DR. GHANSHYAM SINGH P.G.

COLLEGE
Soyepur, Lalpur, Azamgarh Rd. Varanasi

Survey Research Project Report

On
EXAMINE THE GROWING FEILD OF SUSTAINABLE FINANCE
INCLUDING ESG INVESTING AND GREEN BONDS

SUPERVISED BY: SUBMITTED BY:

MR. ANURAG SAHU PURNIMA PANDEY

ASSISTANT PROFESSOR M. COM. 3rd SEMESTER

ROLL NO. : 12323685032

ENROLLMENT NO. :

KA2K23/123685032

( Affiliated to Mahatma Gandhi Kashi Vidyapith )

 Department of Commerce

Dr. Ghanshyam Singh P. G. College

Soyepur, Lalpur, Azamgarh Rd. Varanasi

CERTIFICATE

This is to certify that Ms. Purnima Pandey, student of III semester, Master of Commerce in the session 2022-
2024, has completed her dissertation titled, “Examine the growing field of sustainable finance, including
green bonds and ESG investing” under my supervision.

Mr. Anurag Sahu Dr. Sandeep Rai

Dissertation Supervisor Head of Department

I
 DECLARATION

I, Purnima Pandey, student of Master of commerce Batch 2022-2024 of Dr. Ghanshyam Singh P. G. College,
hereby, declare that the Survey Report entitled “Examine the growing field of sustainable finance, including
green bond and ESG investing” is a result of my research work and our indebtedness to other work publications,
references, if any, have been duly acknowledged. I shall be solely responsible for any plagiarism or other
irregularities if noticed in the report.

I assert that the statements made and conclusions drawn are the outcome of my research work. I further declare
that the best of my knowledge and belief that the survey report does not contain any part of any work which has
been submitted for the award of any degree/diploma/certificate in this University or any other University in
India or abroad.

Name of Student : Purnima Pandey

University Roll Number: 12323685032

II
 ACKNOWLEDGEMENT

No great endeavour is accomplished and successful without some helping hands. Every task needs some
guidance, encouragement and assistance for its completion and fulfilment. I would like to take this opportunity
to thank all who contributed directly or indirectly in preparation for this research and guidance doing my
dissertation.

It is my pious duty to convey Dr. Ghanshyam Singh P. G. College for giving me a chance to undertake my survey
report in learning in difficult surrounding. Finally, I would like to extend a vote of thanks to my mentor Mr.
Anurag Sahu and all the faculty members who guided me throughout the project.

I owe no matter what I have learned and that I am deeply duty bound to her for providing me the impetus and
therefore the support of their recondite information and skill.

I would also like to thank my friends and family for their love and support during this process. Without them,
this journey would not have been possible.

Sincerely,

Purnima Pandey

III
 PREFACE

The main aim of the study is to study and examine the growing fields of sustainable finance. The pollution
resulting from recent human activities has degraded the earth’s ecosystem which if not taken care of would lead
to an ultimate depletion of life source on the green planet. Sustainable finance has led to a new road of finance
which not only makes profitable investments but also aids the nature positively. The financial support to green
start ups and research and development in the field of sustainability drives to the solution of environmental
challenges. Green bonds are one of the most prominent innovations in the area of sustainable finance over the
past decade. However, to date there have only been a few academic studies on green bonds, and these have
tended to focus on what impact green labels have on bond yields.

The theory provided in this report explains every aspect of sustainable finance ESG investing and green bonds.
Their growth and future possibilities are discussed. The data from research works of man researchers has been
concised to bring out a way to explain the changes in the environment and the need of development of
sustainable investing to generate revenue in such a way that the nature also benefits with the investors.

IV
 INDEX

CHAPTER CHAPTER NAME PAGE NO.

Certificate i

Declaration ii

Acknowledgement iii

Preface iv

Index v

1 INTRODUCTION 1-13

1.1 History of sustainable finance 1

1.2 Terminology 2

1.3 Product types of sustainable finance 3

1.4 Green Bonds 5

1.5 Key providers of Sustainable Finance 8

1.6 Literature Review 7

1.7 Objective of the report 10

1.8 Research Methodology 11

2. ANALYSIS & INTERPRETATION 14-43

2.1 Sustainable finance framework 14

2.2 ESG Investment 21

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 2.3 ESG investment information 26
infrastructure

2.4 Construction of ESG investment 29

strategies

2.5 ESG factor investing 30

2.6 GREEN BONDS 31

2.7 Green Bonds Principles 33

2.8 Types of Green Bonds 36

2.9 INDIA: Becoming a sustainable 38

finance maker

2.10 CASE STUDY 41

3. FINDINGS & SUGGESTIONS 44-46

Appendices 47

References 48-51

VI
 Chapter 1

INTRODUCTION

Sustainable finance, also known as responsible finance or green finance, refers to financial activities and
investments that are conducted in a manner that promotes environmental, social, and governance (ESG)
considerations, while aiming to generate long-term sustainable outcomes. It encompasses a broad range of
financial products and services, including investment funds, loans, bonds, insurance, and other financial
instruments that are designed to support sustainable economic, social, and environmental development.

The key objective of sustainable finance is to integrate ESG factors into decision-making processes in order to
promote sustainable development and address pressing global challenges such as climate change, biodiversity
loss, social inequality, and human rights issues. Sustainable finance takes into account not only financial returns,
but also the impact of investments on the environment, society, and corporate governance. It recognizes that
economic, social, and environmental issues are interconnected and that addressing them holistically is crucial
for achieving sustainable and inclusive development.

1.1 HISTORY OF SUSTAINABLE FINANCE

The development of innovative finance tools and instruments to address social and environmental problems is
nothing new. Historically, such finance has focused on concessionary finance, including grants, and mutual
finance to support the “social economy” or “social and solidarity economy”. In many countries, the social
economy has long played an important role in the provision of nonmarket goods and services outside of
government or mainstream markets. For example, the cooperative and mutual sector represents an important
element of many economies globally, employing more than 1.2 billion people (one in six of all employees) in
more than three million organizations. In 2019, the largest 300 cooperatives had a turnover of more than $2
trillion, of which 41 were in Asia. The key sectors in which cooperatives and mutual organizations operate are
work integration, agriculture, microfinance, and consumer groups. Most cooperatives and mutual organizations
are small, but a number operate at significant scale. For example, Amul Dairy is the largest dairy producer in
India. Moreover, the larger social economy in the European Union (EU) represents an important element of the
overall economy, both in terms of its economic impact (13.6 million jobs, 8% of gross domestic product across
the EU), but also its wider social impact in terms of innovations designed to address intractable social,
community, and environmental issues. In the post–COVID-19 world, the social economy also offers an
alternative economic model that connects actors from government, not-for-profit, and for-profit organizations;

1
and may provide important insights into how to increase the resilience and heterogeneity of business
ecosystems more generally and to reduce the risk of exogenous shocks to the economy as a whole.

1.2 TERMINOLOGY

Despite the long history - and continued growth -of the social economy globally, it is only relatively recently
that a market of finance specifically aimed at creating social and environmental impact, as well as a financial
return, has emerged. However, today, this market remains somewhat confused and under-institutionalized -
lacking a consistent terminology, consolidated financial or impact performance data sets despite a plethora of
competing reporting standards and principles (for example, the UN Principles for Responsible Investment [PRI],
the Global Reporting Initiative [GRI], and the Social Accounting Standards Board [SASB]. and limited
regulation around disclosure (though see recent EU and UK regulatory models). Variously, the finance that is
deployed for social and environmental impacts has been categorized as grants (philanthropic finance); venture
philanthropy (long-term start-up grants plus other pro bono support); mission and program-related finance
(charitable asset finance); development finance (from transnational development finance institutions [DFIs]);
ethical finance (that is based upon moral judgements of performance, often linked to faith systems); social
(impact) finance (that supports the social economy more widely, particularly in Europe); green finance (that is
focused on the climate crisis and associated issues of pollution); and impact finance (that is focused specifically
on measurable impact). Table 1 summarizes these types of finance with example organizations.

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Despite this variety of definitions, some consistency of terminology has coalesced around the construct of
“sustainable finance” in terms of a range of environmental, social, and governance (ESG) variables that are
material in terms of investor decision-making around asset allocation strategies:

Sustainable finance generally refers to the process of taking due account of environmental, social, and
governance (ESG) considerations when making investment decisions in the financial sector, leading to
increased longer-term investments into sustainable economic activities and projects.

The market for sustainable finance can be divided into two subcategories: negative sustainable finance that is
characterized by investments screened according to their material risk profile on the three ESG dimensions (“do
no harm”); and positive sustainable finance that is characterized by investments identified according to their
potential for significant, additional, social, or environmental impact often aligned with the United Nations (UN)
Sustainable Development Goals (SDGs). For example, whereas the former would screen out tobacco
companies or high carbon intensity companies from a portfolio, the latter would invest directly into health care
innovations to address lung disease or green technology to replace petro-chemicals.

