Banks can steer society in a more sustainable direction – final report on financing the green transition emphasises the financial market’s role

Banks play a key role in increasing awareness and influencing consumer choices, allowing them to steer both households and businesses in a more sustainable direction. Image: Shutterstock
  • Businesses need regulatory clarity and fitness to be able to promote the green transition, states the national working group on financing the green transition in its final report.
  • The clarity of regulation can be improved through impact assessments and extensive stakeholder consultations.
  • Emphasis must be placed on close cooperation, information exchange and the clarity of reporting requirements.
  • The Finnish financial sector plays a major role in promoting the green transition and considers the report’s conclusions well-founded.

The final report of the working group on financing the green transition presents the key objectives defined by the working group to develop green transition investments and financing and offers solutions and an estimate of the scale of the related investment needs. The report also discusses the role of various parties in financing the green transition and recent developments in how sustainability is taken into account in the financial markets. Set in January 2022 by the Ministry of Finance, the Ministry of the Environment and the Ministry of Economic Affairs and Employment, the working group was made up of a wide selection of public and private sector experts.

Finance Finland was represented in the working group on financing the green transition by Adviser Jussi Kettunen, who finds the report’s conclusions justified. Banks play a key role in increasing awareness and influencing consumer choices, which means that they can steer both households and businesses in a more sustainable direction. Kettunen is particularly pleased that the report makes a point about the importance of financiers having access to up-to-date information.

“All parties must be up to date on what information lenders need to assess and report the sustainability of their financing decisions. This requires not only increased know-how on financing the green transition, but also enhanced cooperation and improved exchange of information.”

In financial market regulation, a key objective is indeed to create opportunities for sustainable economic growth and improve the resilience of the financial system. A well-running and stable financial system plays a key role in financing green transition investments.

“With the financial market and its regulation evolving rapidly, all key parties benefit from closer cooperation and improved information exchange. Attention must be paid to the administrative burden of extensive sustainability reporting and to the clarity of the reporting requirements”, Kettunen points out.

The insurance sector makes investments and mitigates risks

The report also highlights the role insurers play in the green transition both as major investors and through ownership steering. The insurance sector also plays a key role in climate change mitigation and adaptation as an insurer and financier of risks.

“The insurance sector builds up economic resilience for extreme situations and physical risks through its risk transfer products and services, risk pricing competence and loss prevention expertise”, Kettunen explains.

The role of public authorities is to especially ensure that regulation is goal-oriented and predictable. Many companies operating in the financial market are subject either to global or EU-level sustainability reporting requirements. To ensure that the administrative burden and costs of sustainable financing remain reasonable, exchange of information must be invested in. 

“The operating environment’s predictability and stability are prerequisites for investment certainty. This is needed to carry out large-scale sustainability projects”, summarises Kettunen.

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