruption ethic.
What are ESG criteria ?
ESG (environmental, social and governance) criteria are non-financial criteria. They are used to measure CSR (Corporate Social Responsibility). For the financial sector, ESG criteria are used to measure the sustainability of investment processes classified as sustainable and responsible finance.
Here are some examples of ESG criteria :
- Environmental criteria: combating climate change, optimising the use of resources, preserving biodiversity, reducing and managing waste and pollution.
- Social criteria: social and community involvement, solidarity, working conditions, inclusiveness.
- Governance criteria: composition of boards of directors, remuneration scales, tax ethics.
What is the difference between sustainable finance and green finance ?
Green finance is an integral part of sustainable finance. It is in fact one of the three pillars of sustainable or responsible finance. It is the one that promotes the financing of actions in favour of the ecological and energy transition. In this sense, the financial products offered by green finance help combatting the financial risks linked to nature, whether climate or biodiversity.
What does the term SRI mean ?
The acronym SRI stands for “socially responsible investment”. SRI investments focus on social aspects. They often include sustainable considerations, but generally an investment that defines itself as SRI rather than ESG puts more emphasis on the social side.
Who are the players in sustainable or responsible finance in Switzerland ?
Here are the different players who contribute to or are involved in sustainable finance in Switzerland, each of them plays a different role :
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- institutional investors ;
- banks ;
- asset managers ;
- insurance companies ;
- all the economic players working for sustainability ;
- Parliament and the Federal Council for Switzerland ;
- the regulatory and supervisory authorities, i.e. FINMA in Switzerland ;
- NGOs, standardisation or self-regulation bodies, etc.
What is the Financial Centre Sustainability Report ?
The importance of sustainable finance continues to grow in Switzerland and globally. Since 16 December 2022, the financial markets have had access to a Federal Council report on the sustainability of the financial centre. It contains 15 measures to be implemented between 2022 and 2025 in Switzerland in order to maintain global leadership in sustainable finance. It can be downloaded from the sustainable finance page under the heading “Financial market policy and strategy”.
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