Sustainable finance, also known as green finance, is a set of regulations, standards, and norms for financial products and services. These are designed to promote the energy transition. This article will discuss some of the important aspects of sustainable finance. For example, the use of tax incentives for investors is one of the most important aspects of sustainable finance. Shareholder resolutions are also an important driver of sustainable finance. These are just some of the many areas where sustainable finance is becoming an increasingly important topic.
Tax incentives for investors in sustainable finance
Governments can provide various forms of incentives to taxpaying citizens who invest in sustainable finance. These incentives are often non-exhaustive, but can make a significant difference to the sustainability of an investment. For example, some countries allow investors to take advantage of accelerated depreciation rules for environmentally friendly assets. While these rules are meant to match the depreciation rate of a capital asset, they are flexible enough to allow the government to manipulate them for its own benefit.
Investors can also benefit from tax equity investing, which allows them to invest their tax money in sustainable projects that benefit the environment, economy, and society. In some countries, these tax credits are available to all investors, including hedge funds and other institutional investors. These types of investments are particularly attractive for those who want to mitigate their tax liabilities. Investors in these projects can earn cash returns and
ESG benefits, including reductions in carbon emissions.
Aligning financial systems and services to promote long-term environmental and social sustainability
Increasingly, the focus on sustainability is influencing financial markets and practices. Financial institutions are expected to better understand ESG issues and the impact of their activities on their business operations. In addition, they will benefit from a more comprehensive information system that enables them to make better decisions. This will help them better align their portfolios with long-term goals.
The following are some recommendations for a more sustainable financial system.
The underlying challenges for achieving sustainable finance are systemic and multifaceted. Aligning finance with the 2030 Agenda will require a comprehensive strategy, which integrates financial systems and services with other societal goals. The G20 has an important role in shaping the direction of the global financial system and its leaders have committed to align their work with the goals of the Agenda 2030. By aligning finance with the goals of the 2030 Agenda, governments will be better prepared to implement the 2030 Agenda.
Standards and labels for sustainable investments
The Towards Sustainability label is a quality standard for socially responsible and sustainable financial products. It requires an in-depth sustainability analysis for each labeled product and is available to investors on its own web page. The analysis checks the product’s sustainability, strategy, and policy. In addition, the FNG Label is a quality standard awarded to sustainable investment funds in German-speaking countries. This certification requires ongoing due diligence and must be renewed annually.
The sustainability of financial products is a growing area and many different standards and labels are being developed. A number of countries have their own ESG labels and social impact indicators, including the Global Reporting Initiative and the International Capital Market Association’s Climate Bonds Initiative. However, due to the lack of harmonization, these labels may slow down the mainstreaming of sustainable investing. Furthermore, they can lead to highly restrictive criteria.
Shareholder resolutions as a driver of sustainable finance
This AGM season has seen an increase in the number of climate-related shareholder resolutions. These proposals are often a call for greater transparency and disclosure about climate-related matters or demand the company establish climate-aligned emissions reduction targets. Shareholder resolutions can also signal change within a company. In the United States, for example, energy companies and private financial institutions have been pushed by shareholder resolutions to develop climate-friendly plans. Staff at the RMI Center for Climate-Aligned
Finance have identified some interesting trends in key climate resolutions this year.
Climate-related resolutions have seen record-high levels of support at AGMs, with some investment giants even increasing their support this year. But despite the rising popularity of shareholder resolutions for climate change, there is still very little evidence to prove that they lead to emission reductions. Another controversial policy is divestment, which is under pressure from investors to prove that it is an effective method to curb carbon emissions. However, critics of divestment argue that selling off fossil fuel assets to non-regulated buyers will not help the climate.
