Sustainable Finance Blog 1 – What is Sustainable Finance?

With the signed of agreements such as Pairs Agreement, to deal with global warming and climate changes become a state-based strategy, sustainable development has become an inevitable tendency. In finance community, there has been a growing interest in sustainability among the investors, and lead to the occur of sustainable finance. Recently, sustainable finance seems to be a ‘market fad’. The amount of assets and the number of market participants engaged in sustainable finance are continuous to climb in global (The Global Sustainable Investment Alliance, 2019). Banks and investment companies are also trying to align their policy with sustainability, issuing sustainable financial products which referred as ESG based. This means products should meet specific environmental, social and governance requirements. Someone may think ESG finance as sustainable finance nowadays because of the vigorously promote from media or companies. But the answer is negative, sustainable finance is wider than that.

HSBC's ESG Framwork

The History of Sustainable Finance

According to the observation of Gond and Boxenbaum (2013), the first appearance of terminology about sustainable finance was in New York Times in 1980, start from the ‘civil right’ in South Africa. Although the overwhelming media coverage about Black workers or apartheid led to the divestment practice, it motivates people to link finance with ethical: the ‘prototype’ of sustainable finance. After that, both ethical and environment began to engage with the financial decision of people, but with stress on the later, green finance orients the mainstream (Migliorelli & Dessertine, 2019) and lead to the issue of first green bond (Climate Bonds, 2022). In the next period, ‘ethical’ is abandoned and replaced by ‘responsibility’ and relevant terms began to boom, such as CSR (corporate social responsibility), SRI (socially responsible investment) and RI (responsible investment). Around 2005, when the focus of people shifts to climate change, the ESG period began and still ongoing (Dumas & Louche, 2016).

History of Sustainable Finance

Sustainable Finance Nowadays

From the history of sustainable finance, we can see that the definition of it is varying. Until recent, due to a changed methodology, Europe reported a 13% decline in the growth of sustainable assets in 2018 to 2020 (The Global Sustainable Investment Alliance, 2021). This reflects a transition period of revising definition of sustainable finance. When the focus of sustainable finance is on civil right in 1980, people’s attention may not transfer to environment. However, due to the characteristic of sustainability, what can be hold or run in a long-term is also changing with the core of sustainable finance. Nowadays, ESG measurement dominates the sustainable financial market, investors and fund managers tend to make decision based on these three factors. Maybe one day, the disposal of space debris will also be on the agenda.

References

Climate Bonds, 2022. Explaining green bonds. [Online]
Available at: https://www.climatebonds.net/market/explaining-green-bonds
[Accessed 18 2 2022].

Dumas, C. & Louche, C., 2016. Collective Beliefs on Responsible Investment. Business & Society, 55(3), p. 427–457.

Gond, J.-P. & Boxenbaum, E., 2013. The Glocalization of Responsible Investment: Contextualization Work in France and Québec. Journal of Business Ethics, 115(4), p. 707–721.

Migliorelli, M. & Dessertine, P., 2019. The Rise of Green Finance in Europe. Opportunities and challenges for issuers, investors and marketplaces. Cham: Palgrave Macmillan, Issue 2.

The Global Sustainable Investment Alliance, 2019. 2018 Global Sustainable Investment Review, s.l.: The Global Sustainable Investment Alliance.

The Global Sustainable Investment Alliance, 2021. Global Sustainable Investment Review 2020, s.l.: The Global Sustainable Investment Alliance.