An analytical framework for the integration of Financial Inclusion and Sustainable Finance

The purpose of the project was to explore how financial inclusion and sustainable finance can be mutually leveraged to contribute to inclusive economic growth and the achievement of the SDGs. The assumption is that being able to identify opportunities for sustainable investing, which both delivers profits for financiers and tangibly enhances consumer livelihoods, is key to tackling the economic, social and environmental issues of our time. To that end, an analytical framework linking sustainable finance and financial inclusion within the context of strong social and environmental taxonomies has been developed. The framework identifies the way in which PEOPLE and PLANET outcomes are currently served by financial inclusion and sustainable finance, respectively, but also identifies gaps for further exploration in the currently unexploited synergies between the two approaches; the ‘shadow-space’ between financial inclusion and sustainable finance suggests potential products and financing mechanisms that could deepen inclusion and widen sustainability in support of better financing.

The new analytical framework also investigates the current focus on ESG, with specific reference to measuring impact. The framework puts forward a broader set of measurement indicators for business to track and rate its impact on society – through its economic and financing activities – in the areas of ESG by strengthening the financial inclusion emphasis. The reworked framework includes enhanced focus on social objectives as encapsulated in the SDGs, acknowledging financial inclusion as a mechanism for sustainable finance and thus, by extension, supporting the private sector to more fully embrace its role in contributing to the SDGs.

The outcome of this project can be understood as an evolution in the emerging relationship between financial inclusion and sustainable finance within the context of ESG principles as they relate to the SDGs. Importantly, the relationships between social and environmental outcomes in the context of sustainable finance and financial inclusion have been explored and mapped out. This then provides useful guidance to role players positioned to bring about meaningful shifts in implementing sustainable finance or financial inclusion in LDCs – linked to the SDGs.

As things stand, environmental themes and outcomes are the primary consideration in relation to capital flows through ESG-linked funds and infrastructure capital projects within the sustainable finance realm, whereas social outcomes are secondary. The inverse relationship is evident in how financial inclusion, with its focus on a suite of retail products for consumers, puts emphasis on social outcomes, with environmental outcomes being indirectly impacted, or secondary in focus.