Sustainable finance – a success story of change

Sustainable debt reached an all-time high in 2019, totalling $465 billion globally, an increase of 78% on 2018

By the end of June nearly $200 billion in sustainable bonds had been issued globally – an increase of almost half, year-on-year, and double the amount of H1 2018 – with $130 billion raised in Q2, the highest quarterly amount ever seen. On top of that, other sustainable financing, such as loans and equity capital, added up to $70 billion in the first six months of this year. 

The seismic shift in public opinion that sustainable business practices are crucial to address climate change and other environmental issues – as well as social injustice and poverty – has propelled sustainable finance from niche product status, to global acclaim.

This article looks at the key drivers behind the rise of sustainable finance and the young history of the market.

Jargon Buster

The Global Sustainable Investment Alliance (GSIA): A collaboration of membership-based sustainable investment organisations around the world.

United Nations Environment Programme Finance Initiative (UNEP FI): A partnership between UNEP and the global financial sector to mobilise private sector finance for sustainable development, with more than 300 members and over 100 supporting institutions.

United Nations Convention on Climate Change (UNCCC): An international environment treaty that seeks to reduce greenhouse gas emissions.

Socially Responsible Investing (SRI): Socially responsible investing is a concept that incorporates environmental, social and governance (ESG) considerations and criteria into investment decisions.

UN Sustainable Development Goals (SDGs): In 2015, all United Nations members adopted 17 Sustainable Development Goals as part of the 2030 Agenda for Sustainable Development, a blueprint to achieve an inclusive, sustainable and resilient society and planet.

What exactly is Sustainable Finance?

A key driver behind the rise of Sustainable Finance has been Sustainable Investing, an investment approach that considers ESG factors in portfolio selection and management, emerging out of the socially responsible investing (SRI) market. Similarly, Sustainable Finance is the label for any form of financial service or financial product that integrates ESG criteria.

Green Bonds became the first product category under the Sustainable Finance label. The Green Bonds Principles, established in 2014 (see more details in “A history of Sustainable Finance”) define Green Bonds as “any type of bond instrument where the proceeds will be exclusively applied to finance or re-finance, in part or in full, new and/or existing eligible Green Projects”.

In the past two years, but in particular since the COVID-19 pandemic, green bonds have come to share the limelight with social bonds and sustainability bonds. Meanwhile, financial institutions are increasingly offering sustainable finance versions of many other products, too (read more about this in chapter “Sustainable finance product suite flourishes”).

As much as Sustainable Finance is about products, it also stands for the re-allocation of investments and capital flows, away from business-as-usual businesses and projects that perpetuate unsustainable growth patterns to sectors, companies and initiatives that are key for the transition to a zero-carbon society. Typical projects that fall under the green/sustainable finance umbrella include renewable energy and energy efficiency, biodiversity conservation, circular economy initiatives and sustainable use of natural resources and land.

A history of Sustainable Finance

Nearly 30 years ago it became clear that a unique role in order to drive greater sustainability across the global economy will fall to the financial services industry. In 1991, the UNEP Finance Initiative (UNEP FI) was launched when a small group of commercial banks, including NatWest, joined forces with the United Nations Environment Programme (UNEP). In May 1992, in the run up to the Rio Summit that year, the so-called Banking Initiative engaged a broad range of financial institutions, including commercial banks, investment banks, venture capitalists, asset managers, and multi-lateral development banks and agencies in a constructive dialogue about the link between economic development and environmental protection – the birth of Sustainable Finance.

In the following years the UNEP FI established three seminal and widely adopted voluntary frameworks to boost the concept of Sustainable Finance. These are:

The Principles for Responsible Investment (PRI)

In early 2005, the then United Nations Secretary-General Kofi Annan invited a group of the world’s largest institutional investors to help develop the Principles for Responsible Investment. One year later the PRI were launched at the New York Stock Exchange. Designed by investors for investors to aid the implementation of ESG issues into investment practice, the number of PRI signatories has grown from the initial 100 to now over 3,000 – half the world’s institutional investors, representing $103.4 trillion of assets under management.

The Principles for Responsible Banking (PRB)

The Principles for Responsible Banking, launched in September 2019 at the United Nations Headquarters in New York City during the UN General Assembly, are a unique framework for ensuring that signatory banks’ strategy and practice align with the vision set out by the Sustainable Development Goals and the Paris Climate Agreement. They’re designed to specifically cover the lending and underwriting activities of the banking world, complementing the UN-supported Principles for Responsible Investment (PRI).

