SUSTAINABLE FINANCE

Sustainablefinance is often mistakenly presented as a separate segment of the broader continuum of economic financing, whereas the term actually refers to an awareness of the social, ecological, and climate dimensions of our century.
Sustainable finance is the finance of yesterday and today, but with a value framework that is more complex than mere financial return, aligned instead with governance, societal, and environmental issues. Sustainable finance is therefore the finance of today and tomorrow, open to the real economy and its forthcoming transformations, and conscious of the collective value destruction it has enabled in the past (e.g. pollution, GHG emissions, disappearance of animal and plant species, intolerance, conflicts…). Sustainable finance is by nature a broad field for innovation, allowing capital flows to play their role as catalysts of progress. Sustainable finance is not a separate philosophy; it is the expression of a mindset shift driven by scientific evidence of the limits of growth and of our shared planet.

Thedramatic consequences of rising inequalities, compounded by the effects of climate change and biodiversity loss, are rooted in the failures of economic governance systems inherited from the 19th century: on the one hand, a lack of collegiality, transparency, and oversight regarding the ethical foundations of economic activities; and on the other, the concentration of value creation through the sole prism of financial capital, to the detriment of our relationship with the environment, knowledge, and know-how. In the face of emerging multifaceted crises, sustainable finance reflects the willingness of decision-makers, regulators, and investors to place Environmental, Social, and Governance (ESG) risks and issues back at the center of economic decision-making.

In order to position themselves as catalysts of change, sustainable finance actors are transforming two fundamental dimensions of their decision-making framework:

• On the one hand, risk management, which must now integrate longer time horizons and new exogenous factors (e.g., physical risks, transition risks, and ultimately legal liability risks);
• And on the other hand, impact management, which requires a voluntary approach aimed at improving the social and environmental benefits generated by financed activities.

Taking into account the risks and challenges of the ESG sphere adds an additional layer of complexity, which explains the growing contribution of scientific research and sociological analysis in complementing traditional assessment models. To guide these shifts, numerous international initiatives exist for each segment of the financial continuum: banks, insurance companies, microfinance institutions, fintechs, investors, asset managers, and of course entrepreneurs.

Likewise, public authorities and regulators are becoming actively involved, steering economic actors toward national priorities through taxonomies, policies and regulations governing fund allocation and ESG reporting, as well as financial or fiscal incentives. These may also support civil society organizations and ecosystems working to advance economic inclusion, through capacity-building programs or controlled experimentation spaces (sandboxes). Today, policymakers and economic leaders wishing to take concrete action in response to sustainability challenges have access to a wide range of tools:

• International frameworks with which to align their commitments (e.g., the United Nations Sustainable Development Goals, the African Union’s Agenda 2063 Action Plan, Nationally Determined Contributions under the Paris Agreement, and territorial policies and strategies);
• Consensus-based standards for building their ESG risk and impact management systems (e.g., European ESRS standards on double materiality, the ISSB’s climate and biodiversity-related risk management framework, sectoral methodologies from the Global Reporting Initiative or the GHG Protocol);
• Taxonomies to guide investments and reporting on activities contributing to sustainability objectives;
• Binding or incentive-based policies and regulations to accelerate transformations and mainstream sustainability into decision-making frameworks (e.g., the European CSRD directive, the SFDR regulation, due diligence obligations, and consumer protection measures against social-washing and greenwashing);
• Financing and investment products dedicated to low-carbon assets or to the economic inclusion of sectors and regions (e.g., green bonds, social bonds), to the transition of economic actors (e.g., sustainability-linked loans), or to adaptation to the growing impacts of climate change;
• Sectoral platforms to share best practices, build knowledge and initiate partnerships (e.g., the Net-Zero Alliances, the Impact Europe investor network, the Social Value International initiative);
• And… partners to support them and mobilize the positive energies of their ecosystems (e.g., the Smala & co teams and our peer organizations).

These transformations require a wide range of expertise, extending beyond the financial sphere. Such diversity of stakeholders demands a strong willingness from sustainable finance actors to operate within a collaborative framework supported by collective intelligence approaches. Increasing uncertainty and the severity of social and environmental challenges call for pragmatic innovation, combined with shared learning and pooled resources, enabling each actor to provide timely and context-appropriate responses.

Finally, sustainable finance requires complementarity and solidarity grounded in a collective vision of priorities, expressed through the development of shared strategic frameworks,from the 17 United Nations Sustainable Development Goals, to the Paris and Kunming-Montreal agreements, and down to national strategies tailored to the specificities of territories and populations.

Since its establishment, Smala & Co has positioned itself as a promoter of ESG dimensions within the financial sector. By providing targeted expertise or mobilizing complementary teams, we intervene across the entire sustainable finance continuum:

• In Morocco, we have conducted field studies on how local populations perceive sustainable development issues.
• In France and the Overseas Territories, our teams have supported civil society organizations and local authorities in the analysis and design of complementary local currencies and alternative payment systems to strengthen local circular economies.
• Alongside multistakeholder groups bringing together public and private sector actors, we have led the design and facilitation of workshops for the operationalization of national strategies.
• In collaboration with the Alliance for Financial Inclusion network, we have conducted global research on the role of central banks in sustainable development.
• On behalf of the banking regulator in Rwanda, we contributed to assessing the capacity-building needs of financial institutions to integrate sustainability-related risks and considerations into their operations.
• In partnership with our local partners in Kenya and Somalia, we contributed to the design and launch of an innovation program within a humanitarian consortium, integrating a high-impact investment mechanism to co-create new solutions with target communities.
• In partnership with the Impact Europe investors’ network and a group of organizations across the MENA region, we design and implement awareness-raising and market-building activities for impact investing across the Mediterranean area under the “Impact Together!” program funded by the European Union.
• Within the risk management teams of the central bank of the Democratic Republic of Congo, our experts supported the modernization of the organizational structure and risk management framework, strengthening core principles of good governance and incorporating social and environmental considerations into operational activities.
• In Kinshasa, we conducted the assessment of the risk management framework of a financial inclusion institution, providing an independent opinion on its financial and non-financial performance.
• In Kenya, our team documented and analyzed the lessons learned and impacts of a blended finance mechanism combining technical assistance, a connected water-distribution solution, and an innovative private investment instrument aimed at strengthening the capacity of potable water network operators.
• In Togo, we organized a participatory seminar for the AU–EU Digital for Development Hub project as part of the African Microfinance Week, focusing on the importance of climate action and the role of technological innovation in addressing climate challenges, convening a group of African and European experts alongside an audience of more than 70 senior professionals and decision-makers from the financial inclusion sector.

Across all these achievements, we have collaborated with a wide range of development cooperation actors, with whom we have built reciprocal trust, meeting both implementation quality requirements and the imperatives of capitalization and reporting. On the ground, Smala & Co develops a cross-cutting vision across the entire financing continuum: ministries, central banks, commercial banks, insurers, asset managers, microfinance institutions, fintechs, civil society, and impact investors. We bring a comprehensive understanding of the ecosystem to facilitate dialogue, collaboration, and the implementation of innovative solutions addressing ESG issues and risks.