1.3 PRODUCT TYPES OF SUSTAINABLE FINANCE

Sustainable finance encompasses a variety of financial products and instruments designed to promote
environmental, social, and governance (ESG) considerations. Here are some common types of sustainable
finance products:

1. Green Bonds: Green bonds are debt instruments where the proceeds are specifically earmarked for
environmentally friendly projects. These projects often include renewable energy, energy efficiency,
sustainable transportation, and other initiatives with positive environmental impacts.

2. Sustainability-Linked Bonds: Unlike green bonds, sustainability-linked bonds are not tied to specific
projects. Instead, the issuer commits to achieving predefined sustainability goals, and the bond's
financial terms adjust based on the issuer's performance against these goals.

3. Social Bonds: Social bonds are similar to green bonds, but the proceeds are directed towards projects
with positive social impacts. Examples include affordable housing, healthcare, and education initiatives.

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4. Sustainable Loans: These are loans provided by financial institutions with terms and conditions linked
to the borrower's sustainability performance. The borrower may receive favorable terms if they meet
certain ESG criteria.

5. Green Mortgages: Green mortgages provide financial incentives for homeowners to invest in energy-
efficient and environmentally friendly improvements. These improvements can include solar panels,
energy-efficient heating systems, and insulation.

6. Sustainable Investment Funds: These funds pool capital from multiple investors to invest in a
diversified portfolio of sustainable assets. They may focus on ESG criteria, impact investing, or specific
sustainability themes.

7. ESG-Linked Loans: Similar to sustainability-linked bonds, ESG-linked loans tie the terms of the loan
to the borrower's performance on ESG metrics. Companies may receive better loan terms if they achieve
or maintain specific sustainability goals.

8. Green Certificates and Credits: These financial instruments represent the environmental attributes of
renewable energy or emission reductions. Renewable Energy Certificates (RECs) and Carbon Credits
are examples of such instruments.

9. Social Impact Bonds: Social Impact Bonds (SIBs) are a type of pay-for-success financing where
private investors fund social programs, and returns are based on the success of the program in achieving
predetermined social outcomes.

10. Microfinance and Micro-insurance: Financial products that provide small-scale financial services to
individuals or businesses in underserved communities, supporting economic development and financial
inclusion.

11. ESG-Integrated Investment Strategies: Traditional investment funds and portfolios that incorporate
ESG factors in their decision-making processes to align with investors' sustainability preferences.

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 12. Green and Sustainable ETFs: Exchange-traded funds (ETFs) that focus on companies or projects with
strong environmental and sustainability practices.

It's worth noting that the landscape of sustainable finance is continually evolving, and new products and
innovations may emerge over time. Investors, businesses, and financial institutions

1.4 Green Bonds

Green bonds are a type of fixed-income financial instrument specifically earmarked to raise capital for projects
and initiatives that have positive environmental benefits. These bonds are typically issued by governments,
municipalities, corporations, or financial institutions and are used to finance projects focused on renewable
energy, energy efficiency, sustainable agriculture, clean transportation, climate adaptation, and other
environmentally beneficial endeavors.

Key features of green bonds include:

1. Designated Use of Proceeds: The proceeds from green bonds are dedicated exclusively to finance or
refinance green projects, providing transparency and accountability regarding how the funds are utilized.

2. Certification and Verification: Issuers often seek external verification or certification from third-party
organizations to ensure that the projects funded by green bonds meet established environmental criteria and
standards.

3. Reporting and Transparency: Issuers are required to disclose detailed information about the environmental
impact of the projects funded by green bonds, as well as the allocation of proceeds and ongoing performance
indicators.

4. Attracting Investors: Green bonds appeal to a wide range of investors, including institutional investors, asset
managers, and socially responsible investors, who seek to align their investment portfolios with sustainability
objectives while still earning a financial return.

5. Market Growth: The market for green bonds has experienced rapid growth in recent years, reflecting
increasing investor demand for environmentally sustainable investments and issuers' recognition of the financial
and reputational benefits of green financing.

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6. Standardization and Guidelines: Various organizations and initiatives, such as the International Capital
Market Association (ICMA) and the Climate Bonds Initiative, have developed guidelines and principles to
standardize the issuance and reporting of green bonds, promoting consistency and integrity in the market.

Overall, green bonds play a crucial role in mobilizing capital for projects that address climate change and other
environmental challenges, facilitating the transition to a more sustainable and low-carbon economy. They
represent a powerful tool for channeling investment towards projects with positive environmental impacts while

offering investors an opportunity to support sustainability initiatives while earning a financial return.

1.5 KEY PROVIDERS OF SUSTAINABLE FINANCE

 Corporations are the largest source of climate-related funding, both through CSR initiatives and their
investments in multiple sectors including renewable energy, transportation and infrastructure.

 Banks provide a significant proportion of the financial resources that can be mobilized for green
investments.

 International financial institutions can support the scaling-up of green investments by testing new
ways of financing, channeling funds toward sustainable development through mechanisms such as green
bonds, and influencing global financial governance to give more support to sustainable development.
These include green investment banks and development banks, which provide funding for sustainability-
and development-related projects respectively.

 International organizations such as the U.N., the OECD and the G20 only provide limited finance but
set the agenda on sustainability issues at the international level and help coordinate sources of funding.

 Climate funds, such as the Global climate fund, adaptation funds, climate investment funds are
multilateral funds for climate change adaptation and mitigation projects, funded through contributions
from individual countries.

 National governments determine the amount of public funding earmarked for green investments, as
well as institutional support for them. They can also support the design of dedicated domestic
investment vehicles such as national climate and environmental funds.
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  Central banks and regulatory authorities can also guide the actions of the financial sector through
policies and regulations that defines what can be considered a sustainable investment or require
companies to disclose their climate risk.

 Institutional investors, such as pension funds, sovereign wealth funds and insurers, are another
important group of private-sector financiers.

 Stock exchanges also often specialize in green and sustainable investments. For example,
the Luxembourg green exchange attached to Luxembourg Stock Exchange operates as dedicated
platform for green, social and sustainable securities.

1.6 LITERATURE REVIEW

Scholtens (2006) emphasizes finance as a driver of sustainability, especially through socially responsible
investments (Waring & Edwards, 2008). In the last decades many institutions point out the need for financial
institutions to integrate environmental, social and corporate governance factors (ESG factors) into the decision-
making process to mitigate ESG risk.

According to Pisano et al. (2012), a vast gap remains between sustainable development and the actions of most
financial markets. Vandekerckhove and Leys (2012) identify especially issues that must be revised to cover the
gap between sustainable development and finance among them: better indicators for analysing sustainable
development goals (SDGs); recommendations for sustainable financing strategies and investments (Ziolo et al.,
2019). Sustainable finance is developing concept and a kind of response to financial markets to sustainable
development challenges related to its financing. Gerster (2011) points out that sustainable finance is defined as
a kind of financing addressing environmental, social, and governance (ESG) impacts of financial services.
Schoenmaker (2017) propose framework for Sustainable Finance based on sustainable finance models (SFM).
Schoenmaker (2017) distinguishes SF 1.0 – Profit maximisation, while avoiding “sin” stocks; SF 2.0 –
Internalisation of externalities to avoid risk; SF 3.0 – Contributing to sustainable development, while observing
financial viability. Interdependencies between finance and sustainable development are the most commonly
analysed in the context of: ESG risk and integrating non-financial factors into business practices (Nikolakis et
al., 2012); ESG risk and financial performance (Edmans, 2011; Gompers et al., 2003); financial markets versus

7
global warming and civil libertie (Alm & Sievänen, 2013); impact investment (Hebb, 2013) and socially
responsible investment (Vandekerckhove & Leys, 2012).

Ferreira et al. (2016) present a systematic review of literature about finance and sustainability in accordance to
the thematic fields as follows: investors in general; SRI; governance over impact investment; institutional
investors; climate change and human rights; non-renewable extractive industry; and sustainable development.
Based on systematic literature review Ferreira et al. (2016) argue there is the research gap which should be
filling by new research referring the scopes of sustainable finance. Waygood (2011) states that financial
institutions may impact on corporate sustainability in two ways: via financial performance and investor
advocacy influence. Jeucken (2004) declares financial institutions are often significant actor in a society’s
progress toward sustainable development. Besides social impact of finance on society also environmental
impact is reported in literature review. Chen (2013) states green finance is the key of low carbon economy and
the development of low carbon economy is not possible without the green finance. Interdependencies and
impact of finance on society and environment is a scope of interest of research globally. Environment and
society are also a research subject in the field related to SDGs.

