Empowering Change: The Role of Financial Education in Reaching Net Zero

The world needs to prevent and to reverse climate change and financial education has a big role to play in making that happen, says Sumit Mehta, Founding Director at London Institute of Banking & Finance (LIBF) India

It’s not news that climate change is making India’s monsoon something to be feared. The essential annual rains have become unpredictable and, in many places now, ferocious. What is less well known is that the financial services industry – driven by education – is starting to respond to climate change.

Sustainable finance brings environmental, social, and governance (ESG) considerations into financial markets. This innovative approach encourages lasting investments in sustainable economic ventures, with the aim of fostering a resilient, green future.

Sustainable finance is now mainstream and growing. It broke through the trillion-dollar mark in 2021, as a tenth of all global debt capital markets. But this hasn’t happened overnight. In the first half of 2023, global sustainable finance issuance totalled $717bn. In 2013, the total for the year was just over $30bn. What got us from 2013 to 2023 was education about sustainable finance – and the value of education and research in the field is increasingly recognised by policy makers.

For example, the Reserve Bank of India’s May 2023 report – ‘Towards a greener, cleaner India’ – points out that: “Climate change induced risks to [the] macro-financial prospects of the country and the range of policy options available to mitigate climate risks require dedicated research”.

The importance of financial education for sustainability

Sustainable finance includes factors that have long been considered “externalities” in financial markets. For example, markets have not traditionally considered questions like soil erosion, or levels of carbon emission in investment decisions. Financial markets are about what’s quantifiable and it’s not always easy to get hard numbers on sustainability – or to include them in effective ways.

Education in new financial practices helps illuminate the complex facets of sustainable finance, fostering deeper understanding and enabling individuals to make informed analyses. It's not just about investing in renewable energy or responsible resource management. It’s about recognizing the transformative potential of aligning portfolios with sustainability goals. That includes instilling values of environmental stewardship, social responsibility, and ethical governance.

If that sounds more like do-gooding than responsible investment, it shouldn’t. Sustainability and profitability are mutually inclusive. Indeed, as the Reserve Bank of India and most other leading central banks have made clear, without sustainable investment, financial services firms risk heavy losses. For example, the total annual global economic value of natural crop pollination is estimated at c. $213bn, or nearly 10% of the total value of food produced in 2005. Overall, an estimated $44 trillion of economic value is at risk from nature loss.

India issued its first sovereign green bond in 2023 and the money is earmarked for reducing carbon emissions by investing in renewable energy and transport electrification. The challenge for the future is to tackle even more complex projects such as ‘nature positive’ investment, which moves beyond the protection of nature, to nature recovery.

Sustainable finance is not just a trend. Indeed, the Reserve Bank of India is due to issue ‘green guidelines’ for regulated financial institutions. All financial services professionals will need to be able to assess green financial products and make sustainable financial decisions.

And sustainable finance matters. Empowering minds with an understanding of sustainable finance, as rightly stated by a member of the LIBF India team, is akin to “nurturing a future where financial decisions become vehicles for positive global transformation.” It's a pledge to future generations that the world they inherit will be one of balance, where finance serves not just as a catalyst for monetary gain, but for sustainable growth for the planet as a whole.