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The impact of financial institutions on social aspects of sustainability

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In the last two decades we have lived through turbulent times, with a succession of crises that have had a major impact on the environment (the acceleration of global warming and climate change), on the economy and society (the 2008 crisis), and on the health of the world population (the COVID-19 pandemic). This backdrop of successive crises has had an impact on the entire world, but more acutely among the most vulnerable population.

This situation that has not only had its obvious negative effects, as we have also seen a response from society, companies, and the financial sector in search of solutions. Changes in habits, attitudes, management models, and consumption patterns, with trends that are more responsible and sustainable. Companies in general, and financial institutions in particular, have responded with changes that have impacted the social aspects of sustainability.

What is sustainable finance?

Sustainable finance means that environmental, social, and governance factors are taken into account in the investment decision-making process. All these criteria are known as ESG criteria, which we learned about in the previous article.

Following the Paris Agreement on climate change and the United Nations 2030 Agenda for Sustainable Development in 2015, various regulatory initiatives have been taken with the aim of integrating environmental, social, and governance considerations into investment decision-making, with the goal of achieving a transition to a low-carbon, more resource-efficient, fairer, and sustainable economy. In this sense, the financial sector also plays a key role in the financing of projects that meet the social criteria of these agreements.

The role of financial companies as key actors in sustainability

The financial sector is a key player in the journey towards sustainability. It fulfills this role either indirectly by supporting the structuring of projects, or directly through the sustainable products it offers. It finances renewable energies, energy efficiency and, more specifically, it supports social projects such as SMEs run by women, the fight against extreme poverty, support for employability, microcredits for social projects, solidarity and volunteering, and so on.

Financial institutions are becoming increasingly aware of the important role they play as intermediaries in channeling resources towards fairer, more inclusive and sustainable development and growth. In addition, reputational risks are growing because public opinion tends to take a negative view of projects with high environmental or community risks.

The United Nations Environment Programme Finance Initiative (UNEP FI) presented a benchmark sustainable finance development action framework as early as 2012. It has been evolving ever since, and it aims to align private finance with the UN Sustainable Development Goals, both environmental and social. This initiative urges its signatories to follow a series of principles, especially the following:

  • The 2006 Principles for Responsible Investment.
  • The 2012 Principles for Sustainable Insurance
  • The 2019 Principles for Responsible Banking.

Around 80% of the investment industry has committed to the Principles for Responsible Investment, while 260 banks, representing $70 trillion in assets, have signed up to the Principles for Responsible Banking.

In the insurance industry, 138 companies have signed agreements, MAPFRE among them with the participation of Fundación MAPFRE as well, to support projects with a high positive social impact.

Sustainable financial products with a social impact

SRI is socially responsible investment, which uses ESG criteria to create sustainable value in the medium and long term for the customer and, in addition, to have a positive impact on society and the environment. In this context, there are Investment Funds that follow these principles.

Among the financial companies that follow these principles, the concept of ethical banking has emerged. It adds criteria and guidelines of transparency, sustainability, and social justice to the traditional financial criteria of banking, such as profitability and growth. These institutions are key in the financing of social projects through different financial tools.

One of these tools with a major social impact is microfinance, and one of its best-known products, microcredits. Microfinance consists of all the tools and products (insurance, investment, savings, credit, etc.) aimed at making finance accessible to vulnerable and low-income population groups. These population groups cannot access standard products due to lack of collateral, property, or others, so microfinance makes it possible to get projects off the ground or provide social coverage to segments of the population that otherwise would not have access to it.

MAPFRE’s role in the social dimension of sustainable finance

In 2017 MAPFRE signed on to the United Nations’ Principles for Responsible Investment (PRI). This was a reaffirmation of the commitments the company had made to sustainable development in 2004 when it joined the United Nations Global Compact, and in 2012 when it committed to the Principles for Sustainable Insurance (PSI). These commitments and principles are included in the framework for socially responsible investment.

With respect to social responsibility, MAPFRE designs and makes available to everyone insurance products or services aimed at specifically covering the basic needs of the population, products or services related to the protection of life, health, and education in disadvantaged communities and/or low-income groups (minimum wages or less), as well as aspects related to the protection of human rights, non-discrimination, inclusion, and diversity.

MAPFRE AM is tasked with applying the socially responsible investment principles, and it has two specific funds:

  • Inclusión Responsable

We invest in companies committed to the inclusion of people with disabilities, and we combine the pursuit of financial profitability with promoting an improvement in society. This fund was listed in the 2019 United Nations Global Compact report as an example of best practice.

  • Responsible capital

The objective of this fund is to favor companies and entities that have a strategy focused on the monitoring of ESG criteria.

At MAPFRE we want to play our part with these actions, products, and commitments, to contribute to the social aspects where financial companies and insurance companies can have an impact and create a more sustainable and just future.