Literature review related to SDG analyse SDG in two ways – separately based on selected SDGs or as a SDGs
network. The most common discussed among SDGs is health and environment for example Buse and Hawkes
(2015) focused on health in the sustainable development goals and emphasized that his will require a paradigm
shift in global health. Nerini et al. (2018) concentrate on SDG7 (energy) and characterize synergies and trade-
offs between efforts to achieve SDG7. Gain et al. (2016) discuss water security in global context analyzing
SDG6. Many studies focused on analysing the achievement and financing of SDGs in selected economy sectors
like health (Barroy et al., 2018) or education (Rambla & Langthaler, 2016) or analysing the results considering
the geographical location, especially Africa (The Sustainable Development Goals Center for Africa, 2017).

The network approach shows that some thematic areas covered by the SDGs are well connected with one
another, hence other scopes of the network have weaker connections with the rest of the network (Le Blanc,
2015). Nilsson et al. (2016) demonstrate a simple way of rating relationships between the SDG using Goals
scoring. Hajer et al. (2015) proposed more general approach to SDGs based on four connected perspectives:
“planetary boundaries”, “the safe and just operating space”, “the energetic society”, “green competition”. Gupta
and Vegelin (2016) researched interactions between inclusive development and SDG and they argue there is a
risk that theory (text about SDGs) and implementation processes focus more on social inclusiveness rather than
on ecological and relational inclusiveness. Stafford-Smith et al. (2017) claim that there must be greater attention
on interdependencies in three scopes: across sectors (e.g., finance, agriculture, energy, and transport), across
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societal actors (local authorities, government agencies, private sector, and civil society), and between and
among low, medium and high income countries. Financial aspect related to SDGs is usually focused on
investment or development finance context.
Kedir et al. (2017) calculate the additional investment required to meet SDGs, with a focus on SDG 1.
Schmidt-Traub and Sachs (2015) analyse private and public financing needs for the SDGs and formulate
recommendations.

Publications on the relationship between finance and SDG focused on several threads, discussed public and
private sources of SDG financing on a macro scale (Kharas et al., 2015), and the methods and instruments of
financing selected SDGs on a micro scale (Gambetta et al., 2019). However, no researcher has examined the
effectiveness and efficiency of SDGs financing depending on the financial model.

One of the few publications that identified the relationship between the SDG and fiscal policy instruments was
Fiscal Policies and the SDGs in the Green Economy (UNEP, 2016). The report indicates fiscal instruments,
such as taxes, fees, and public expenditure, and their role in stimulating and supporting the implementation of
SDGs 6–14 and 17. The report raises the issue of the role of governments in shaping fiscal policy for
sustainable development with sustainable fiscal policy instruments.

Sachs (2015) considered the financing mechanism for SDGs and discussed the financing of SDGs in the context
of public (SDGs 3–7) and private mechanisms of financing (SDG13). Sachs raised the question of how we will
ensure the required scale of flows and effective policies and institutional structures to manage the flows. Sachs
emphasized that much of the necessary finance will flow through private markets, some will come from
philanthropy and not-for-profit businesses, and much of it will need to come through the public sector, but no
particular recommendations were provided about how to organize the systems, only general statements were
outlined (Sachs, 2015).

The recommendations for financing sustainable development were considered in Financing the Sustainable
Development Goals: Lessons from government spending on the SDGs. The report suggests doubling tax
revenue, overhauling global tax rules, doubling concessional development cooperation, and improving the
allocation and effectiveness of financing (Development Finance International & Oxfam, 2015). Kumar et al.
(2016) recognized challenges related to achievement of SDGs, including: the huge cost of achieving the SDGs,
the indicators for measuring SDG progress have not yet been identified, and a lack of accountability for inputs
into SDGs at all levels. Klees (2017) stated that global taxation must replace the charity model.

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 1.7 OBJECTIVE OF THE REPORT

The objectives of your study serve as the driving force behind your research. They provide a clear focus on
what you aim to achieve through your investigation. Studying the growing field of sustainable finance serves
various purposes, and researchers, policymakers, businesses, and investors may have different objectives. Here
are some common objectives for studying the growing field of sustainable finance:

 Understanding Market Dynamics: To gain insights into the evolving dynamics of the financial
markets, including the impact of sustainable finance on investment strategies, capital flows, and market
behavior.

 Assessing Environmental and Social Impact: To evaluate the environmental and social impact of
financial activities, investments, and business practices, with a focus on promoting positive
contributions to sustainable development goals.

 Identifying Trends and Innovations: To identify emerging trends, innovations, and best practices
within the field of sustainable finance. This includes understanding new financial products, technologies,
and regulatory frameworks.

 Promoting Responsible Investing: To encourage and support responsible investing practices by

examining how investors integrate environmental, social, and governance (ESG) criteria into their
decision-making processes.

 Evaluating Regulatory Developments: To assess the impact of regulatory initiatives on sustainable

finance, including the development and implementation of policies aimed at promoting transparency,
disclosure, and accountability.

 Analyzing Financial Risks and Opportunities: To analyze the financial risks and opportunities
associated with climate change, social issues, and governance practices. This includes understanding
how companies and investors can navigate these factors to enhance long-term financial performance.

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  Enhancing Corporate Sustainability Practices: To provide guidance to businesses on how to integrate
sustainability into their core operations, financing strategies, and overall corporate strategy.

 Addressing Climate Change and Social Inequities: To contribute to global efforts in addressing
climate change and social inequities by understanding how finance can be aligned with sustainable and
equitable development goals.

 Improving Risk Management Practices: To enhance risk management practices within the financial
industry by integrating considerations related to environmental, social, and governance factors.

 Promoting Long-Term Value Creation: To advocate for a shift towards long-term value creation in
financial decision-making, recognizing the importance of sustainable practices for enduring business
success.

Overall, the objective of studying the growing field of sustainable finance is to contribute to a more sustainable
and responsible global financial system that aligns with environmental, social, and governance principles.

1.8 RESEARCH METHODOLOGY

The research focuses on collecting and analyzing non-numerical data, such as words, texts, images, or
observations, to understand meanings, experiences, and perspectives. It uses flexible and open-ended methods
such as interviews, focus groups, or observations to gather rich, in-depth data. It aims to explore and understand
complex phenomena in-depth by examining subjective experiences, perspectives, and meanings. It seeks to
answer questions about "why" or "how," and focuses on uncovering underlying patterns, themes, and insights.
The data analysis involves interpreting and making sense of non-numerical data through processes such as
coding, thematic analysis, content analysis, or narrative analysis. It focuses on identifying patterns, themes, and
meanings in the data, often using iterative and inductive approaches. The sample sizes is small, and sampling
continues until data saturation is achieved, meaning no new information or themes emerge.

Scope of the Study

The data collected for this report is secondary. Many research works are studied and analyzed to bring a
conclusion to this report. The outcome of the research would be very important for assessing environmental
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and social impact, understanding market dynamics, promoting responsible investing, enhancing corporate
sustainable practices, addressing climate change and social inequittes, improving risk management practices and
promoting long term value creation.

Need of the Study

One of the driving forces for the growth of sustainable finance is the need to mitigate climate risk. Climate
change is making its presence felt in different forms such as extreme weather conditions, water scarcity,
melting icebergs, etc. It makes it imperative to develop a lower carbon economy. This requires investment in
the installation of wind farms, solar parks, electric vehicle infrastructure, and more. This is where
sustainable finance has an important role to play.

Today most retail and corporate investors are looking to make a difference. They are looking for investment
opportunities that include ESG factors. This has increased the pressure on businesses to meet sustainability
objectives. Funding is required to support solutions that address environmental challenges. Therefore,
governments and policymakers are keen to create a financial space that fosters sustainable growth. The
financial sector needs to develop a resilient framework that can respond to the vagaries of nature.

Sources of data

The data collected for the completion of this report are secondary sources such as:

 Publications of research institute

 Journals and papers.
 International journals.

Period of Study

The time period for the study has been one month. Within a month various research works have been studied to
come to a required conclusion. The vast field of sustainable finance includes every aspects of esg finance and
their branches.

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Limitation of the study

While the survey conducted to gather data and information about digital HRM’s contribution to organisation, it
is important to acknowledge its limitations and constraints. Here are some potential limitations of the survey:

1. Sample Bias: The researches selected for the study may not fully represent the each and every type of
organisations. The selection criteria used to identify the researches and journals is random. As a result,
the findings may not be generalizable to all types of organizations.

2. Data Accuracy: The accuracy and reliability of the research works and journals depend upon their scope
and field of research. There is a possibility of errors, omissions, or incomplete responses, which can
impact the overall validity of the findings.

3. Time Constraints: The survey may have been subject to time constraints, which could limit the depth
and breadth of data collected.

4. Lack of Internal Validation : The researches made by researchers are from the point of view of an
external party. No validation from internal member of an organization is made so it can’t be said that
there won’t be any error due to such reasons.

