In the past couple of years, businesses and investors have shifted away from the traditional profit-oriented approach to one that also considers environmental, social, and governance (ESG) factors. This is known as sustainable finance, the set of practices, standards, and products that pursue financial returns alongside environmental and social objectives, allowing investors to still see profit while not investing in companies that may harm our planet. This article will explore some of the benefits of sustainable finance.

1.  Sustainable Long-Term Returns

One of the most appealing benefits of sustainable finance is its potential to offer stable, long-term investments to investors. With a demand for the government to protect our environment, new legislation has been produced regulating companies’ carbon emissions. This new legislation can affect their business model, the way they need to operate, and potentially introduce new regulatory fines. However, investing in sustainable companies gives the investor the ease of mind knowing that the company is positioned for the future to avoid any of these disruptions and provide a stable stream of returns.

Moreover, studies have shown that sustainable funds have comparable, and sometimes superior, performance relative to traditional funds. According to Ramnath N Iyer, the Sustainable Finance Lead, Asia, at IEEFA, “Sustainable funds generated better returns than traditional funds in 2023, with a median return of 12.6% versus 8.6% for traditional funds. This outperformance was extended across both equity and fixed-income fund asset classes.” Sustainable funds have shown superior performance than traditional funds, allowing investors to both help the environment and still generate financial return.

2. Competitive Advantage

Sustainable finance also sparks innovations as companies search for better ways to use resources and reduce their waste and carbon footprint. Many businesses are investing in renewable energy and eco-friendly technologies. These innovations reduce environmental impact and also usually result in cost savings. Renewable energy like solar and wind power can lower energy costs over time compared to traditional fossil fuels, therefore reducing a companies’ operational expenses and increasing profitability for both the company and investor.

Companies that prioritize sustainability also gain a competitive advantage. Demonstrating forward-thinking differentiates the company in the market and attracts environmentally conscious consumers. 

3. Global Goals and Consumer Values

Sustainable finance allows individuals and institutions to support global goals such as the United Nations’ Sustainable Development Goals (SDGs). These goals aim to address the world’s most pressing issues. By directing capital toward businesses and projects that contribute to these issues, sustainable finance has the ability to solve our world’s problems.

Consumers have also shown a new consciousness at which companies they do business with. Many consumers are now drawn to companies that align with their social values, even paying more for products from companies that demonstrate social and environmental responsibility. This mental shift in consumers creates a new system where businesses are incentivized to adopt sustainable practices thereby attracting both consumers and investments from people who prioritize ethical considerations in their investment decisions