A growing pool of global financial capital is invested in companies with a sustainability lens. According to a 2019 estimate, about $30 trillion of institutional investments in corporate bonds and equity was actively managed for sustainability.1 On the lending side, 67% of global banks report screening their loan portfolios for environmental, social and governance (ESG) risks.
While this is impressive – and growing – it only represents a fraction of the more than $200 trillion invested globally in corporate bonds, equity and loans.3 In addition, investors with the mandate to invest sustainably are stifled by a lack of scalable and credible investment opportunities.
Progress has been made with the emergence of investment funds composed of more sustainable companies and financial products tied to sustainability, such as green, social and sustainability bonds and loans. However, this market is still tiny in comparison to the overall size of the market and the demand for sustainable investments, with the corporate potion of the market only recently passing the $500 billion mark.4 Meeting the rising demand from impact-seeking investors would require a significant increase in the number and diversity of investment opportunities in sustainable development.
An answer can be provided by companies themselves – building the supply of sustainable finance – if they are able to measurably invest in sustainable development and finance those investments through mainstream financial products tied to sustainability performance. Over time, a systematic integration of sustainability in corporate investments and finance could qualify the largest asset classes in the capital markets – corporate bonds and equity – for sustainable finance.
INSIGHT by Jerome Lavigne-Delville, Senior Consultant at the International Finance Corporation, Senior Advisor on Sustainable Finance at United Nations Global Compact, and Co-lead of the CFO Taskforce for the SDGs.