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 Chapter 2

ANALYSIS AND INTERPRETATION

2.1 SUSTAINABLE FINANCE FRAMEWORK

The concern of the impact of economic activities on nature and social structures has been discussed for decades.
Through time, a number of possibilities to account for the connection between finance and sustainability have
been proposed. Among them, it is possible to mention the rise of environmental, social and corporate
governance (ESG) criteria in investment decision-making , the impact investing and the socially responsible
investing (SRI) approaches , the concern with climate change and human rights, the assessment of the effect of
finance in terms of negative externalities, or the role of sustainable finance for financial institutions already
having a formal dual bottom-line approach and for which financial performance needs to coexist with social
goals. Moreover, in recent years, the sustainability landscape has been further shaped as following the landmark
international agreements on the United Nations (UN) 2030 Agenda adopting the Sustainable Development
Goals (SDG) and the Paris Agreement on climate action. In both these initiatives, the sustainability governance
schemes and accountability patterns have put on finance an unprecedented attention and its role has been
recalled as a key enabling factor for the attainment of the most ambitious sustainability-related objectives.

In the sub-sections that follow, I review the main frameworks, definitions, and labeling standards existing in the
sustainable finance market. In this respect, I do not aim at providing a hermeneutic analysis of the all the
possible definitions featuring the market . Rather, I want to provide an extensive easy-to-understand description
of the sustainable finance landscape and its funding principles as it stands today. This approach allows inter alia
to propose two schematic representations that can be used to portray the sustainable finance market.

I conduct the review on the basis of three concentric layers of analysis, that is (from the largest to the smallest):
(i) the wider policy context, (ii) the industry-originated frameworks, and (iii) the operational and labeling
standards. As the layers are concentric, inner layers are coherent with larger ones in terms of scope but present
specific and stricter characteristics. Figure 1 gives a representation of the sustainable finance landscape on the
14
basis of these layers.

 Sustainable finance and wider policy context

The Sustainable Development Goals (SDG) and the Paris Agreement have landmarked the commitment of the
international community towards a more sustainable society and a climate-neutral economy. To reach these
ambitious objectives, a new technology framework, enhanced capacity-building, and a change in the
consumption patterns were recalled as essential and nested elements, all needed to steer the transition.
Nevertheless, to support such a transition, the mobilisation of financial resources has gained extraordinary
attention. Concerning the financing of the 17 SDG, several initiatives, mainly led by different UN bodies, have
been launched in order to draw the main principles to direct the necessary flow of resources towards the goals
and hence align global economic policies and financial systems with the 2030 Agenda. To this end, a total gap
of USD 5-7 trillion worldwide a year until 2030 has been estimated. Eventually, the concept of SDG finance has

15
emerged. Enhancing sustainable financing strategies and investments at regional and country levels and seizing
the potential of financial innovations, new technologies and digitalization to provide equitable access to finance
are the main specific objectives underpinning this concept. In such a context, the Principles for Positive Impact
Finance have been issued in 2017 within the Financial Initiative of the United Nations Environment Programme
(UNEP-FI). They are guidelines for financiers and investors to increase their impact on the economy, society,
and the environment, and aimed at providing basis for a common language across all categories of financial
instruments and business activities. Similarly, the Principles for Responsible Banking, focusing on banking
operations, have been released in 2019 by the same body. These principles have the purpose to provide a
general framework for a “sustainable” banking system in line with the SDG and the Paris Agreement, by
embedding sustainability considerations at the banks’ strategic, portfolio, and transactional levels, and across all
business areas. In parallel, the notions of Paris Agreement-aligned investments and, more general, green and
climate finance have also emerged, these latter broadly referring to the financial resources necessary to support
environmental objectives (green finance) and mitigation and adaptation actions that address climate change
(climate finance). Against this background, concrete policy initiatives have been also launched worldwide in the
attempt to mainstream the flow of resources directed towards sustainability related objectives. Probably, the
most noteworthy example is represented by the European Union. In the EU policy context, sustainable finance
is defined as “finance to support economic growth while reducing pressures on the environment and taking into
account social and governance aspects” and it is clearly understood to support the delivery of the “European
Green Deal” by trying to channel private investment into the transition to a climate-neutral, climate-resilient,
resource-efficient, and just economy. To do that, the strategy of the European Commission builds on a specific
Action Plan for sustainable finance [5] and follow-up initiatives.

The combination of abovementioned frameworks, concepts, and initiatives can indeed represent a first crucial,
even though rather raw and generic, reference in the attempt to draw the (policy-driven) perimeter of action for
sustainable finance. At this stage, without fixing any specific definition, sustainable finance may be indeed
considered to first and foremost embrace the financial stocks and flows mobilised to achieve the SDG (SDG
finance). Green finance and climate finance can be also considered specific components of sustainable finance.
In this respect, green finance can be referred to as the financial stocks and flows aiming at supporting the
achievement of the environment and climate-related SDG, while climate finance can be associated to that
component of green finance focusing on climate action in line with the Paris Agreement objectives (in
particular, in the form of climate change mitigation and climate change adaptation). However, to these broad
categories it may be necessary to add as part of sustainable finance the financial stocks and flows directed to
policy objectives that may not be covered by the SDG, but still have sustainability implications. Examples of

16
these latter are the threats to sustainable development such as the weakening of democracy aided by “big
technology,” or the inferences of the fourth industrial revolution on the global workforce.

Figure 2 gives a visual representation of a policy-driven classification of the possible components of sustainable
finance. As a matter of fact, such a wide scope, embracing the financing of the SDG, the Paris Agreement, and
going even beyond, would result in considering sustainable finance as already a sizable and stable, but not yet
completely visible, component of the modern financial system. In this regard, sustainable finance may in
particular also encompass government spending programmes (eventually financed by unlabelled debt), when
financing sustainability-related objectives.

A policy-driven classification of sustainable finance and its components.

 Sustainable Finance and Industry-Originated Frameworks

The financial industry has endogenously developed through time a number of frameworks that today should be
considered to fully integrate the wider sustainable finance landscape. In some cases, these frameworks have
seen the light much before the consolidation of the policy movement towards sustainability that can be observed
in the last decade.

17
Likely, the most important example is represented by the inclusion of environmental, social, and governance
(ESG) considerations in the investment decisions of financial actors. ESG have roots in not only faith-based
investing, but also in the civil rights, anti-war, and environmental movements of the 1960s and 1970s. However,
in more recent years, the investment risks posed by climate change and poor corporate governance provided a
huge catalyst in the growth of ESG investing. In addition, disclosure of ESG information for financial and non-
financial companies are increasingly demanded by policy makers in order to create a more transparent market
and steer investors’ decision-making. Noteworthy examples of ESG disclosure standards are the EU non-
financial reporting directive (NFRD) or the voluntary guidelines developed by the climate disclosure project
(CDP), the climate disclosure standards board (CDSB), the global reporting initiative (GRI), the principles for
responsible investment (PRI), the sustainability accounting standards board (SASB) or the task force on
climate-related financial disclosures (TCFD).

Spreading instruments aimed to sustain investment decisions, providing information on the firm’s position
within a sustainability perspective jointly with financial information represents a newness both for people
interested in ESG investments and for the entire plethora of stakeholders interested in the overall companies’
performance. An obvious consequence of these paradigm shifts is the felt need for strong support from
institutional investors. Within the carbon accounting literature, authors have identified two end-points on a
spectrum of possible bases to deal with sustainability: accounting for un-sustainability and accounting for
sustainability improvements. The former aims to the disclosure of un-sustainable practices concerning past and
current operations, and at predicting future levels of expected negative externalities (e.g., the level of GHG
emissions). The latter informs about the decisions, and related measures, that a company is going to implement
for improving its sustainable performance. Among these decisions and measures, the use of sustainable
financing instruments probably represents one of the most effective, since it directly realizes the bridge between
financial and natural capitals. However, the growing interest of the industry in ESG performance may be also
linked to the emergence of specific market incentives, related in particular to reputational gains and corporate
social responsibility acknowledgement by existing and potential clients. As also observed in the literature, for a
company to be recognized as engaged in sustainable activities it can bring concrete benefits in terms of
customer satisfaction, customer retention, and market positioning.

Being today largely nested with ESG considerations, the concept of socially responsible investing (SRI) has
also progressively spread in the financial industry. The basis for this contention revolves around the launch in
2006 of the United Nations-facilitated Principles for Responsible Investment (PRI) and the subsequent rise to
prominence of this initiative among practitioners. It refers to a voluntary set of investment principles that offer a
set of possible actions for incorporating ESG issues into investment practices. More than a half of the total
18
global institutional assets base are currently managed by institutions formally embracing these principles,
demonstrating the commitment of financial markets towards ESG criteria within investment decisions.

