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Sustainability and Climate Finance

The financial sector will continue to seek new avenues to invest and play its part in transitioning economies away from carbon to a more sustainable base.

Authored by

David Williamson

Senior Environmental Adviser at European Bank for Reconstruction and Development,
and Judge, BVCA Excellence in ESG 2021


The fastest developing sector in the financial arena at present is in the area of climate and sustainability-linked financial products. Over the past few years, there has been almost geometric growth in the volumes of capital flowing into green finance, coupled with significant growth in the types of products being offered, and in the sophistication related to the monitoring and verification of the objectives of such finance.

Up until a few years ago, ‘green finance’ was often limited to relatively basic types of investments, such as debt for energy-efficient CapEx investment, or equity into a renewables company. A wide range of drivers has however completely changed the landscape now with the international community, governments, industry and investors all combining to drive the growth in volume and the range of financial products on the market. The growth in volume has been considerable, for example, the Multilateral Development Bank (MDB) community reported that in 2020, over $66 billion was invested globally by publicly-owned entities in projects that could be defined as ‘Climate Finance’.

In addition to the investment linked directly to climate issues, more recent developments include the concept of sustainability linked finance, and this can be coupled with the acceleration in the application of the objectives of ESG. As regulators and industry have become more aware of the potential impacts of environmental and social issues on company and societal value, a wider range of issues in addition to pure climate challenges has come into play. The regulatory definitions of ‘sustainability’, many of which are to be adopted in ESG risk management strategies and reporting requirements, now include aspects such as natural capital and wider societal benefit, among many others.

The financial sector has responded to these new concepts through the development of new products and financing mechanisms. Sustainability linked bonds now sit alongside green bonds, and these include products that are linked solely to social performance as well as those with a wider view of ESG issues. A common feature of all these products, however, is a detailed set of criteria outlining the definition of what is, and at times what is not, sustainable and/or green. The markets are coalescing around some common standards in this regard. This has again benefited the sector as a more common understanding of the products has developed and a wider audience has gained experience of the mechanisms used.

The need for action on climate issues is obvious, and the financial sector will continue to seek new avenues to invest and play its part in transitioning economies away from carbon to a more sustainable base.



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"The growth in volume has been considerable, for example, the Multilateral Development Bank (MDB) community reported that in 2020, over $66 billion was invested globally by publicly-owned entities in projects that could be defined as ‘Climate Finance’."