Hisham Farouk 'Financial services at heart of climate change impact'

15 February 2024 Consultancy-me.com 5 min. read

The UAE chief executive of global professional services firm Grant Thornton, Hisham Farouk, outlines why the financial services sector plays a pivotal role in climate change conversations and impact.

Conceptually, sustainable development has existed for decades. The application of sustainable strategies has gained impetus over the years. This happened as the world recognizes and reflects on the effects of climate change and environmental damage. Events like COP28 have rendered valuable insights into worldwide sustainability initiatives while underlining the need for collective action.

Such forums catalyze efforts toward de-carbonization, investment in green finance, and a focus on renewables.

Hisham Farouk: 'Financial services at heart of climate change impact'

Hisham Farouk is CEO at Grant Thornton in the UAE

In achieving collective action, we must not ignore finance flows. They shape an economy and enable the transition toward sustainable progress. A summary for policymakers in the Global Environmental Outlook for Business by the United Nations Environment Program affirms that environmental issues that are discussed in relation to economic and social issues are better managed.

Indeed, the need of the hour is a commitment to refurbishing the economic and financial systems across the world to respond to today’s challenges.

Financial systems play a pivotal role in addressing the conversation on climate change. They are also essential in deploying resources toward effective strategies to help transition to a sustainable economy. With technical expertise and a better understanding of capacity building, the finance industry is the most suitable to engage with stakeholders from other industries.

The industry can catalyze collective action. According to the United Nations Environment Program’s latest State of Finance for Nature report, approximately $7 trillion is invested globally every year in activities that have a direct negative impact on nature from both public and private sector sources – equivalent to roughly 7 percent of global gross domestic product.

Transformation

The vital role of financial systems is highlighted in the transformation of various sectors to align with sustainable goals and standards. These include food, energy, manufacturing, transportation, infrastructure and development, and waste systems. For instance, in response to the call for climate action at COP28, Grant Thornton and many other partners committed to using the International Sustainability Standards Board’s Climate Standard as the global climate baseline.

Such support demonstrates the need to advance action-oriented responses to the risk of climate change by enabling climate-related disclosures at a global level. A well-developed framework is necessary to manage the transition efficiently and effectively.

The stability of financial systems, climate and the economy are therefore interrelated. Policymakers are now subsidizing and incentivizing efforts that will transition to sustainable business models and circular economies. Access to finance will soon depend on sustainability goals. And in the near future, companies will need to restructure their financial portfolios to accommodate sustainable projects. Evidently, sustainability is now a crucial factor in third-party financing in debt and equity.

With the increasing dominance of technology in all spheres of the economy, financial systems are not immune. Technology comes as a boon in analyzing deeply and fully assessing the allocation of sustainable assets from an environmental and social perspective. New technologies like artificial intelligence and the use of cryptocurrencies lend a layer of security and efficiency in achieving sustainable goals.

With advanced technology, financial systems can better analyze risk. They can also set mitigating strategies while introducing sustainable processes to complement a business. Consequently, this will lead to an economic reorientation that includes environmentally sound and digital transition. It will give rise to resilient systems that align with the goals of the Paris Agreement and Sustainable Development Goals set by the U.N.

Role of financial services consultants

As advisers, financial services consultants have a large role to play in shifting mindsets to embrace sustainability. By facilitating the move to integrate sustainability, advisers can steer the conversation across industries through implementing frameworks and strategies. They can also do so by sharing their vast expertise and capabilities in the process.

Advisers can encourage balanced, sustained growth with focused knowledge building. They open new possibilities and avenues for sustainable investment. Additionally, they convey the risk of not acting on sustainable practices and suggest areas of redistribution of assets. Using technology, advisers are better equipped to understand disclosures and incorporate climate-related considerations and practices into governance and risk management.

Focused, active engagement with clients, investors, regulators and policymakers will bring holistic perspectives to their approach. They can then affect a major transformation of finance and risk reporting processes to prepare clients to work proactively to align with global sustainable finance requirements.

To conclude, it is imperative to recognize that the integration of sustainable strategies is key to operating a business successfully. Simultaneously, a financial system that neglects sustainable practices is destined to fail in the long term. This responsibility lies with advisers who can guide leaders to build sustainable, equitable financial systems that generate economic, social and governance gains.

Ultimately, it must align with global initiatives. It is a collective, transparent approach that inspires confidence for all stakeholders involved in the industry.