Two of the world’s major financial institutions have recently announced how they plan to expand sustainability investment. The S&P and Dow Jones Indices, which are the world’s leading provider of index-based concepts, has announced the launch of the S&P Green Bond Select Index. This index will capture the most liquid and tradeable segment of green-labeled bonds issued globally. Also, World Bank has launched a financial instrument to expand funding for the global SDG’s. They have raised a total of €163 million from institutional investors in France and Italy and will use the proceeds to support the financing of projects that advance its goals of eliminating extreme poverty and boosting shared prosperity.
Investors of every stripe are increasingly using Environmental, Social, and Governance data to design their portfolios. While pension funds, insurance companies, and sovereign wealth funds have lead this charge, mainstream banks are following suit with significant commitments to sustainable finance. Last month, several prominent banks announced programs that indicate the further maturation of global environmental finance and the Green Bond market.
Growing market penetration of of these “green” financial products and new environmental indices are facilitating sustainable investment decisions. Banks are also leading efforts to standardize practices in the green bonds market. Projects recognized by the principles include renewable energy and energy efficiency, waste management, land and water use, biodiversity conservation, and clean transportation. There are still roadblocks as it’s advancement is still hindered by predominant short-term planning horizons. Furthermore, activities supported by the green bond market vary widely and standards are still emerging on what constitutes “green.”
Either way, the future of the world economy has begun. We are one year into a world where global leaders have agreed to act on the SDG’s and where the full force of law is now behind the international agreement on climate change. We are speeding toward a bright future for business that creates value for people, the planet, and the economy. These new concepts and models need to be proven and new models for metrics will allow business to quantify sustainability value, in real financial terms.