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What Exactly Is Sustainable Finance?

The ins and outs of the trend that's reshaping the financial industry, and why investors are paying attention to the environment

Investors are starting to factor carbon into their investment decisions. Disclosure is key for Canada to climate-proof the nation’s economy, notes Ryan Riordan, Distinguished Professor of Finance at Smith School of Business. Riordan is also director of research at the Institute for Sustainable Finance at Smith. In this video, he breaks down how sustainable finance is altering the investment world.  

0:14 Sustainable finance is aligning environmental and financial risks, regulations and inputs when making investing and lending decisions. 

0:44 Investors are becoming aware of the impact of carbon. In the past, investors really just looked at the risk and return of a firm. However, they have come to the realization that carbon is a significant input to our society. Ignoring the risk and return associated with it can have a negative impact on both the environment and a portfolio.

1:28 Increasingly, investors are concerned with the risks associated with carbon because there is a lot of uncertainly involved with how the planet is going to change [through climate change] and how politicians and people are going to react to that. 

1:57 Some investors are moving away from carbon by divesting their high-carbon holdings and reinvesting in clean technology and lower carbon industries. 

2:42 To climate-proof the Canadian economy, disclosure is key.