Sustainable Finance Insights

Sustainable Finance has still a long way to go before it makes an enduring discernible impact within the social and development ecosystem. It has started on a promising note and hopefully will not turn out to be a bummer like The Dark Night Rises after the excellent and everlasting Dark Knight. Well, it seems highly improbable with all the support from multiple actors within the global arena. The EU push on ESG implementation among businesses is timely and impactful. China, Japan and India’s emphasis on SDGs is a game-changer, especially China’s overdrive on the climate and the renewable sector is worth emulating.

But we need to take any good news with a pinch of salt. 

First, many ESG companies are involved in ESG washing, and the parameters for inclusion are broad for it to be making any meaningful social impact. Second, ESG is more aligned in bring the best business practices with a clear focus on financial return. Majority of the investors both in ESG and the impact investor ecosystem primarily target monetary gain. This is disturbing news. An article published in Sandford Social Innovation Review discusses the authenticity of market returns for social entrepreneurs. (SSIR: Marginalized Return). Acumen a serious and early impact investor’s portfolio has not made market returns. However, profits should not be confused with social innovation and impact. Many of the firms are making an indelible mark in underserved markets and enabling sustained social change. Further OECD has expressed concerns over objectives of impact investors, especially in emerging markets. (OECD, Social Impact Investment). SIBs include legal and other fees in knitting the model together, making it expensive to implement for non-scalable options.

Social Stock Exchange looks enticing yet for it to become mainstream looks difficult. First, it needs buy-in from multiple actors, including investment banks, for enabling liquidity. Second, the role of the market maker should be implemented by the government before; eventually, other market participants step in. The driven market system will not work in kick starting the social enterprises as they are not supposed to deliver market return at least over the earlier years of their inception.

The US, the largest capital markets in the world, will not implement the model looking at the divergent political views within the social ecosystem. EU looks a good bet but the consensus within the EU economies will take time while China’s outlook remains ambiguous at best on this initiative. India can undoubtedly take the lead, but the model will take time to evolve and results limited to global replication. A global consortium body with multiple actors esp. multilateral institutions with key sovereign backing from various governments will be a killer enabler in fostering a global stock exchange.

Critical policy implementation is to get up a framework of quantitative and qualitative bench marking sustainable development performance within states or zones exemplified by the foremost government-backed think tank in India, Niti Aayog. The policy is a positive nudge in implementing best sustainable policies both locally and internationally. The procedure is universal, globally replicable and can be customized according to local geographies.

Last three decades has seen a series of measured and concrete steps in reforcing sustainable practices towards a peaceful and fulfilling world. The global ecosystem is by far more complex and multidimensional and needs divine intervention for its successful implementation. But you never know, nature works in mysterious ways.

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