Sustainable Finance Competence List

Definition

A Sustainable Finance Competence in the context of a formal Financial Competence Framework is a Financial Competence attributed to an individual characterised by specific Sustainable Finance related knowlege, skills or attitudes.

More specifically, a sustainable finance competence indicates that an individual has the knowledge and skills needed to perform financial tasks with awareness of their Sustainability profile, or, in a professional context, do a sustainable finance related job. It will generally also indicate they have the interpersonal skills and general awareness or wisdom required to operate effectively in a sustainable financial system.

Sustainable finance competences can be grouped (as with the general case) into:

• the Awareness, Knowledge and Understanding group that signals the degree to which a person has acquired sustainable finance concepts as domain knowledge
• the Skills and Behaviour group that probes the degree to which a person is able to translate awareness and domain knowledge into concrete actions and
• the Confidence, Motivation and Attitudes group that expresses the degree to which an individual has internalized the value system underpinning sustainable finance and is ready to apply it as an independent agent

Competence List

The following sustainable finance competence list adapts the broader EU/OECD Framework for adults. Competences are grouped along four top-level categories.

Money and Transactions

This broad content area covers the knowledge, skills and attitudes related to the different forms of money and currencies, income, prices, payments and purchases and the importance of financial records and contracts.

• Aware that monetary systems have concrete energy and material requirements, with corresponding environmental and social implications
• With respect to new Purchases: Considers sustainable alternatives to new purchases, such as reusing and recycling
• Sustainability Aspects Of Prices And Purchases:
  • Is aware that purchased goods or services have different environmental and social impacts
  • Factors one's environmental, social and governance preferences in the decision to purchase a good or a service
  • Is motivated to learn more about the origin, production conditions, environmental and social impacts of a good or service, as well as the governance arrangements of the entity offering it
  • Is motivated (where applicable) to question the information about environmental and social impacts, and governance performance disclosed by the seller of a product or the provider of a service

Planning and Managing Finances

This broad content area covers the knowledge, skills and attitudes related to budgeting, managing income and expenditure, saving, investing, longer term planning, retirement, credit, debt and debt management.

• Choosing Credit:
  • Aware that different types of mortgages exist, including green mortgages
• Choosing Saving Products:
  • Knows that savings products may have different sustainability characteristics (environmental, social and corporate governance aspects)
  • Chooses saving products in line with one’s preferences, including sustainability preferences
  • Confident in choosing savings products in line with one’s preferences, including sustainability preferences, or asking advice if needed
• Choosing And Diversifying Investments:
  • Knows the characteristics of various investment products including levels of risk, liquidity, expected performance and sustainability features or can find out easily
  • Knows that different investment products may have different sustainability characteristics (environmental, social and corporate governance)
  • Able to incorporate personal preferences with respect to investment goal, risk tolerance, time horizon and sustainability, when making an investment decision
  • Confident and motivated to compare the level of sustainability of investment products using for example other standards, labels or ratings
• Shareholder Rights:
  • Aware of the rights of shareholders to influence the decisions of a company, including on its sustainability performance
  • If relevant, can take steps to engage with companies during annual general shareholder meetings or through collective shareholder actions, in line with one´s own sustainability and other preferences
• Sustainable Investment:
  • Aware about existing sustainable investment products on the market
  • Aware about the different dimensions of sustainability (environment, social and governance) and about the principles behind each of these dimensions
  • Aware that different investment strategies can be used to invest according to one’s own environmental, social and corporate governance (sustainability) preferences, for instance by avoiding investments in certain sectors or companies (divestment), or engaging with certain companies to make them change their activities (engagement)
  • Looks for investment products in line with one’s own sustainability preferences
  • Picks an investment strategy in terms of divestment or engagement or combination of both according to one's personal situation and preferences
  • Asks follow-up questions to an advisor on sustainability related aspects of investment products
  • Researches and compares sustainability attributes of potential saving and investment products
  • Motivated to research the products one already holds or plans to invest in, to ensure that they meet personal sustainability preferences
  • Confident to ask questions about the extent to which an investment product meets sustainability criteria
• Sustainability Considerations For Pensions
  • Understands the extent to which a given pension product meets one’s sustainability criteria
  • Chooses one's pension product in line with one's risk and sustainability preferences
  • Confident to ask questions about the extent to which pension products meet sustainability criteria and to make demands for more/better options if necessary

Risk and Reward

This broad content area covers the knowledge, skills and attitudes related to the identification of risks, financial safety nets, insurance, and balancing risk and reward.

