The global environmental, social and economic challenges faced by societies currently will accelerate over time as the world’s population is set to grow to 9 billion by 2050. Water scarcity and pollution, competing use of natural resources such as land, climate change and variability, demographic changes and globalizing supply chains are all underpinned by social challenges such as increasing poverty and social marginalization. A better understanding of the impacts and dependencies on our natural and human capital is needed along with how it relates to globalization trends.
Where does the private sector and specially, the financial sector, fit into this picture? Financial institutions are increasingly called upon to play a role in addressing these sustainability challenges. The idea of having private sector participation is not new; there have been countless initiatives by governments and multilateral organizations promoting this idea, such as Goal 8 of the Millennium Development Goals which calls for a global partnership for development.
What has changed is the shift from viewing financial institutions as financiers to legitimate partners for development as witnessed through the forthcoming Responsible Agricultural Investment principles (FAO) and Sustainable Agricultural Principles (UN Global Compact). The financial sector is at the table with companies, governments and civil society to set forth guiding principles for sustainable agricultural practices.
There are other important trends in financing sustainability: financial institutions are no longer only providers of capital but facilitators for new ideas and trends in the market. The Dutch food and agricultural bank, Rabobank’s formal partnership with WWF, has enabled the development of sustainable salmon aquaculture industry in Chile through better farming practices and certification at a time when the industry was on the verge of collapse due to unsustainable aquaculture practices. The circular economy is a key pillar of the bank’s sustainability strategy.
They are not alone, numerous banks and investment firms now finance sustainable solutions such as renewable energy. According to 2012 report by UNEP on global trends in renewable energy investment, the appetite for these types of investments has grown with over $244 billion in new investment in renewable energy solutions such as carbon capture and storage, energy access to wind, solar and geothermal energy among others. This signals a movement from financing fringe technologies with little uptake to mainstream solutions that are an important part of the global energy mix.
The views expressed in this article are the author’s own and do not (necessarily) reflect REVOLVE's editorial stance.