Sustainable Finance

Sustainable finance begins with recognizing and integrating environmental and social risk assessment and management into financial institution's risk management process.

Sustainable finance begins with recognizing the risks – be it financial, social or environmental.  Internationally, examples abound of companies or projects that have been shut down or heavily penalized as a result of adverse environmental impacts.  Financial institutions that invest in such projects face a multitude of risks – to credit and collateral, as well as legal, regulatory and reputational risk.  The threat of such penalties creates a strong incentive to integrate environmental and social risk assessment and management into financial institutions’ risk management processes.

The ESF team is currently identifying ways to increase risk recognition in the Indian context.  This work has two strands: first, ESF is compiling case studies on projects that have incurred heavy losses from temporary or permanent closure due to harmful environmental impacts.  The case studies and a detailed methodology to rate different projects will be published as a handbook to be shared with financial institutions, ratings agencies and regulatory authorities, as part of the evidentiary base and framework ESF is developing to encourage financial institutions to integrate sustainability policies into core business operations.  Second, ESF is identifying and analyzing ways that Indian environmental law could be strengthened and also help remove the obstacles that have prevented India’s existing environmental laws from being consistently enforced.

Keywords: equator principles, environmentally sustainable project finance, environmental rating, social risk analysis, environmental risk analysis, financial sustainability, sustainable finance

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