Traditionally, financial players evaluated and made fund and asset allocation decisions based solely on financial measures. However, in the last decade the integration of new non-financial factors in such investment decision-making has become widespread, factors that consider environmental, social and corporate governance (ESG) issues and not only financial performance. That is, non-financial factors that are also important for us to contribute to sustainable development.

Sustainable finance is described as investment decisions that include ESG considerations of economic activity to improve its performance and to create positive economic, social and environmental externalities for the communities where they have operations and activities. By improving their ESG performance, they will also be strengthening their resilience to potential non-financial risks that could affect their future operations.

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The World Economic Forum (WEF) defines risks as those “uncertain events or conditions that, if they occur, could cause a significant negative impact on various countries or industries within 10 years”. Every year the WEF, prior to its meeting in Davos, publishes its report with the main global risks, based on the answers given by opinion leaders surveyed and belonging to the business, academic, social and other fields.

In its 2021 report, the WEF reported that among the most likely risks for the next ten years are extreme weather, the failure of climate action, and man-made environmental damage. On the other hand, among the risks with the greatest impact for the next decade, infectious diseases rank first, followed by the failure of climate action and other environmental risks.

Climate change remains a catastrophic risk. Industries -including banking- must focus their strategies to create a more sustainable future and the public sector must create a system that facilitates and encourages alignment towards more ambitious environmental commitments. Within this system, the financial sector wields great power in terms of financing and raising awareness of environmental issues, whether it is enabling research and development of alternative energy or supporting companies that employ best sustainable practices.

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Sustainable financing favors financial operations that consider ESG, in order to support the real economy and long-term projects, which encourages institutions and companies to adhere to sustainable standards and improve their environmental and social performance. Mitigation of climate catastrophe and the use of renewable resources are examples of environmental factors that are taken into account in sustainable finance, which are already influencing business and social trends, and will continue to do so at an accelerating rate in the coming years. as a commitment to projects that will help the transition to a more sustainable future.

Companies that receive sustainable financing benefit from favorable credit conditions and can demonstrate their commitment to sustainability with their stakeholders. But above all, it is an instrument that promotes the development of an economic and financial system capable of facing the challenges posed by social risks and those associated with the climate, taking into account the opportunities that exist in all sectors of the economy.

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Pablo Necoechea, Sr. Sustainability Manager of Grupo Televisa. Professor of economics and environmental impact subjects at the Universidad Anáhuac Norte.*

The opinions expressed are the sole responsibility of their authors and are completely independent of the position and editorial line of Forbes Mexico.