Sustainable finance and business processes are essential in building a more resilient economy, reducing the environmental impact, and supporting sustainable development goals. However, sustainable finance goals are challenging to achieve without consumer engagement. What it takes to draw consumers and investors into the subject, and how regulators, businesses, governments, financial institutions, and consumers themselves can contribute to sustainable finance?


Sustainable finance in the Baltics


While in some countries such as Sweden or Finland, green finance is often a priority when financing your business, Baltic consumers aren't as active in choosing green investments and sustainable finance. Remy Salters, head of Finance Division at Swedbank Lietuvoje, believes that Baltic consumers are price-motivated, making it more challenging to implement new green practices.


"The Baltic consumer is very price-driven, as a result, one of the tasks of sustainable finance is to create incentives to move to more sustainable consumption and production patterns. One of the ways of doing that is to introduce new products. We've introduced new lending products for solar panel installations, green leasing. We're in the process of bringing over our Nordic colleagues' sustainability-linked loans." said Remy when asked about the consumer motivation in the Baltics.


Although incentives motivate some of the market participants, it takes time to educate the consumer to prioritize sustainable solutions over affordable ones. Marius Jurgilas, the board member of the Bank of Lithuania, thinks that consumers would be more involved if they had a chance to understand investments in sustainable finance and the long-term return better.


"Only 3% of the population, at least in Lithuania, understand what the sustainable development goals are. So, there's quite a lot of financial education and awareness missing." Marius continued by explaining why regulators also play an important role in the process, "Sometimes, markets don't work for critical reasons that there are no markets. I can't trade to people something that's going to be 200 years from now. So, that's the reason why we need regulation."


The regulators' role in sustainable finance development


Regulators such as the European Commission play a significant part in establishing sustainable finance practices in Europe and the Baltic region. Not only are regulators needed to monitor business and governmental activities, but they also take the lead in educating and motivating consumers.


According to Marius Jurgilas, it all comes to three angles to ensure consumer involvement and regulatory practices, "The first one is to assess how the financial market facilitates the risk-taking activity from the sustainability perspective. The second one is disclosure. There's a driving force of the European Commission and regulations to ensure that everything is measurable. The idea here is that if I can understand the impact of my financial actions, I'll be more responsible when I'm doing those. The third one is making incentives. Those incentives should be very pragmatic like we're pushing the financial market participants to fund small and medium-sized businesses, we've introduced the so-called ESM factor. And maybe it's time to introduce the sustainability factor."


Without analyzing real examples of successful sustainable finance projects, it’s challenging to understand the need for it and the impact similar activities make.


Sustainable finance in practice


There's still room for improvement in the Baltic region, but we don't have to look far to see positive results of consumer involvement in sustainable finance. Tom Duncan shared his experience in running EarthBanc, a green digital banking platform, and sustainable finance progress globally.


"The case in India, there's a green bond we issued in 2019, which contributed to growing lots of mango trees, wild honey production. This will help to bring financial yield back to investors in the green bond, but importantly, reforest mangoes which protect those communities' homes from dangerous storm surges." shared Tom.


He's also excited that their and similar initiatives are gaining more attention from large corporations and traditional banks, "Multilateral banks are talking with us, we have a contract with a multilateral bank to help them come to grips with this problem. This is also how the carbon offset mechanism works, whether it's going carbon neutral or the EU target, or it's nationally defined contribution of the private markets."


With more businesses, governmental organizations, banks, and financial institutions focusing on the environment, we can expect the sustainable finance sector to grow. But for it to work, every one of us needs to take responsibility for building a better world.


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4 Dec 2020

Sustainable Finance in the Baltics: The Role of Consumers and Regulators

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