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Module 6: Finance

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Finance
Lesson Summary

Investments and Corporate Performance

Sustainability valuation shows how sustainability adds value to the business. There is a lack of standardized approaches for sustainability valuation.

Capital budgeting decisions allow companies to use financial metrics to compare and prioritize investments in sustainability projects.

Socially responsible investing is the evaluation of investment options in light of its social, economical, and environmental impacts on the world.

Green investment is the investment in organizations that are committed to environmentally conscious business practices.

Investments and Corporate Performance

A balanced scorecard is a performance measurement system that incorporates both financial and nonfinancial measures in evaluating overall firm performance.

Sustainable Financing and Insurance

Carbon finance is applying a financial management system, models, and tools to manage a company’s carbon dioxide and other greenhouse gas emissions.

A cap-and-trade system is an attempt to set a limit on the amount of allowable carbon emissions from an industry/geographic region/country while allowing the selling of the unused portion of their limits to others.

Carbon trading is a market based mechanism to allocate carbon emissions allowances within the emissions trading system.

A carbon tax is a tax that is enacted upon the amount of carbon emissions.

Sustainable Financing and Insurance

The Equator Principles relate to the management of social and environmental issues in project financing.

The Wolfsberg Principles provide guidelines dealing with anti-money laundering, anti-terrorism funding, and the identification and examination of unusual or suspicious activities. They also cover policies that pertain to knowing your customers.

Green financing enables investors to finance green projects less expensively by offering a lower interest rate or tax incentives, and rebates for environmentally friendly investments and investment in green funds or bonds.

Sustainable Financing and Insurance

Social financing enhances local communities and social development by enabling the channeling of investment capital to deliver positive social, economic, and environmental returns for the long run and for a global community.

Microfinancing is access to capital for women, minorities, and low-income borrowers who are not able to access loans from traditional resources. it also involves making small loans to low-income businesses to stimulate economic growth in less developed countries.

Community Development Financial Institutions provide financing to small businesses and housing and community facilities projects that revitalize economically distressed communities.

Sustainable Financing and Insurance

Community development banks are for-profit banks committed to socially, economically, and environmentally sustainable community development.

Community development credit unions (CDCU) are nonprofit, cooperatively owned, government regulated, tax-exempt and insured financial institutions specializing in social financing.

Community development loan funds provide loan funds for businesses, nonprofits, and underserved areas for the purpose of economic development.

Community development venture capital (CDVC) funds provide equity capital to entrepreneurial companies that will ultimately benefits low-income people and distressed communities.

Sustainable Financing and Insurance

The insurance industry is interested in sustainability due to the impact that climate change has had on the industry’s profitability. Climate change is the number one risk to the insurance industry.

Proactive insurers are making progress in developing sustainable investment strategies and in creating climate-friendly products to address the risk of climate change. Many of these products deal with green building, hurricane-resistant design, promotion of alternate fuels, and sustainable driving practices to reduce carbon emissions.

Insurance companies may utilize tightened conditions to foster sustainable decisions by customers.