Farnoush Farsiar: What is Sustainable Finance, and Why is it Important

Sustainable finance is a hot topic these days. Having served in the banking industry for many years, Farnoush Farsiar has a unique perspective on the subject. “I have seen first-hand how our priorities have shifted over time,” she says. “When I started my career, the focus was purely on making money. But now, more and more people are interested in sustainable finance.”

More and more people want to invest in environmentally friendly companies and products that have a positive social impact.

What is most baffling about this recent phenomenon is that the interest in sustainability has reached every aspect of society, including the financial world. After all, people have been talking about environmentalism and social responsibility for decades.

In creating this piece, our researchers interviewed Farnoush Farsiar on her views on sustainable finance. She believes that the banking and financial services industry has an important role in sustainable finance.

Farnoush Farsiar defines what is Sustainable Finance

According to Farnoush Farsiar, “Sustainable finance is a way of thinking about the long-term impact of our actions. It’s not just about making money. It’s about making money in a way that is good for society and the environment.”

The environment, social issues, and governance (ESGs) are all closely tied to sustainable finance. These three factors greatly impact how we invest our money as investors.

However, they can be difficult concepts many people don’t understand or care about when investing in financial products. ESG considerations should always come first.

You never know what will happen with any project. That’s unless there is full consultation with communities around it who may feel strongly affected by its construction.

Not just environmentally but also in terms of social cohesion. 

In other words, sustainable finance is about balancing environmental and social responsibility with financial gain. It’s an approach to investing that takes into account, not just the potential financial returns. But also, the positive or negative impact of the investment on people and the planet.

Why is Sustainable Finance Important?

“Sustainable finance is the new normal. In 2021 alone, a record-breaking $859 billion was invested in sustainable companies globally. It’s about time we got on board and started thinking of our future generations. So they can continue living in a world free from want instead of one fueled by pollution!” Farnoush Farsiar says.

She adds, “Sustainable finance is important because it allows us to invest in environmentally friendly companies. Also, in projects with a positive social impact. This type of investing is not only good for the planet, but it can also lead to better financial returns.”

A near-recent study by Fidelity found that half of the companies with strong ESG ratings outperformed the market. Just 11 percent recorded negative performance.

This outperformance is even more pronounced in periods of market stress, such as the COVID-19 pandemic. In 2020 when the COVID-19 pandemic was at its peak, over 80 percent of sustainable investment funds outperformed non-ESG share portfolios.

And sustainable Finance has many benefits for everyone involved. For example, companies see their profits rise.

Investors feel secure knowing that there will always be demand. This is because people have access to education which enables them to buy what they need affordably.

And consumers see that products do not contain hazardous chemicals or heavy metals. At the same time, they’re able to enjoy luxury items without worrying about where those precious resources came from.

Sustainable Finance Provides Better Returns, says Farnoush Farsiar

“There is a growing body of evidence that suggests sustainable finance can lead to better financial returns for investors.” Farnoush Farsiar explains.

She believes that this is because sustainable companies tend to be better managed, have lower risks, and are more innovative. Here are five ways, according to Farnoush Farsiar, that sustainable finance can lead to better financial returns:

1. Cost Cutting and Efficiency

If you want to find areas where companies can improve their bottom line, start by looking at their sustainability practices. Companies that are sustainable often have lower costs because they are more efficient.

For example, a sustainable company might use recycled materials in its products or use renewable energy to power its factories. These practices can lead to significant cost savings. This can boost the company’s bottom line and make it more attractive to investors.

2. Risk Mitigation

Another reason sustainable finance can lead to better financial returns is that it can help mitigate risks. Companies that are sustainable often have lower risks because they are better managed.

For example, a sustainable company might have a better handle on its supply chain. Or they might be less likely to be involved in environmental scandals. These lower risks can lead to higher investor confidence and more stable returns.

3. New Competitive and Revenue Opportunities

Sustainable companies often have an edge over their competitors because they are more innovative. They are always looking for new ways to reduce their environmental impact and improve their social responsibility. This innovation can lead to new revenue streams and a competitive advantage that can attract investors.

4. Improved Employee Development and Retention

Sustainable companies often have better employee development and retention because they are focused on creating a positive work environment. Employees who feel good about their company’s sustainability practices are more likely to be loyal and productive. This can lead to lower turnover costs and improved financial performance.

5. Innovation

Sustainable companies are often at the forefront of innovation. As mentioned before, this is because they are always looking for new ways to improve their environmental and social impact. This innovation can lead to new products, services, and processes that can attract investors and drive financial returns.

There is no denying that sustainable finance can lead to better financial returns. Companies that are sustainable have often lower risks, are more innovative, and have better employee retention.

These factors can all contribute to improved financial performance and attract investors. If you are looking for a way to improve your investment portfolio, consider investing in companies focused on sustainability.