197 banks, a third of the global banking industry, have so far joined the PRB. Signatory banks commit to taking three key steps, which enable them to improve their impact and contribution to society:

  1. Analyse their current impact on people and planet
  2. Set targets where they have the most significant impact, and implement them
  3. Publicly report on progress

Eighteen months after signing, signatory banks must report on: 1) their impact, 2) how they are implementing the Principles, 3) the targets they have set, and 4) the progress they have made. Within four years, signatory banks must have met all these requirements:

Source: unepfi.org

The Principles for Sustainable Insurance [PSI]

Established in 2012 and today applied by one quarter of the world’s insurers, the PSI provide a global roadmap to develop and expand innovative risk management and insurance solutions that help promote renewable energy, clean water, food security, sustainable cities and disaster-resilient communities.

In addition to the sector-specific principles, the concept of sustainable has also reached other corners of the financial world, including central banks, which launched the Network for Greening the Financial System (NGFS), a group of central banks and supervisors, in 2017 with the aim to facilitate the development of environment and climate risk management in the financial sector. Similarly, the Sustainable Stock Exchanges initiative (SSE), organised by the UN Conference on Trade and Development (UNCTAD), the UN Global Compact, UNEP FI and the PRI, aims to offer a global platform for exploring how exchanges, in collaboration with investors, companies (issuers), regulators and policymakers, can encourage sustainable investment and finance.

The history of sustainability and sustainable finance

1992: Launch of the UNEP FI, a partnership between UN Environment and the global financial sector to produce a global framework for addressing climate change and environmental deterioration through sustainable development.

1994: The United Nations Convention on Climate Change [UNCCC] comes into effect with the objective to ‘stabilise greenhouse gas (GHG) concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system’. A total of 197 nations have signed the UNFCCC.

1997: The Kyoto Protocol emerges from the UNCCC, marking the first agreement between nations to mandate country-by-country reductions in GHG emissions

1999: Launch of the Dow Jones Sustainability World Index as the first global sustainability benchmark, evaluating the sustainability of companies.

2000: The first version of the Global Reporting Initiative (GRI) guidelines are published. Since then, the GRI has become the most world’s most widely used framework for sustainability reporting.

2003: Financial Institutions adopt the Equator Principles (EPs), a risk management framework for determining, assessing and managing environmental and social risk in projects. Currently, 111 Equator Principles Financial Institutions [EPFIs] in 38 countries have adopted the EPs

2006: Launch of the Principles for Responsible Investment

2007: The EIB issues the world's first Green Bond, labelled a Climate Awareness Bond (CAB)

2014: The Green Bonds Principles are established

2015: All UN Member States adopt the 17 Sustainable Development Goals (SDGs) to end poverty and protect the planet

2015: Nearly all nations adopt the Paris Agreement, a landmark environmental accord, during the COP21 in Paris promising to tackle climate change and move towards a low carbon future in order to keep the global average temperature rise this century below two degrees Celsius.

2015: The Spanish Instituto de Credito issues the first social bond

2017: Launch of ICMA’s Social Bonds Principles

2018: 631 investors representing over $37 trillion in assets sign the Global Investor Statement to Governments on Climate Change, calling on governments to adhere to the Paris Agreement and support the transition to low-carbon

2019: The UNEP FI and 130 banks from 49 countries publish the Principles for Responsible Banking

2019: The EU Parliament and EU Council achieve political agreement on requiring ESG integration by financial market participants.

Shaping the Sustainable Finance market: policy makers

Last year, the PRI found that across the world’s 50 largest economies over 730 hard and soft-law policy revisions of some 500 sustainable finance and sustainable investing policy instruments had been released since 2016. And the pace continued to increase: In 2019 the PRI identified well over 80 new or revised policy instruments drawn up to ensure clarity of terminologies, protect consumers and help further developing the sustainable finance markets worldwide.

Sustainable finance policies up to 2016 looked different from those published today: A turning point marked the People’s Bank of China’s publication of guidelines to establish the green financial system in 2016, drawn up in collaboration with six other government agencies. Rather than being reactive, the guidelines proactively shared a vision of how green finance could be successful. A new generation of policies has since embraced this forward-thinking character as well as given more thought to the interconnectivity and complexity of the capital markets. In the process, policy makers have turned in particular to investors, who had already developed a forward-thinking vision and also have deep technical expertise in sustainable finance. The PRI’s annual signatory survey in 2019 showed that over the period 2016 to 2019 the proportion of the 2,500 PRI signatories who had actively engaged with policymakers, regulators and standard-setters increased from 44% to 61%.

