Finance has a significant role to play in a sustainable future, comprising economic, environmental, social and governance responsibilities, JSE chief sustainability officer Shameela Soobramoney said during this year’s virtual Green Building Convention on October 29.
Sustainability emerged as a component of corporate ethics in response to the perceived public discontent over the long-term damage caused by a focus on short-term profits and, therefore, focused on meeting the needs of the present without compromising the ability of future generations to meet their needs, she explained.
Sustainable finance, according to the National Treasury’s definition in its Financing a Sustainable Economy paper, encompasses models, products, markets and ethical practices to deliver resilience and long-term value in each of the environmental, economic and social aspects, and thereby contribute to the delivery of the United Nation’s Sustainable Development Goals, as well as climate resilience.
When focusing on sustainable finance, Soobramoney noted that long-term financial performance depended on “the efficient and productive management of resources not currently measured by traditional accounting methodologies, such as human, intellectual, social and relationship, and natural capital”.
This means the current financial capital market system is insufficient to guard against “the multifaceted and interconnected risks of the future”, which is why Soobramoney is calling for an inclusive market system to be adopted.
While this is only the first of three paradigm shifts required in the corporate world, she added that, for finance, short-term capital markets need to change and become long-term sustainable capital markets, while siloed reporting should, in turn, become integrated reporting.
This is consistent with the concept of a sustainable, inclusive capital market system, she noted, adding that this was urgently needed, as “markets play a critical function in capital allocation” and are, therefore, “pivotal in sustainable development” as it allowed for the reallocation towards more sustainable outcomes.
However, the transition to a sustainable global economy required scaling up the financing of investments that provided environmental and social benefits, Soobramoney said, adding that the bond markets (though green, social and sustainability bonds, as well as sustainability-linked bonds) could "play an essential role in attracting private capital to finance these global needs”.
Green, social and sustainability bonds are any type of bond instrument where the proceeds will be exclusively applied to eligible environmental and/or social projects, while sustainability-linked bonds are any type of bond instrument for which the financial and/or structural characteristics can vary depending on whether predefined sustainability or environmental, social or governance objectives are achieved.
Sustainability-linked loans reached $139-billion in 2019, Soobramoney said.