A beginner’s guide to sustainable finance (2025)

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On this page, we’ll explore sustainable finance, where investments are guided by ESG (Environmental, Social, and Governance) principles. The financial sector plays a key role in the effort to lessen the effects of climate change. We’ll look at how EU regulations are encouraging banks to offer sustainable financial products and the positive impact this is having on the planet.

Sustainable finance is where investment decisions are made with the bigger picture in mind, by thinking about how environmental, social, and governance (ESG) factors play a role.

So what exactly does ESG mean?

• Environmental (E). This has to do with a company’s impact on the planet. Efforts may be made to reduce carbon footprints, promote renewable energy, or manage natural resources responsibly.
• Social (S). This is the impact an organisation has on people, including staff, customers, and communities. Efforts may be made to improve community engagement or workplace standards.
• Governance (G). This is about how transparently and ethically a company or organisation is run.

One way to define sustainable finance is to think about the goal behind an investment. The idea is to encourage long-term investments in companies, business practices, and projects that benefit the planet, society, and the economy as a whole. Companies attracting investment may operate in a variety of socially responsible sectors, such as recycling, forestry, waste management, water, and wind energy.

To this end, increasing numbers of banks, insurance firms, and financial institutions are offering investment products that prioritise ESG factors. They are putting sustainability at the heart of their offerings, so that it isn’t just an afterthought, but a core part of their business strategy.

The information provided here is for informational and educational purposes only and does not constitute financial advice. Please consult with a licensed financial adviser or professional before making any financial decisions. Your financial situation is unique, and the information provided may not be suitable for your specific circumstances. We are not liable for any financial decisions or actions you take based on this information.

Governments and organisations across the world are taking steps to become carbon-neutral, where the amount of carbon dioxide added to the atmosphere is balanced out by what’s removed. Sustainable finance is playing a key role in driving this transition by:

• Supporting projects that use resources more efficiently, protect ecosystems, and encourage a circular economy (where products are reused and recycled, and waste is kept to a minimum).
• Integrating ESG criteria into the investment process, allowing investors to make more informed choices.
• Holding companies to account for their environmental impact and incentivising them to adopt greener practices, improve environmental performance, and reduce carbon footprints.
• Supporting innovations in sustainability, funding green startups or research firms that are developing solutions to climate change.

The private sector has the power to shift business practices to be more environmentally friendly. By investing in, lending to, and insuring companies that manage their environmental risks, the finance sector, in particular, can take a leading role in sustainability.

Globally, there are ambitious net-zero targets aimed at reducing and offsetting greenhouse gas emissions. Huge amounts of investment are needed to meet these goals – estimates suggest between $3.1 trillion and $5.8 trillion each year*. With current funding falling short, sustainable finance can help bridge this gap.

By offering “green” financial products, the banking sector is one of the key players in the shift towards sustainable finance, with a specific focus on the “environment” aspect of ESG. Banks might, for example, offer their customers loans, bonds, and funds that are committed to environmental causes. They can use these products as their unique selling point to appeal to customers and investors who prioritise making ethical and environmentally friendly choices.

Financing for sustainability typically takes two forms: debt, where money is borrowed and repaid with interest, and equity, where investors buy ownership shares in companies or funds that support sustainable initiatives.

These are investments in companies or funds that focus on environmental sustainability.

• Green companies: You can buy shares directly in businesses working toward eco-friendly goals, like renewable energy companies or electric vehicle manufacturers, but this is considered one of the riskier options, as the share price can fall after you invest your money.
• Green funds: Investing in funds (mutual funds or exchange-traded funds) that include companies supporting the environment or promoting a strong culture of corporate responsibility. One of the main examples in Ireland is the Green Effects Fund, where investors’ funds are invested in a basket of ethically screened global stocks.

Green debt involves borrowing money to finance environmentally friendly projects.

With bonds, a government or company essentially gives a commitment to repay any borrowed funds. The funds they raise from people buying bonds go towards specific projects.

• Green bonds: The money raised is exclusively used for climate-related efforts, like solar energy or energy-efficient buildings. Allied Irish Banks plc (AIB) is considered one of the leaders in this area in Ireland, as the first Irish bank to issue a green bond.
• Sustainability-Linked Bonds (SLBs): The financial characteristics of these bonds depend on whether the issuer achieved specific ESG goals, which could be something like reducing emissions by a set deadline. If the goals aren’t met, the issuer may face penalties, such as higher interest rates.