ESG considerations and SRI do not certainly complete the financial industry-originated practices towards
sustainability. Among the others, impact finance and the related impact investing should be first mentioned.
Impact investments can be defined as “investments made with the intention to generate positive, measurable
social and environmental impact alongside a financial return”. This concept, in which the application can
indeed span from social businesses to financial actors, in particular, focuses on the formal distinction between
(and the co-existence of) financial and non-financial performances, with the aim to widen the final investment
scope for market participants. To this extent, impact investments can be made in both emerging and developed
markets, and target a range of returns from below-market to market rate, depending on investors’ strategic goals.
On the other hand, specifically concerning project management practices, the equator principles (EP) are
emerging in recent years as a “financial industry benchmark for determining, assessing and managing
environmental and social risk in projects”. The EP may apply to all industry sectors and refer to five main
financial products: project finance, project finance advisory services, project-related corporate loans, bridge
loans, and project-related refinance and acquisition finance. In practice, the EP could already cover the majority
of international project finance debt within both developed and emerging markets.

 Sustainable Finance and Operational and Labeling Standards

When it comes to the observation of sustainable finance with regard to operational and labeling standards, the
framework put in place for green bonds is by far the most advanced. This framework, endogenously developed
within the financial industry, today benefits from a large acceptance of the green bond principles (GBP), issued
by the International Capital Market Association (ICMA) in 2014 and then updated in 2018. The GBP are
voluntary process guidelines that recommend transparency and disclosure and promote integrity in the
development of the green bond market by clarifying the approach to be followed for the issuance of a green
bond. To this extent, green bonds are defined as “any type of bond instrument where the proceeds will be
exclusively applied to finance or refinance, in part or in full, new and/or existing eligible green projects and
which are aligned with the four core components of the GBP”. The GBP then provide issuers with guidance on
the four core components involved in launching a green bond, which are: use of proceeds, process for project
evaluation and selection, management of proceeds and reporting. In practice, the framework provided by the
GBP recommends a structured process for issuers, investors, banks, underwriters, and placement agents that can
be used to appreciate the expected features of any given green bond. The GBP also foresee issuers, in
connection with the issuance of a green bond, to appoint at least one external reviewer to confirm the alignment
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of their bond with the four core components of the GBP (these external reviews can be of four types: second
party opinions, verifications, certifications, or green bond scoring/ratings). Even though the GBP are not
mandatory, their development has played thus far a significant role in structuring the green bonds market,
providing all stakeholders with a tool able to effectively and easily segregate green bonds from other debt
securities. In this respect, certification agencies acting as reviewers today make wide reference to the GBP in
their assessment activity, in this way prompting a certain degree of homogeneity in the market. In 2019, a total
of USD 257.7 billion green bonds was issued worldwide, representing a new record and confirming the double-
digit growth of the market in recent years. Nevertheless, it should be argued that the green debt market can
hardly be considered to be limited to instruments formally in line with the GBP and eventually labeled as green
bonds. As a matter of fact, a not negligible part of the unlabelled bonds outstanding could in principle meet the
criteria set by the GBP, even though the issuers eventually disregarded the labeling option (e.g., in the case of
many municipal bonds issued to finance projects of water pollution prevention). The size of this market, which
is very difficult to calculate with accuracy, is indeed expected to be at least twice as large as the labeled green
bonds market standalone.

Following green bonds, labels were then proposed for social bonds and sustainability bonds with similar
operational standards as green bonds but focused respectively on social and general sustainability goals, and
sustainability-linked bonds, that novates by identifying a return to the investment for bond holders linked to the
attainment of sustainability objectives measured by specific Key Performance Indicators (but, as intended to be
used for general purposes, the use of proceeds for sustainability-linked bonds is not a determinant and leaves
wide freedom to the issuer in deciding the type of investments to pursue).

Furthermore, labeling standards are progressively getting available for securities other than bonds, as it is the
case for green loans, sustainability-linked loans, or the various types of sustainable funds. As a matter of fact,
the fortune of these labeling standards will depend on their appeal in terms of steering market demand and on
the incidence of administrative costs on the issuer. As these latter may be largely independent from the size of
the operation, in many cases they may result in being too high to be attractive for operations of limited size.

Beyond labels, taxonomies represent today the essential operational standards in the sustainable finance market.
Taxonomies, which are normally developed by multilateral development banks (MDB), financial industry
organisations or policy makers, are lists that specify the sectors or the activities which are entitled to receive
“sustainable” financing. In this respect, they are also used within the labelling frameworks mentioned above
when it comes to analysing the use of proceeds. Table 1 gives a general overview of the possible treatment of
economic sectors and activities in existing sustainable finance taxonomies. Policy-wise, the most important
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initiatives launched to create taxonomies comprehend the EU Taxonomy of sustainable activities, in line with
the mentioned Action Plan for sustainable finance and the People Bank of China’s Green Bond Endorsed
Project Catalogue. However, as of today, these taxonomies have been principally developed for climate and
(partially) environment-related investments, with little coverage of the possible other sustainability dimensions.
Furthermore, today they are far from being homogeneous in terms of contents.

2.2 ESG INVESTMENT

ESG investing refers to incorporating environmental, social and governance considerations while investing.
However, this broad term has different meanings that vary across investors and contexts. In public markets, for
instance, ESG strategies are more likely to target the return-risk profile to mitigate ESG risks or benefit from
favourable ESG-related opportunities. In private markets, on the other hand, sustainable investing strategies are
more likely to focus on impacting societal outcomes while earning financial returns.

Though investing with non-pecuniary considerations has a long history, in a formal sense, sustainable investing
started with Socially Responsible Investing (SRI) funds. SRI, in its original form, was based on the personal
values or preferences of investors. An SRI fund would target investors with a similar set of views or preferences.
The primary investment strategy used was the negative screening of ‘sin stocks’, meaning that stocks of certain
businesses, such as tobacco or weapons, would be excluded from the portfolios.

Though not explicitly communicated to investors, this implied a potential sacrifice of returns since the
investment opportunity set gets reduced due to the exclusionary constraints. Negative screening, being a simple
strategy, also tends to be transparent, leaving little scope for compromise with investor preferences or values.
Over time, SRI incorporated other methods, such as positive screening, impact investing and best-in-class
investing.

ESG investing became popular in the 2010s with improved measures and indicators of E, S, and G. Several
ESG data providers and rating agencies supplied information to support sustainable investing less subjectively.
Index providers, using proprietary or third-party ESG ratings, launched ESG indices. ESG indices not only
provided a benchmark for responsible funds, but they also aimed to provide evidence regarding the effect of
sustainable investing choices on the return-risk profile of portfolios. Further, they would spur the development
of passive ESG investing through ESG exchange-traded funds (ETFs) and ESG index funds based on such
indices.

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The advent of ESG investing had at least three consequences for sustainable investing – on the scope, objective,
and scale. Regarding scope, ESG brought the governance pillar to sustainable investing since, in the traditional
SRI concept, governance only refers to oversight of responsible investing commitments. In comparison, G in
ESG largely follows agency theory-based constructs such as board structure and diversity, with the intent to
ensure accountability of the management to the shareholders. However, there is usually some weight assigned
to stakeholder relationships as well. The relative importance of E and S also effectively changed, as the focus of
exclusionary SRI investing or impact investing tended to emphasise social aspects, the environment being one
of the several targeted societal outcome areas. With ESG, the environment gained more weight, and the
emerging scientific and political consensus on climate urgency took centre stage.

In terms of objectives, ESG investing became increasingly divorced from impact investing – in ESG investing,
the emphasis is on financial returns, not, unless explicitly stated, on societal outcomes. E, S & G considerations
are “inputs” to ensure that the risks and opportunities affecting the firm’s value get comprehensively evaluated.
Some commentators refer to this as “valueorientation” as distinct from the “values-orientation” of traditional
impact investing and even the conventional SRI.

Further, in ESG investing, stocks are not painted in black or white; they differ in their ESG attributes on a
spectrum. Even though ESG rating agencies provide scores that rank the firms, the divergence of ratings among
agencies, the dynamism in ratings of firms, and the different rating attributes make the rating data malleable. As
the incorporation of sustainability in investing becomes more data-driven and statistical, it is conceivable that an
investor may not intuitively understand from an ESG fund’s holdings how the weights of the stocks get aligned
with “values” or even societal outcomes.

Finally, the easily quantifiable methods, less focus on personal preferences, and the stated or implied absence of
trade-offs with financial returns have enabled ESG investing to scale up significantly. If financial returns are not
sacrificed, it becomes easier for institutional investors to justify ESG investing since there is no conflict with
fiduciary duty. Retail investors can get attracted to the promise of attractive financial returns, with no
requirement to have common shared values. Some proponents believe that the traction in retail is also due to the
higher sensitivity of the millennials towards sustainability issues. It is not surprising, therefore, that ESG
investing has become the dominant label in sustainable equity investing, relegating the SRI label to the
sidelines. Impact investing is now reserved mainly for the private investing space.

