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Sustainable finance gets real

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Hundreds of things happened this week in sustainable finance. That’s normal now — it’s become a fizzing, global market which is ever-present. Anyone who predicted, say, four years ago that sustainable finance would take over the whole capital market probably feels the outcome has exceeded their expectations.

Unfortunately, it’s possible to have sustainable finance without a sustainable economy. Most of what goes on does not move the needle.

Green and social bonds, mainly, make existing activities more visible. By applying environmental, social and governance criteria to a share portfolio, an investor can tilt it towards good. But these do not bring radical change.

The purpose of sustainable finance is that investors and banks should push the economy in a more sustainable direction — as well as being pulled that way, by the organisations they finance.

Two things this week show that is beginning to happen. Thirty-five investors launched the Net Zero Investment Framework — a guide for even the lowliest small pension fund on how to start eradicating greenhouse gas emissions from its portfolio. It’s been too long coming, but what the environmental movement has wanted for 40 years is now on the agenda of every financial organisation, or soon will be.

The NZIF is a guide — fulfilling it will require actions. One came this week. Fifteen institutions poked HSBC in the ribs with a shareholder motion and made it commit to setting decarbonisation targets, starting with fossil fuel clients. HSBC will now have to drag all its clients in the right direction.

As time goes on, the actions needed will be more difficult, and there will be a lot of anger and strife. But at last one can begin to say: sustainable finance is doing its job.

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