Key policies, which are exemplary for this collaborative and proactive approach, include:

The EU Action Plan on Financing Sustainable Growth, which was developed in response to the recommendations of a High-Level Expert Group on Sustainable Finance. A Technical Expert Group is now supporting the EU to develop the more detailed tools required to implement the strategy.

The UK Government’s Green Finance Strategy was drawn up with the assistance of the Green Finance Taskforce. In addition, The Bank of England and the Financial Conduct Authority have established an investor climate risk forum, tasked with helping the development of climate risk methodologies in the market.

The Financial Stability Board assembled a body of industry experts to form the Taskforce on Climate-related Financial Disclosures (TCFD). The TCFD, which provides a common global framework for the assessment of climate risk, was widely welcomed by regulators and industry.

However, while policy makers are busy shaping regional markets the Institute of International Finance (IIF) has warned that the sustainable finance policy landscape is fragmented because it’s mostly based on national policies rather than on a global policy framework. Furthermore, some key jurisdictions (notably the US) have been largely absent from emerging global policy and standard setting discussions. In its white paper, the IIF cites its Global Climate Finance Survey of 70 financial institutions in which 65% of institutions said that “green” regulatory market fragmentation was a big source of concern and would have a material impact on the market for sustainable finance  –  and as such making the case that policy makers urgently need to align their work.

The sustainable finance market now and then: issuers and geographies

Slow off the start, the rapid rise of Sustainable Finance in recent years  – sustainable debt issuance reached a volume of $400 billion in 2019  –  is demonstrating in an impressive manner how capital market mechanisms can successfully enlist private capital to address global societal issues such as climate change, poverty and inequality.

While we look in detail at the Sustainable Finance product suite in article 4 of this theme, here are some interesting facts and highlights about sustainable debt issuers and markets:


Corporate green bonds have increased rapidly since the market first began to develop in 2008. In 2018, the corporate sector issued $95.7 billion alone in green bonds. In 2019, non-financial corporate issuance doubled compared to 2018; energy companies Engie, MidAmerican Energy and Energias de Portugal were the top three non-financial issuers, raising almost $9 billion.

In November 2019, Apple became the largest US corporate issuer of green bonds after it raised a $2.2 billion green bond in Europe, which followed on from two green issuances in 2017 ($1billion) and 2016 ($1.5billion).

Supranationals, by nature, have dominated the social bonds space, but the issuer base has started to diversify: government agencies became the dominant issuers of social bonds in 2019 with a 10.5% increase in market share, while corporates significantly increased their share to 13% in 2019 from 3% the previous year.

While mainly multilateral development banks (MDBs) are utilising sustainability bonds as a key financing tool to achieve environmental goals whilst simultaneously advancing human development, corporates have discovered this segment, too: In 2019, corporate issuers increased their share in the sustainability bond market to 25% from 5.9% the year before. In August 2020 Google’s parent company Alphabet Inc. issued the largest corporate sustainability bond so far at $5.75 billion, with the funds raised supporting racial equality initiatives, affordable housing projects as well as circular economy programmes and clean transportation.


European countries have been the driving force behind the rise of sustainable finance: In 2019 the European market accounted for 45% of the global green bonds issuances, reaching a total of $116.7 billion, while the Asia-Pacific and North American markets made up 25% and 23% of the global volume. The USA, China and France continued to top the country rankings, together accounting for 44% of global issuance in 2019. Yet, it’s not just the sustainable finance product suite that’s growing, but geographic diversification as well: 2019 saw a wave of debut green bond issuances from emerging markets such as Barbados, Russia, Kenya, Panama, Greece, Ukraine, Ecuador and Saudi Arabia.

While Europe has consistently led the largest portion of new social bond issuance, its 40% share of the market by June 2020 marked a significant drop from the 80% market share it represented in 2016. The reason: new social bond issuers across emerging markets are pushing in the space, doubling their capital raised for social projects to $5.2 billion so far this year, compared with $2.3 billion in 2019. Asia-Pacific and Latin American have shown the fastest growth, representing 29% and 7% of issuance.

European issuers are even more dominant in the sustainable lending space, a fast-growing product category, which we look at more closely in the following chapter. The $5.4 billion sustainability-linked loan facility for Italy’s Enel SpA, and the $5 billion raised for the Danish logistics firm AP Moller-Maersk are two of the deals behind Europe’s 63% share in that market segment.

Still a relatively new market, sustainable finance has already proven its transformational power. While investors are flocking to the market, the challenge for issuers lies in making a strong business case, or rather a strong green or social case, for their planned green, social or sustainability issuances. We’ll discuss in our next article why a comprehensive sustainability reporting system is the backbone of any such issuance and how companies can move from pure financial data reporting to sustainability progress reporting.

scroll to top