According to Morningstar, the total assets held by sustainable funds globally amounted to $2.7 trillion at the
end of September 2023 (Morningstar, October 2023), recovering after falling from the peak of $3 trillion at the

22
end of 2021 to around $2.3 trillion by September 2022 (see Figure 1). Regarding long-term comparisons,
sustainable assets have grown nearly fivefold from about $585 billion at the end of 2018 and more than tenfold
from around $262 billion at the end of 2013 (UNCTAD, 2023). Morningstar’s definition includes open-end
funds and ETFs and considers intentionality rather than holdings. These figures should be reasonably
representative of the size of ESG investment funds. While the statistics may not be comparable to those reported
by other sources due to the basis of reporting, the high-growth trend is likely to be universal.

Global sustainable assets under management

ESG investing, as prevalent today, follows the strategies listed below.

Environmental, Social, and Governance (ESG) investing involves considering a company's performance and
practices in three key areas: environmental impact, social responsibility, and corporate governance. Investors
integrating ESG factors into their strategies aim to align their portfolios with ethical, sustainable, and socially
responsible principles. Here are some common ESG investing strategies:

i. Negative Screening: Excluding companies or industries that do not meet specific ESG criteria. Example:
Avoiding investments in companies involved in industries like tobacco, weapons manufacturing or
fossil fuels.

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 ii. Positive Screening: Actively selecting investments based on positive ESG criteria. Example: Investing
in companies with strong sustainability practices, renewable energy projects, or those promoting social
equity.
iii. Integration: Integrating ESG factors alongside traditional financial analysis when evaluating
investments. Example: Considering a company's carbon footprint, labor practices, or board diversity as
part of the investment decision-making process.

iv. ESG Themed Investing: Focusing on specific ESG themes or issues, such as climate change, gender
equality, or clean energy. Example: Investing in a fund that specifically targets companies contributing
to environmental sustainability.

v. Impact Investing: Seeking investments that generate positive, measurable social or environmental
impact alongside financial returns. Example: Investing in projects or companies that address specific
global challenges like poverty, healthcare, or renewable energy.

vi. Best-in-Class: Selecting the best-performing companies within a sector based on their ESG
performance. Example: Choosing companies with superior ESG practices relative to their industry peers.

vii. ESG Indices and Funds: Investing in indices or funds that track companies meeting specific ESG
criteria. Example: Investing in an ESG index or a mutual fund that focuses on companies with strong
ESG performance.

viii. Shareholder Engagement and Advocacy: Actively engaging with companies to encourage positive
changes in their ESG practices. Example: Voting on shareholder resolutions, participating in dialogues
with company management, or joining initiatives promoting ESG improvements.

ix. ESG Ratings and Research: Relying on third-party ESG ratings and research to inform investment
decisions. Example: Using ESG ratings from agencies like MSCI, Sustainalytics, or others to evaluate
companies' sustainability performance.

x. Sustainability-themed Bonds: Investing in bonds specifically issued to finance environmentally or

socially beneficial projects. Example: Purchasing green bonds, social bonds, or sustainability-linked
bonds.
24
It's important for investors to align their ESG strategies with their specific values and financial goals.
Additionally, staying informed about evolving ESG standards, regulations, and reporting practices is crucial for
effective ESG investing. The landscape of ESG investing is dynamic, and investors may choose to combine
multiple strategies based on their preferences and objectives.

Figure shows the growth of ESG investing by strategy, as per the classification by the Global Sustainable
Investment Alliance (2021). By 2020, ESG integration had become the most significant investing strategy by
asset value, having overtaken negative screening

Global growth in sustainable investment strategies 2016-2020

In the context of factor investing, ESG integration is the most relevant investing strategy. Hence, in the
remaining part of this article, ESG factor investing will refer to ESG integration strategy only.

25
 ESG FACTOR INVESTING IN PRACTISE

2.3 ESG Investment Information Infrastructure

ESG investment rests on the foundation of its information infrastructure. It is essential to appreciate that
developing a solid information infrastructure is crucial to the success of ESG as a driver of investment returns
and risks. We can describe the information infrastructure in six information levels in Figure below.

ESG information levels

At Level 1 are definitions, and it will be unwise to take these for granted. Though within ESG, one would
expect more similarity in definitions of E, S and G, the same need not be true.

Take G, for instance. G is often derived from the traditional understanding of corporate governance, which has
its roots in the shareholder-centric agency theory. However, in the ESG context, other stakeholders are also
crucial from a sustainability perspective. This broadening of perspective makes it difficult to arrive at a unified
definition. We end up understanding and, hence, measuring G through its components rather than as an
integrated, meaningful construct. S also faces an issue of commonality of understanding. Though the relevant
U.N. SDGs provide a common reference point, there can be significant variation in interpretation due to both
variations across cultures and disagreements on viewpoints. E may be the least controversial component, but

26
there can be narrow definitions almost entirely focused on climate risks, and broader definitions encompass
various environmental risks, including climate risks.

Further aggravating the problem of non-uniformity, these definitions are often provided by data aggregators or
ESG rating providers, which, being commercially competing entities, have greater interest in differentiation
than in standardisation.

Sustainability standards at Level 2 have more significant potential for convergence due to the involvement of
global standard-setting bodies. Indeed, there has been much progress facilitated by consolidation among
standardsetters and active efforts towards convergence. Two dominant standardsetting bodies today – IFRS and
GRI have taken steps towards aligning their standards. Convergence is still held back due to fundamental
disagreements on perspectives. From one perspective, material sustainability issues must be identified based on
financial risks. According to the other (more favoured in Europe), double materiality is crucial; both financial
risks and sustainable impact outcomes are essential.

The use of these standards in company reporting (Level 3) varies by country, depending upon regulation. While
some countries have adopted global standards such as SASB (consolidated with IFRS) and GRI, others have
their own standards. More crucially, there are regional differences in coverage of companies that are required to
disclose non-financial information and the extent to which they have to disclose.

Apart from information disclosed by companies in their filings, independent data providers capture information
either directly from the companies or alternative sources. Data aggregators (Level 4) such as Bloomberg and
Refinitiv collect and structure the ESG information as per their proprietary ESG frameworks. Since ESG
disclosures have been scarce, unregulated and non-standard historically, the history and extensiveness of ESG
data is limited compared to financial data inputs for investment.

ESG ratings (Level 5) form the heart of the ESG information infrastructure. They inform the decision of where
to invest and in what proportion. Thirdparty evaluation distinguishes ESG investing from impact investing and
traditional values-based SRI. The rating framework of an ESG rating agency defines the scope of the
assessment, usually in terms of the subcomponents of E, S and G pillars, how materiality is assessed and
translated into weights of the subcomponents, the proxy indicators for each subcomponent, and how each firm
is scored on each proxy indicator given the disclosed information (or lack of it).

27
Rating agencies can differ in terms of the method, scope, the proxy indicators used, and the weights given to the
indicators. In terms of process, too, they may differ in terms of the extent of analyst intervention versus
automation of the rating process. These differences, aggravated by industry fragmentation, have resulted in
significant variations in ESG ratings. Some have expressed the hope that the convergence of ESG reporting
standards and some regulatory intervention will enable the alignment of ratings. However, the intrinsic
problems of subjectivity and differences in perspectives in defining ESG components, particularly for the S and
G pillars, remain sticky. Wellknown ESG rating providers include Sustainalytics (owned by Morningstar),
MSCI, ISS ESG, Refinitiv (owned by LSEG), Bloomberg, S&P Global and V.E. (part of Moody’s ESG
Solutions).

ESG indices (Level 6) bridge ESG ratings and ESG funds. They provide the benchmarks for ESG funds. When
investible, they can be used to create ESG ETFs and ESG index funds. They can provide the universe for stock
selection by active managers. Given that academic literature has yet to endorse ESG investing as a valid return-
generating strategy, the performance of ESG indices plays an essential role in making a case for (or against)
ESG investing.

Major ESG indices can encourage companies to improve their practices and disclosure to remain or become
constituents. However, critics can argue that it may encourage companies to greenwash to boost their ESG
ratings. There are many ESG indices across asset classes, and they differ based on underlying definitions and
ESG ratings. Some of the leading providers of ESG indices include MSCI, Bloomberg and S&P Global Dow
Jones.

