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Apply Overarching Sustainability Principles, Practices and Terminology to Financial Activities

Quality InsightsQuality Insights Volume 18April 19, 2024

ISO 32210 provides a framework to promote sustainable finance across the entire financial ecosystem.

What is sustainable finance?

Environmental, social and governance (ESG) is guiding more and more investment decisions. Investors no longer face a choice between profits and protecting the planet.

Sustainable finance prioritizes sustainable organizations that help the environment and focus on inclusion and ethical business practices.

Why is sustainable finance important?

Sustainable investing covers many activities, from funding green energy initiatives to investing in businesses with strong social values, such as inclusion, good governance or including more women at board level.

According to the European Union (EU) and other entities, sustainable finance is vital to the world’s transition to net zero because it channels private money into carbon-neutral projects. For example, the European Green Deal Investment Plan (EGDIP), also known as the Sustainable Europe Investment Plan (SEIP), aims to raise at least EUR 1 trillion to help the EU’s mission to reach net zero by 2050.

Why are sustainable finance instruments important?

The sustainable lending and bond markets are increasing, so must also be considered.

Sustainable lending, like sustainable investing, sees ESG considerations play a pivotal role in credit decisions. A sustainability-linked loan will usually focus on giving the borrower incentives to meet ESG performance targets.

Bond issuance sees certain bodies raise funds by borrowing from their investors. Green bonds are debt securities designed to finance environmentally friendly projects, etc.

Companies are using sustainability/green initiatives to unite corporate and sustainability strategies. This is seeing more sustainability/green discussions at board level.

What returns can sustainable finance provide?

Besides the obvious ESG-related benefits, there is increasing evidence that sustainable organizations offer higher returns for investors.

A study conducted for asset manager Fidelity tracked the performance of a range of ESG investments worldwide between 1970 and 2014. It found that half outperformed the market while only 11% had negative performance.

The world’s largest asset management company, BlackRock, found that, during the height of COVID-19 in 2020, more than 8 out of 10 sustainable investment funds performed better than share portfolios not based on ESG criteria.

Organizations with high ESG ratings tend to enjoy greater share price increases. This is important because financial institutions, such as pension funds, make the most stock market investments.

What is the stakeholder impact on sustainable market forces?

Consumers are four to six times more likely to buy from a brand with a corporate purpose they support. But if an organization does something they disagree with, 75% claim they will stop buying from that brand and encourage others to do the same.

Carbon-intensive industries like coal, oil and gas are also finding it more difficult and expensive to raise capital, as leading lenders decline to do business with them.

Contrary to this, according to McKinsey, sustainable organizations are more likely to:

  • Win contracts
  • Reduce costs by using fewer resources
  • Face less regulation
  • Retain staff
  • Avoid losing money on carbon-intensive processes

According to Reuters, global organizations took in USD 859 billion in sustainable investments in 2021, including USD 481.8 billion in green bonds that raised money for specific environmental initiatives. The level of sustainable finance is growing. According to Bloomberg, the total value of ESG investments could exceed USD 53 trillion by 2025, more than a third of all global investments.

How can ISO 32210 help?

ISO 32210 provides all financial sector organizations, including direct lenders and investors, asset managers and service providers, with a framework and guidance on addressing what is material from the organization and its stakeholders’ perspectives. It includes guidance on how key sustainable finance principles can be integrated at the organizational level, into operations and core business strategy.

The global standard provides common terminology and principles that financial sector organizations can use to become more sustainable and align with international initiatives, including the UN Sustainable Development Goals (SDGs) and the Paris Agreement.

Beyond financial institutions and intermediaries, ISO 32210 can be used by a range of other financial sector companies. These include sustainable finance providers or recipients, government organizations, public and private sector institutions, business entities, industry associations, financial market regulators and supervisory and control bodies.

What are the benefits of ISO 32210’s framework and guidance?

ISO 32210 can enable you to:

  • Become more sustainable
  • Integrate sustainability into your activities efficiently and consistently
  • Drive value, continuous improvement, risk mitigation and sustainable growth
  • Increase trust in your operations
  • Enhance sustainability understanding and collaboration
  • Use the standard, whatever your expertise and capacity levels
  • Demonstrate your alignment with numerous environmental and social goals
  • Contribute to UN Sustainable Development Goals 1-16

How can SGS help?

Understanding, implementing and benefitting from ISO 32210 can be tricky. As a sustainability leader for over 30 years and a world-leading testing, inspection and certification company, we can help you gain the most from ISO 32210. We will determine your level of competence and support you to achieve ongoing improvement.

To discuss your ISO 32210 requirements, contact us today.

About SGS

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