Why sustainable financial strategies are a must, not an option

This article is written by María Sofía Muratore, Sustainability and Social Impact Consultant – Master in International Development and Cooperation.

• The problem: The World Bank affirms that the private sector has a duty to contribute $1.6 trillion to solve a comprehensive sustainable finance strategy, but there is no certain strategy on how to achieve objectives.
• Why it matters: The world is facing polycrises and eco-anxiety resulting from inaction, and leading to severe consequences.
• The solution: Work for a more collaborative capitalism, based on inclusion, sustainability and the regeneration of ecosystems.

‘Polycrisis’ is one of the most heard terms in recent months. At the beginning of the year Saadia Zaahidi, the managing director at the World Economic Forum established that more than 80% of the participants questioned for the Global Risk Report 2023 have a very negative view of the international context in the medium and long term. In turn, she stressed that this is due to the extreme consequences that the world is suffering with respect to the climate crisis, and the lack of action to resolve it in the short term.

It is important to design action plans created for each context, which make it possible to identify, evaluate and manage both opportunities and risks in terms of sustainability.

Current projections visualise a context violated by the Ukrainian War, the crisis in the technology sector and a financial system lacking a horizon.

Now, what is the solution? The answer must lie with each actor in the ecosystem. The Colombian president, Gustavo Petro, said in a speech in the great auditorium of the World Economic Fund (WEF): “Can the capitalism that we have known in the last 30 or 40 years overcome the climate crisis that it helped to provoke? [...] If the answer is no, we are wasting time as we approach the point of no return.” Although the president harshly criticised the current economic system, I believe that this problem can only be solved through a more resilient, sustainable and regenerative financial strategy.

Financial acceleration for a triple impact

As established in the United Nations Framework Convention on Climate Change, the richest countries must contribute US$100 billion annually by 2025 to help developing countries cope with environmental crises. In turn, the World Bank affirms that the private sector has a duty to contribute $1.6 trillion to solve a comprehensive sustainable finance strategy.

It is noteworthy that at the spring meetings of the World Bank and the IMF, WBG President David Malpass announced: “There was progress in talks held this week with shareholders on the need for greater debt transparency, an increase in financing for development, more impactful climate action, and more attention to the vision and mission of the World Bank Group.”

Following this train of thought, the first step must be to understand the role of banks and insurers in this new strategy, since they are an important part of the global economic assets and liabilities on their balance sheets. For these reasons, it is considered essential that concrete actions be established to respond to this state of polycrisis.

Now, what is a financial strategy in pursuit of sustainability? The main challenge must always be to respond to the triple crisis – climate change, the regeneration of ecosystems as a result of environmental degradation and to work for inclusion and equity.

In the last 20 years, ESG investment (environmental, social and governance) has increased fivefold. When we talk about this type of impact investment, we are referring to investments whose objective is not financial performance, but rather the construction of a systemic solution that makes it possible to respond to social and environmental problems.

However, there is no immediate financial return in all cases, but there is in the longterm because it is the only way to mitigate the triple crisis. This means that sustainable financial strategies are a must, not an option.

How to achieve a systemic strategy? It is important to design action plans created for each context, which make it possible to identify, evaluate and manage both opportunities and risks in terms of sustainability. Thus, it is crucial to make decisions based on evidence from not only quantitative data, but also qualitative information. Because the economy must be analysed through a humanistic, social prism, and not purely numerical. In this way, the main challenge is for organisations to achieve, through their ESG strategy, not to replace regulations, but to create value and generate a positive impact.

Finally, I think it is important to highlight something that the only way to reinvent the current economic system is not by moving away from the economy, but by building from a new horizon, more humane, more inclusive, than sustainability, but above all that understands that a successful strategy is the product of the synergy of its actors. So, the focus should not be on measuring ESG factors, but on co-creating between the parties, to mitigate risks and increase opportunities.

👋 You can write an article like this one! Share your thoughts with a community of public servants. Learn more

(Image Credit: Unsplash)