2.4 Construction of ESG Investment Strategies

As discussed earlier, ESG screening, ESG integration and Thematic investing are three broad ESG investment
strategies. Table summarises the approach to portfolio construction for sub-categories of ESG screening and
ESG integration. Thematic investing is closer in scope to impact investing and is not discussed here

Strategy Definition Approaches/Step

Screening Applying filter

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 to rule out companies
based on investor’s
preferences, values or
ethics
norms-based excluding companies
that fail to meet
international norms
positive/ to choose companies
best-in-class based on investor’s
preferences, values or
ethics
Integration Including ESG factors
in investment analysis
and decisions
fundamental incorporating ESG
factors in fundamental
analysis, forecasting &
valuation
quantitative integrating ESG factors
in systematic rule based
strategies for security
selection and position
weights
passive tracking an ESG index
indexing systematically
Source: Adapted by author from “An Introduction to Responsible Investment” (www.unpri.org) and “ESG
a. Avoiding specific activities
(such as: alcohol, tobacco,
gambling, adult entertainment,
military weapons, fossil fuels,
nuclear energy). b. Avoiding
worst-in-class companies.
Based on norms related to specific
S & E aspects (set by UN, ILO,
OECD or other organisations)
a. Investing in sectors with
relatively better ESG performance
b. Investing in companies because
of S & E benefits of their
products/services
c. Investing in best-in-class or best
practice leaders against peers based on ESG
1. Identifying material ESG issues
at economy, industry & company
level. 2. Assessing the impact of
material issues on company’s
forecasted revenues, profit
margins, investments, asset
values. 3. Incorporating the
changes in forecasted cashflows
and cost of capital due to material
ESG issues in valuation. 4.
Building scenarios to consider ESG
uncertainties.
1. Establishing a statistical
relationship between ESG factors
and returns. 2. Setting the
parameters of the strategy. 3.
Back-testing and evaluating the
model 4. Constructing the
portfolio.
1. Selecting an ESG index 2.
Constructing a portfolio
replicating the index
29
 integration in listed equity: A technical guide” (PRI,2023) by Principles of Responsible Investment.

2.5 ESG Factor Investing

ESG is a latecomer to factor investing and is still evolving regarding its information infrastructure and research-
backing as a return factor. Not surprisingly, ESG factor investing is primarily implemented through ESG
integration in established quantitative strategies rather than as a standalone strategy.

The following are the critical steps in ESG integration in quantitative strategies.

1. Establishing a statistical relationship between ESG factors and returns.

The first step involves testing an investment hypothesis, usually by statistical analysis of the relationship
between proxy variables of ESG and investment returns. One must also assess the correlation between
ESG and other factors if the strategy involves multiple factors.

2. Setting the parameters

Parameters to set include the investment universe, the investment objectives, the choice of factors and
weighting process, the implementation method and frequency of rebalancing. In setting the parameters
the following ESG-based considerations could be used.
a. Applying client-mandated ESG preferences (using exclusion/best-inclass selection) when
determining the investment universe.
b. Adding ESG constraints and outcomes to the investment objectives
c. Deciding the measures, indicators and data to be used for the ESG factor
d. Setting any limits on portfolio exposure to ESG metrics
e. Considering frequency of changes in ESG metrics when deciding portfolio rebalancing frequency.

ESG factors could include stock ESG ratings (proprietary or from a third party), individual E, S, or G
scores, or ESG momentum (rate of change in ESG score over the past year). One could also use carbon
emissions or alternative text-analytics-based data to form the factors. A single ESG factor-based strategy
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 is rare, and it is more likely that the ESG factor is used in conjunction with one or more other factors. In
the case of multifactor models, the weight of the factors could be equal or based on risk parity. The
implementation strategies used could be long-only or long-short.

3. Back-testing and evaluating the model

In addition to the standard metrics checked in back-testing (such as Sharpe ratio or drawdown), ESG
metrics can also be reviewed (aggregate ESG score, GHG emissions intensity). Back-testing could be
done over long periods to test the strategy performance over varying market conditions and changes in
ESG reporting or regulations.

4. Constructing the portfolio

If back-testing results are encouraging, fund managers may implement the strategy. The security
selection and weighting, being rule-based, are automated.

2.6 GREEN BONDS

Green bonds are specifically destined for the funding or refunding of green projects, i.e. projects that are
sustainable and socially responsible in areas as diverse as renewable energy, energy efficiency, clean
transportation or responsible waste management. Iberdrola has consolidated its status as the biggest group issuer
of green bonds in the world; and at the start of 2021 it issued the biggest hybrid green bond in history, worth €2
billion.

Green bonds are a type of debt issued by public or private institutions to finance themselves and, unlike other

credit instruments, they commit the use of the funds obtained to an environmental project or one related to
climate change.

On 5 July 2007, the European Investment Bank (EIB) launched a very special issue for the first time: green
bonds. But what are green bonds and why they are so relevant? They can be distinguished by their goal: to fund
projects that contribute to achieving the Sustainable Developement Goals- number 7 (affordable and non-
contaminating energy) and number 13 (Climate action).

Green bonds are a specialized type of bond designed to fund environmentally beneficial projects. The key
features that distinguish green bonds:

i. Use of Proceeds: One of the defining features of green bonds is their specific use of proceeds. The
funds raised through the issuance of green bonds are dedicated exclusively to finance or refinance
31
 projects with environmental benefits. These projects typically fall within predefined categories, such as
renewable energy, energy efficiency, sustainable transportation, climate adaptation, or biodiversity
conservation.

ii. Certification and Verification: Issuers of green bonds often seek external certification or verification
from third-party organizations to validate that the projects financed meet established environmental
criteria and standards. This certification provides investors with assurance that the proceeds are being
used as intended and that the projects have a positive environmental impact.

iii. Transparency and Reporting: Green bond issuers are required to provide transparent and detailed
reporting on the environmental impact of the projects funded by the bonds. This includes disclosing
information on the allocation of proceeds, the selection criteria for eligible projects, and the
environmental benefits achieved. Regular reporting ensures accountability and helps investors assess the
effectiveness of their investments.

iv. Investor Appeal: Green bonds appeal to a wide range of investors, including institutional investors,
asset managers, pension funds, and socially responsible investors. These investors are increasingly
seeking opportunities to align their investment portfolios with sustainability objectives and support
projects that contribute to environmental stewardship.

v. Financial Returns: Like traditional bonds, green bonds offer investors fixed or variable interest
payments over a specified period, known as the bond’s maturity. Investors receive financial returns in
the form of coupon payments and the return of principal at maturity. The financial performance of green
bonds is typically comparable to that of conventional bonds with similar credit ratings and maturities.

vi. Market Growth and Standardization: The market for green bonds has experienced significant growth
in recent years, driven by increasing investor demand and regulatory support. To promote market
integrity and transparency, various organizations and initiatives have developed guidelines and
principles for green bond issuance, such as the Green Bond Principles (GBP) established by the
International Capital Market Association (ICMA).

vii. Impact Measurement: Evaluating the environmental impact of green bonds is essential for assessing
their effectiveness and accountability. Issuers may use metrics such as greenhouse gas emissions

32
 reductions, energy savings, renewable energy capacity installed, or acres of land protected to measure
the tangible benefits of the projects funded by green bonds.

Overall, green bonds play a crucial role in mobilizing capital for environmentally sustainable projects and
facilitating the transition to a low-carbon economy. Their features ensure transparency, accountability, and
credibility, making them attractive investment instruments for investors seeking both financial returns and
positive environmental impact.

2.7 GREEN BOND PRINCIPLES

The Green Bond Principles (GBP) are voluntary process guidelines that recommend transparency and
disclosure and promote integrity in the development of the Green Bond market by clarifying the approach for
issuance of a Green Bond. The GBP are intended for broad use by the market: they provide issuers with
guidance on the key components involved in launching a credible Green Bond; they aid investors by promoting
availability of information necessary to evaluate the environmental impact of their Green Bond investments;
and they assist underwriters by offering vital steps that will facilitate transactions that preserve the integrity of
the market.

The GBP recommend a clear process and disclosure for issuers, which investors, banks, underwriters, arrangers,
placement agents and others may use to understand the characteristics of any given Green Bond. The GBP
emphasise the required transparency, accuracy and integrity of the information that will be disclosed and
reported by issuers to stakeholders through core components and key recommendations.

The four core components for alignment with the GBP are:

1. Use of Proceeds: The cornerstone of a Green Bond is the utilisation of the proceeds of the bond for
eligible Green Projects, which should be appropriately described in the legal documentation of the
security. All designated eligible Green Projects should provide clear environmental benefits, which will
be assessed and, where feasible, quantified by the issuer. In the event that all or a proportion of the
proceeds are or may be used for refinancing, it is recommended that issuers provide an estimate of the
share of financing vs. re-financing, and where appropriate, also clarify which investments or project
portfolios may be refinanced, and, to the extent relevant, the expected look-back period for refinanced
eligible Green Projects.
The GBP explicitly recognise several broad categories of eligibility for Green
Projects, which contribute to environmental objectives such as: climate change mitigation, climate

33
change adaptation, natural resource conservation, biodiversity conservation, and pollution prevention
and control. The following list of project categories, while indicative, captures the most commonly used
types of projects supported, or expected to be supported by the Green Bond market. Green Projects
include assets, investments and other related and supporting expenditures such as R&D that may relate
to more than one category and/or environmental objective. Three environmental objectives identified
above (pollution prevention and control, biodiversity conservation and climate change adaptation) also
serve as project categories in the list. As such, they refer to the projects that are more specifically
designed to meet these environmental objectives.

