Mounting regulatory and financing pressures are placing sustainability at the forefront of the investment world.
This problem was put into stark focus by a report released this month that uncovered the extent to which banks undermine their own net zero promises by underwriting loans to carbon producing activities. Investigators found that 58 US banks were “sabotaging” their own climate commitments by financing meat, dairy and feed corporations, in the form of loans and underwriting, such as share and bond issuance guarantees.
These findings are likely to put sustainable financing back on the agenda. A survey from Capita found that that over half (56%) of all consumers said it was important to them that their bank or building society acted sustainably and/or ethically.
While consumers have had the option to choose banks that better align with their environmental ideals, the information about the true activities of banks hasn’t always been transparent, as highlighted by the recent report into banks that are undermining their own net carbon promises.
Despite this demand, most people in the US with a bank account are unwittingly supporting fossil fuel investments due to the hold the major banks have on the consumer market. Banks play a role in giving the fossil fuel industry the cash they need while hide from the mainstream the magnitude of their role.
However, new regulations from the SEC launched in 2024 combined with cutting-edge tech is set to bring about a new era of transparency and fuel the rise of green financing.
Why sustainable financing is on the agenda
Sustainable finance is an overarching term referring to the investment process accounting for and promoting environmental and social factors. Global borrowing by issuing green bonds and loans, and equity funding through initial public offerings targeting green projects ballooned to $540.6 billion in 2021.
This is expected to be boosted further by long-awaited rules from the SEC that now require companies to disclose their climate risks to investors, strengthening an emerging global regulatory regime that is making greenhouse gas emissions a material consideration for companies and investors.
The new rules will “provide investors with consistent, comparable, and decision-useful information, and issuers with clear reporting requirements,” SEC Chair Gary Gensler explained.
Sustainability reporting metrics often come under fire for being vague, but the new guidelines from the SEC will ensure that investors will have specificity on company disclosures to ensure the data is meaningful and helpful.
The regulations will also mean climate risk disclosures in annual reports or statements must be submitted in the company’s SEC filings, not just hosted on a website or in a newsletter. This accountability should help to ensure the information is more reliable.
However, the onus is on companies to adapt, rapidly. If they misclassify or mistakenly greenwash information in attempt to adhere to new SEC guidelines they risk falling foul of regulatory and reputational damage.
This is why tech innovations are needed to support the transition to green.
How tech is aiding transparency in investments and financing
Companies, banks and investors are set to rely more heavily on innovative technology and software advancements that help to guarantee supply chain activities from end-to-end and manage the sustainability credentials across large portfolios.
Credibl is an emerging player in this regard with a platform that helps private companies, organizations and investors manage this task with powerful results.
Investors require a comprehensive understanding of various factors in order to effectively monitor ESG performance across portfolios. With investment portfolios and siloed data, it becomes difficult to track and report the ESG footprint of each company to comply with current regulations and frameworks from the SEC and other global governing bodies.
With Credibl, investors can gain detailed insight into the ESG performance of each portfolio company, whether they are public or private. The platform offers a one-stop solution to measure, manage, and report portfolio and fund-level ESG data, empower sustainable business decisions, align investment portfolio to net zero goals and track the performance of portfolio companies.
Advanced reporting software solutions like this and more stringent investment regulations combined are set to help the world of green financing become transparent and better aid progress towards net zero carbon goals.