Finland’s new sustainable development strategy, extending to 2030, was published this spring. The strategy was drawn up by the Finnish National Commission on Sustainable Development, chaired by Prime Minister Sanna Marin. The strategy is based on six areas where systemic change is needed to achieve a sustainable future, and many of the goals listed are ones that financial sector companies can contribute to. One of the six areas is entitled ‘Economy and work promoting wellbeing and sustainable consumption’, and it includes perhaps the most concrete examples of goals in which financial sector companies can act as catalysts and drivers.
Here are two concrete goals for this area of change:
1. Bioeconomy and circular economy solutions, industrial and other innovations, as well as digital and intangible products and services that generate sustainable added value and build a carbon neutral society are emphasised in the creation of economic value, business operations, new jobs and export operations.
2. Economic activities strive to produce and distribute human wellbeing, strengthen social capital and invest in wellbeing.
It is these two particular goals that financial sector companies play the biggest part in. The role of the financial sector is to encourage companies to act responsibly for the environment and society through sustainable financing. The risks associated with climate change have become so great that financial actors cannot ignore them in their own operations. In the future, companies that have not prepared for and planned their adaptation to climate change in any way will find it increasingly difficult to acquire funding.
Companies that operate responsibly in the long run will outperform their benchmarks and last longer. For example, companies that operate responsibly have better chances to attract skilled workforce when there is a shortage of employees.
The financial sector supports the society’s transition to a sustainable economy but cannot be the one leading it. Leadership in the sustainability transition belongs to democratically elected decision-makers.
The unfortunate fact is that much of the economy is based on unsustainable activity. It is unrealistic to expect responsible investment to bring about significant change if, at the same time, a large proportion of state aid, for example, is targeted at environmentally harmful activities. We need ambitious climate policy and long-term political decisions that ensure a fair sustainability transition. Business operations that are high-emitting and harmful must be subjected to regulation that ensures that the polluter pays. Carbon emissions pricing must be reliable, and the EU must have a binding long-term carbon budget. These measures would increase predictability in the investment environment.
Companies that operate responsibly in the long run
will outperform their benchmarks and last longer.
At the moment, there are even more investors looking for sustainable projects to invest in than there is eligible demand. This is a learning journey for financial sector companies as well. The EU is setting sustainability requirements related to risk management, disclosure and sustainability criteria to companies at a rapid pace. And the work is just beginning. For example, the EU taxonomy for sustainable activities, widely discussed late last year and early this year, currently only covers two of its six environmental objectives: climate change mitigation and climate change adaptation. The technical screening criteria for the four other environmental objectives – the sustainable use and protection of water and marine resources, the transition to a circular economy, pollution prevention and control, and the protection and restoration of biodiversity and ecosystems – are being prepared.
The Taxonomy has also aroused comments on both sides: companies across many different sectors are now asking financial sector companies if they can acquire funding at all if they do not meet the Taxonomy criteria and how the financial sector interprets the criteria. But the financial sector cannot act as an independent judge for all sectors and industries. Instead, the assessment of sustainability must be based on each sector’s own expertise and on the sustainability criteria – in a way that stands up to critical scrutiny.