DP12603 A Framework for Sustainable Finance

Author(s): Dirk Schoenmaker
Publication Date: January 2018
Keyword(s): corporate governance, Environmental, Short-termism, Social and Governance (ESG) Risks, Sustainable Development, Sustainable Finance
JEL(s): G11, G21, H23, H41, Q01
Programme Areas: Financial Economics, Development Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=12603

To guide the transformation towards a sustainable and inclusive economy, the United Nations has developed the Sustainable Development Goals (SDGs). Sustainable development is an integrated concept with three aspects: economic, social and environmental. This paper starts by reviewing the environmental and social challenges that society is facing. Why should finance contribute to sustainable development? The main task of the financial system is to allocate capital to its most productive use. Financial institutions have started to avoid unsustainable companies from a risk perspective, which we label as Sustainable Finance 1.0 and 2.0 in our new framework. The frontrunners are now increasingly investing in sustainable companies and projects to create long-term value for the wider community (Sustainable Finance 3.0).