‘Finance will be sustainable or there will be no finance.’ That's what Frank Elderson said when he made the transition from De Nederlandsche Bank to the European Central Bank in 2020. ‘All major environmental and societal challenges we are facing are addressed, one way or another, in the financial sector.’ Therefore, Sustainability is an extremely important topic for the financial world and anyone aspiring a career in the financial sector,’ adds Maarten Biermans. He is the initiator and a lecturer in the new elective Sustainable Finance and Impact Investing.

The rise of sustainable finance and impact investing

‘In the past, sustainability was mainly about Corporate Social Responsibility, focusing on the organisation's impact on people and the environment. But now it's much more about the impact of Environmental, Social, and Governance (ESG) issues on the organisation,’ explains Biermans. ‘Issues such as CO2 emissions and water consumption pose risks to the organisation's financial performance. For example, the government can impose stricter requirements on CO2 emissions and resource usage. Sustainable factors thus influence the earning capacity and risk profile of the organisation.’

At the same time, the rise of impact investing means that financiers and investors are paying increasingly more attention to non-financial returns. ‘Trillions of euros are being allocated in global funding flows to investments where non-financial components play a central role. All organisations will inevitably and rapidly encounter sustainable finance. As a finance professional, you need to know what's coming your way.’

Trends in sustainable finance and impact investing

One current trend that Biermans discusses in his lectures at ABS is the growing influence of recommendations of the Task Force on Climate Related Financial Disclosures (TCFD). The task force distinguishes 2 types of climate risks. Biermans says, ‘On the one hand, there are risks arising from climate change, such as droughts and floods. On the other hand, there are transition risks related to the shift towards a sustainable society, such as developments in laws and regulations.’

It is important for finance professionals to understand the methodology of the TCFD, emphasises Biermans. ‘All national regulators use it. Banks have also embraced the risk model. This means that the perspective on climate risks directly affects access to capital and pricing. For instance, banks will charge a risk premium to companies with environmentally damaging business processes.’

The challenges of sustainability in finance

Sustainability is often an elusive concept. A major challenge for finance is to fully understand the issue and proactively incorporate ESG factors into the strategy, says Biermans. ‘All choices in finance - from raising equity or debt to financing mergers and acquisitions - are always related to sustainability. You need to explicitly link sustainability and finance and actively promote it.’

Success factors for sustainable finance and impact investing

In the course Sustainable Finance and Impact Investing, Biermans bridges theory and practice. ‘We have only seen a real rise in sustainable finance in the last 10 to 15 years. As a result, the academic literature on it is relatively limited. The lectures focus heavily on practical cases, and we discuss the theoretical foundations and insights based on those cases.’

The question whether you can make money with sustainability is outdated, says Biermans. ‘Now it's about achieving a positive impact, based on a finance strategy with consistent attention to non-financial returns. The conversation about the potentially far-reaching consequences of ESG themes - and the growing European laws and regulations related to them - is essential for preparing organisations for the future.’