What separates a Sustainable Finance Leader and Laggard
The Role of Finance in the Clean Transition
The financial sector is responsible for funding households, businesses, and governments who wish to borrow money for a specific purpose. Businesses within the financial sector can create the parameters for who or what gets funded and those who do not, further, they can use this power to bring awareness to sustainability. Through funding, the financial sector can encourage further research and development of green projects or even support businesses that comply with sustainable labor practices. This funding can set a precedent for future businesses if they normalize a sustainability consideration process, this can become a standard procedure if they wish to borrow money from the financial sector.
It’s not just a matter of doing good for the environment and society, although that certainly comes into play as well. It also serves as a risk management factor for businesses, especially as we see supply chains get disrupted all over the world due to climate crises or inadequate regulatory compliance. Not only do businesses in the financial sector play a huge role in facilitating the transition toward a greener economy, but they can also serve to protect their investments as well.
Current Leaders and Laggards
While regulations regarding sustainable finance and reporting have been proposed, there’s still no standardized method of comparing what makes a company a sustainable finance leader vs. laggard. Still, that doesn’t stop some organizations from creating their own methodologies for what defines a leader and a laggard in sustainable finance. InfluenceMap, for example, has created a ranking system for financial institutions based on engagement intensity. Companies like Aviva, Legal & General, and NN Group are considered to be a leader in this regard. Other companies, like East & Partners, have identified BNP Paribas as a stand-out sustainable finance provider along with Standard Chartered, Citi, HSBC, and JP Morgan.
Physis has also created a methodology for asset managers identifying Candriam and UBS Group as some of the best sustainable finance providers based on their transparency in sustainability reporting, their commitment to sustainability, engagement initiatives, and risk management activities related to sustainability.
How to Identify a Leader from a Laggard in Sustainable Finance
As previously stated, each organization has its own way of defining a leader and a laggard in sustainable finance, but there are some key things to take into consideration when deciding whether a company is suited to be a sustainable finance leader or whether it’s lagging behind. A company that is transparent and detailed about its engagement strategy and plans regarding sustainable finance, tends to show more leadership qualities than companies that do not. Other factors are also important to consider, such as membership policies and the actual implementation of their plans regarding sustainable finance.
Physis is a fintech company that offers investors a variety of sustainable investing tools and data to manage, track, and understand the impacts of your investments. We make it easy for institutional investors to prove the sustainability of a company or fund beyond the ambiguous ESG score. Find out how we can help you today!