Answer to Question #114410 in Financial Math for sana

Question

Discuss the impact of the second pillar (environmental) of sustainability on capital investment decisions.

Answer 1

The European Union is strongly supporting the transition to a low-carbon, more resource-efficient and sustainable economy and it has been at the forefront of efforts to build a financial system that supports sustainable growth.

In 2015, landmark international agreements were concluded with the adoption of the UN 2030 agenda and sustainable development goals and the Paris climate agreement. The Paris climate agreement, in particular, includes the commitment to align financial flows with a pathway towards low-carbon and climate-resilient development.

To achieve the EU's 2030 targets agreed in Paris, including a 40% cut in greenhouse gas emissions, we have to fill an investment gap estimated at 180 billion EUR per year.

The EU is already providing impetus to help attract the required investments with the European Fund for Strategic Investments and other initiatives. However, the scale of the investment challenge is beyond the capacity of the public sector alone. The financial sector has a key role to play in reaching those goals. It can

• re-orient investments towards more sustainable technologies and businesses
• finance growth in a sustainable manner over the long-term
• contribute to the creation of a low-carbon, climate resilient and circular economy

On 11 December 2019, the Commission presented the European Green Deal, a growth strategy aiming to make Europe the first first climate neutral continent by 2050.

As part of the Green Deal, on the Commission presented on 14 January 2020 the European Green Deal Investment Plan, which will mobilise at least €1 trillion of sustainable investments over the next decade. It will enable a framework to facilitate public and private investments needed for the transition to a climate-neutral, green, competitive and inclusive economy.

Therefore, investment decisions should not only be aimed at making a profit, namely, taking environmental considerations into account. These include mitigating the effects of climate change and adapting to them, as well as the environment as a whole and related risks (for example, natural disasters) and plus investments in transition to a climate-neutral, green, competitive and inclusive economy