• Being aware of the Basics Of Risk: Considers the risks of significant external issues that may impact on personal financial well-being (including for example environmental, technological, health-related, scientific, security or economic factors)
• Identifying Sources Of Risks:
  • Aware of possible risks with financial implications (political, economic, environmental and personal factors such as long life expectancy)
  • Knows why it is important to be aware of low-probability, high-cost events, such as risk of climate-related events
• Insurance Against Climate Related Risks:
  • Aware of the ways to insure against climate-related risks
  • Able to assess the climate-related personal risks, and is able to insure against them, if appropriate
• Relationship Between Risk And Reward: Takes into account the need for asset growth, financial security, and one’s own sustainability preferences when considering investment risk
• Sustainability Implications On Risk And Reward:
  • Understands that sustainability factors and governmental climate-related policies may have an impact on the level of risk and return of investments
  • Aware that environmental, social or governance risks may negatively affect the financial performance of a company

Financial Landscape

This broad content area covers the knowledge, skills and attitudes related to regulation and consumer protection, rights and responsibilities of consumers, the use of financial education, financial information and financial advice, financial products and services; scams and fraud, understanding of tax and public spending and external influences on financial decisions.

• Financial Advice: Aware of financial advisors' obligation to ask clients about their sustainability preferences before giving advice
• Characteristics Of Financial Products And Services:
  • Knows that the financial product or service that is appropriate for an individual depends on a number of personal and household factors which may include economic, sustainability, or cultural preferences
  • That some financial products and services are designed to meet specific economic, sustainability, or cultural preferences
  • Accounts for personal preferences, including sustainability preferences when considering different financial products or services and their characteristics
  • Motivated to gain insight on how financial service providers define sustainability and integrate it in certain products and services offered
• Sustainability Preferences
  • Be able to determine one’s sustainability preferences, using reliable and regulated information
  • Able to explain one’s own preferences for financial products (e.g. in terms of risk or preferences, including one’s sustainability preferences)
  • Aims to choose financial products and services that are consistent with one’s sustainability preferences
• Sustainability Labels And Standards
  • Aware of the existence and meaning of various sustainable product standards and labels Knowledge
  • Aware that in addition to standards defined in EU law, there could be standards set out in business practices, which may or may not be aligned with the standards defined in EU law
  • Aware of the existence of the EU taxonomy for sustainable economic activities
  • Makes informed decisions in line with one's sustainability preferences based on reliable standards and labels for financial products
  • Motivated to research existing standards and labels and to understand their meaning
• Disclosure:
  • Aware of disclosure requirements for companies, funds and other financial products and services, including sustainability-related disclosure requirements. Knows where to access these disclosure documents
  • Knows about sources of information to monitor the performance and the sustainability record of a fund
  • Understands disclosure documents about companies, funds and other financial products and services, including sustainability-related disclosure documents
  • Able to research disclosed information related to a financial product, including that which covers sustainability aspects
  • Able to make informed decisions in line with one's risk profile, sustainability preferences and other preferences based on the disclosure information provided on a fund, a company or a financial product and service
  • Holds funds accountable for their engagement commitments for instance by checking their voting records at annual general shareholder meetings
• Greenwashing:
  • Understands the concept of greenwashing and its implications
  • Adapts investment decisions when one becomes aware of instances of greenwashing
• External Influences: Understands how economic factors, such as a recession or high inflation, and other factors (for example related to the climate, the environment or pandemic diseases) can affect aspects of personal financial status, including wealth
• Macroeconomic Impact On Personal Finance: Identifies strategies to ensure the resilience of financial asset to medium to long-term factors and risks (including climate-related risks)
• Broader Sustainability Impact Of Personal Finance Decisions: Understands that individual economic decisions have consequences on the sustainability of the economy, communities and society at large. Impact differs depending on the level of sustainability of the product or services purchased

Issues and Challenges

• There is an inherent vagueness in defining the scope of each competence inherited from the corresponding vagueness of current frameworks defining ESG Criteria
• The weight and relevance of different competences varies significantly with the socioeconomic status of individuals and depends very significantly on their overall financial and economic literacy level
• The groupings of competences by domain and by type are not sharp and there are substantial overlaps