Sustainable finance

Sustainable finance is the set of financial regulations, standards, norms and products that pursue an environmental objective. It allows the financial system to connect with the economy and its populations by financing its agents while maintaining a growth objective. The long-standing concept was promoted with the adoption of the Paris Climate Agreement, which stipulates that parties must make "finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development." In addition, sustainable finance had already a key role to play in the European Green Deal and in other EU International agreements, but since the COVID-19 pandemic its role is even more important. In 2015, the United Nations adopted the 2030 Agenda to steer the transition towards a sustainable and inclusive economy. This commitment involves 193 member states and comprises 17 goals and 169 targets. SDGs aimed at tackling current global challenges, including protecting the planet. Sustainable finance has become a key cornerstone for the achievement of these goals. The terminology is essential to understand the different concepts around sustainable finance and the differences. As a matter of fact, the United Nations Environment Programme (UNEP) defines three concepts that are different but often used as synonyms, namely, climate, green and sustainable finance. First, climate finance is a subset of environmental finance, it mainly refers to funds which are addressing climate change adaptation and mitigation. Then, green finance has a broader scope because it also covers other environmental issues such as biodiversity protection. Lastly, sustainable finance includes Environmental, Social and Corporate Governance (ESG) factors in its scope. Sustainable finance extends its domain to the three components of ESG; it is therefore the broadest term, covering all financing activities that contribute to sustainable development. By signing the Paris Agreement, more than 190 countries have committed to fighting climate change and reducing environmental degradation.