These are similar to green bonds, but issued privately (directly between a bank and borrower).

• Green loans: The funds are strictly to be used for eco-friendly projects. You might opt for a green loan if you want to retrofit your home to make it more energy efficient, or install solar panels to reduce your carbon footprint. In Ireland, several of the main banks offer the Home Energy Upgrade Loan, which offers slightly lower interest rates and can be used for specific home upgrade projects.
• Sustainability-linked loans: Borrowers commit to achieving sustainability goals tied to the loan’s terms. The Growth and Sustainability Loan Scheme is open to small and medium-sized companies in Ireland and across Europe, including farmers and fishers. This funding supports business growth and efforts to improve climate action and environmental sustainability.
• Green mortgages: These are mortgages for buying eco-friendly homes. You might consider a green mortgage if you’re looking to finance an energy-efficient home or make environmentally conscious home improvements.

These are bonds designed to fund projects with a social impact, such as providing affordable housing. Social bonds help vulnerable populations, including those living below the poverty line or facing social exclusion. AIB was one of the first banks in Ireland to issue a social bond**.

Alongside the main players driving the development of green finance (the banks, investors, and central banks), there are the financial regulators and official bodies that set the rules. 

One major driver is the European Commission, which introduced the Sustainable Finance Action Plan (SFAP) in 2018 to guide sustainable investments across the EU. Some measures are already in place, while others are being rolled out gradually.

Key initiatives include:

• EU Taxonomy Regulation: A sustainable finance framework that defines what counts as a sustainable activity.

• Sustainable Finance Disclosure Regulation (SFDR): Requires companies to report how sustainable their investments are.

• Low Carbon Benchmarks Regulation: Sets out standardised benchmarks for sustainability-focused investments.

• EU Ecolabel for Financial Products: A label to help consumers identify sustainable financial products.

These initiatives aim to boost transparency, fight “greenwashing” (misleading claims about environmental benefits), and ensure that investments meet strict criteria. Put simply, if an investment doesn’t meet these standards, it can’t be labelled as green.

This means businesses must now follow strict sustainable finance practices. And it’s all part of the overarching European Green Deal, which is pushing Europe towards its goal of being climate-neutral by 2050.

The European Green Deal is the EU’s plan to fight climate change and lead the green transition by promoting sustainable technologies, industries, and transport. Its main goal is to make Europe climate-neutral by 2050. This means reducing emissions and making sure that the amount of greenhouse gases released into the atmosphere is cancelled out by what is removed or avoided.

And sustainable finance is key to achieving this goal, helping direct money into projects that support these objectives.

Some of the goals of the EU Green Deal include:

• Creating a pollution-free environment
• Protecting nature and restoring biodiversity
• Promoting sustainable and eco-friendly transportation
• Building energy-efficient homes and buildings
• Supporting industries to adopt green, circular processes
• Ensuring affordable and clean energy for all
• Developing fair, sustainable food systems

Because the legal side is now in place, businesses, and investors can more easily offer sustainable products and meet the growing demand in this area. And many banks have recognised that the shift to sustainable finance in Ireland and elsewhere isn’t just a passing trend; it’s a sector that will likely continue to grow rapidly in the coming years. Some have already taken big leaps towards adapting their products.

Sustainable finance isn’t just for large corporations – individuals can make a difference too. While you’re unlikely to find a “green savings account” in Ireland, there are other ways to invest your money in a sustainable way, such as with green bonds or investment funds. However, investing is risky, and there’s no guarantee you’ll get back the amount of money you initially put in. For a safer option that still involves sustainability, you can try to make sure the bank you are saving with engages in sustainable practices.

A number of banks, including some of Raisin Bank’s partners, focus on finance for sustainability as part of their core mission. For example, Sweden is often cited as a leader in the green transition, driven by its commitment to environmental sustainability and technological innovation. You could open a savings account with Nordax Bank, HoistSparen, or Klarna Bank AB—banks that are known for their efforts in this area.

If you want to explore savings options away from the high-street banks, you can easily get started by signing up for a Raisin Account, which is free to join. You can find a range of high-yield savings accounts to get more from your money. Once your account is approved, choose a savings account, deposit your funds, and watch your savings grow!

*https://sponsored.bloomberg.com/immersive/ubs/journeytonetzero

**https://aib.ie/content/dam/frontdoor/investorrelations/docs/debt-investors/social-bond/AIB-Social-Bond-Report-2023.pdf