The eligible Green Projects categories, listed in no specific order, include, but are not limited to:
• Renewable energy
• Energy efficiency
• Pollution prevention and control
• Environmentally sustainable management of living natural resources and land use
• Terrestrial and aquatic biodiversity conservation
• Clean transportation
• Sustainable water and wastewater management
• Climate change adaptation
• Circular economy adapted products, production technologies and processes and/or certified eco-
efficient products
• Green buildings that meet regional, national or internationally recognised standards or
certifications for environmental performance.

While the GBP’s purpose is not to take a position on which green technologies, standards, claims and
declarations are optimal for environmentally sustainable benefits, it is noteworthy that there are several
current international and national initiatives to produce taxonomies and nomenclatures, as well as to
provide mapping between them to ensure comparability. These may give further guidance to Green
Bond issuers as to what may be considered green and eligible by investors. These taxonomies are
currently at various stages of development. Issuers and other stakeholders can refer to examples in the
sustainable finance section of ICMA’s website. Furthermore, there are many institutions that provide
independent analysis, advice and guidance on the quality of different green solutions and environmental
practices. Definitions of green and Green Projects may also vary depending on sector and geography.
Finally, where issuers wish to finance projects towards implementing a net zero emissions strategy

34
 aligned with the goals of the Paris Agreement, guidance on issuer level disclosures and climate
transition strategies may be sought from the Climate Transition Finance Handbook.

2. Process for Project Evaluation and Selection

The issuer of a Green Bond should clearly communicate to investors:
• The environmental sustainability objectives of the eligible Green Projects;
• The process by which the issuer determines how the projects fit within the eligible Green Projects
categories (examples are identified above); and
• Complementary information on processes by which the issuer identifies and manages perceived social
and environmental risks associated with the relevant project(s).

Issuers are also encouraged to:

• Position the information communicated above within the context of the issuer’s overarching objectives,
strategy, policy and/or processes relating to environmental sustainability.
• Provide information, if relevant, on the alignment of projects with official or market-based taxonomies,
related eligibility criteria, including if applicable, exclusion criteria; and also disclose any green
standards or certifications referenced in project selection.
• Have a process in place to identify mitigants to known material risks of negative social and/or
environmental impacts from the relevant project(s). Such mitigants may include clear and relevant trade-
off analysis undertaken and monitoring required where the issuer assesses the potential risks to be
meaningful.

3. Management of Proceeds
The net proceeds of the Green Bond, or an amount equal to these net proceeds, should be credited to a
sub-account, moved to a sub-portfolio or otherwise tracked by the issuer in an appropriate manner, and
attested to by the issuer in a formal internal process linked to the issuer’s lending and investment
operations for eligible Green Projects. So long as the Green Bond is outstanding, the balance of the
tracked net proceeds should be periodically adjusted to match allocations to eligible Green Projects
made during that period. The issuer should make known to investors the intended types of temporary
placement for the balance of unallocated net proceeds. The proceeds of Green Bonds can be managed
per bond (bond-by-bond approach) or on an aggregated basis for multiple green bonds (portfolio
approach). The GBP encourage a high level of transparency and recommend that an issuer’s
management of proceeds be supplemented by the use of an external auditor, or other third party, to
verify the internal tracking method and the allocation of funds from the Green Bond proceeds
35
 4. Reporting
Issuers should make, and keep, readily available up to date information on the use of proceeds to be
renewed annually until full allocation, and on a timely basis in case of material developments. The
annual report should include a list of the projects to which Green Bond proceeds have been allocated, as
well as a brief description of the projects, the amounts allocated, and their expected impact. Where
confidentiality agreements, competitive considerations, or a large number of underlying projects limit
the amount of detail that can be made available, the GBP recommend that information is presented in
generic terms or on an aggregated portfolio basis (e.g. percentage allocated to certain project categories).
Transparency is of particular value in communicating the expected and/or achieved impact of projects.
The GBP recommend the use of qualitative performance indicators and, where feasible, quantitative
performance measures and disclosure of the key underlying methodology and/or assumptions used in the
quantitative determination. Issuers should refer to and adopt, where possible, the guidance and impact
reporting templates provided in the Harmonised Framework for Impact Reporting. The use of a
summary, which reflects the main characteristics of a Green Bond or a Green Bond programme, and
illustrates its key features in alignment with the four core components of the GBP, may help inform
market participants. To that end, a template can be found in the sustainable finance section of ICMA’s
website which once completed can be made available online for market information.

2.8 Types of green bonds

There are currently four types of Green Bonds (additional types may emerge as the market develops and these
will be incorporated in GBP updates):

1. Standard Green Use of Proceeds Bond: an unsecured debt obligation with full recourse-to-the-issuer
only and aligned with the GBP. Standard green bonds are the most common type and adhere to the
principles and guidelines established by organizations like the International Capital Market Association
(ICMA). These bonds raise capital for projects with clear environmental benefits, such as renewable
energy, energy efficiency, sustainable transportation, climate adaptation, and biodiversity conservation.
Standard green bonds follow a straightforward structure, with proceeds earmarked exclusively for green
projects and transparent reporting on the environmental impact of funded projects.

2. Green Revenue Bond: a non-recourse-to-the-issuer debt obligation aligned with the GBP in which the
credit exposure in the bond is to the pledged cash flows of the revenue streams, fees, taxes etc., and
whose use of proceeds go to related or unrelated Green Project(s). Green revenue bonds are issued by
36
 municipalities or public entities to finance green infrastructure projects, such as renewable energy
facilities, water conservation projects, or sustainable transportation initiatives. These bonds are backed
by the revenues generated by the green projects they finance, rather than the general credit of the issuer.
Green revenue bonds are typically structured as revenue bonds, with proceeds used to fund capital
expenditures for specific projects. Investors are repaid from the revenues generated by the projects, such
as user fees or utility payments.

3. Green Project Bond: a project bond for a single or multiple Green Project(s) for which the investor has
direct exposure to the risk of the project(s) with or without potential recourse to the issuer, and that is
aligned with the GBP. Green project bonds are a type of bond specifically designed to finance individual
green projects that deliver environmental benefits. Unlike traditional bonds, which may fund a range of
general corporate purposes, green project bonds are earmarked exclusively for specific projects that
meet predefined environmental criteria. Green project bonds play a critical role in mobilizing capital for
individual projects with clear environmental benefits, contributing to the transition to a more sustainable
and resilient economy. Their structured approach to financing green projects enables issuers and
investors to align their financial objectives with environmental goals, driving positive environmental
outcomes while generating financial returns.

4. Secured Green Bond: a secured bond where the net proceeds will be exclusively applied to finance or
refinance either:

i. The Green Project(s) securing the specific bond only (a “Secured Green Collateral Bond”); or
ii. The Green Project(s) of the issuer, originator or sponsor, where such Green Projects may or may
not be securing the specific bond in whole or in part (a “Secured Green Standard Bond”). A
Secured Green Standard Bond may be a specific class or tranche of a larger transaction.

This Secured Green Bond category may include, but is not limited to, covered bonds, securitisations, asset-
backed commercial paper, secured notes and other secured structures, where generally, the cash flows of assets
are available as a source of repayment or assets serve as security for the bonds in priority to other claims. For
each Secured Green Bond, the issuer, originator or sponsor should clearly specify in its marketing materials,
offering documentation or by other means which method defined in (i) or (ii) above is being applied, i.e.
whether it is a Secured Green Collateral Bond or a Secured Green Standard Bond.

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There should be no double counting of Green Projects under a Secured Green Bond with any other type of
outstanding green financing and the issuer, originator or sponsor (as applicable) must ensure full alignment with
all Core Components of the GBP

2.9 India: becoming a sustainable finance maker

In the year of India’s presidency of the G20, Nick Robins shows how key pieces of the country’s sustainable
finance framework are falling into place and how an ambitious approach connecting net zero with the human
dimension could help to hanneli the trillions the country needs.

Across New Delhi huge posters proclaim the importance India’s government attaches to hosting this year’s G20.
India’s G20 slogan ‘One Earth, One Family, One Future’ signals a clear sustainability thread that runs through
its presidency. It is also a message that connects with the country’s strategic aim of attracting trillions of dollars
of investment into India’s infrastructure, and its technological and human development. For this investment
surge to succeed, ensuring clean water, air and energy, building real resilience to mounting climate shocks and
accelerating the delivery of net zero will need to be at its heart. But beyond these and other classic green
priorities, sustainable finance in India is shaping up to be an imperative profoundly focused on people.

A flurry of announcements
The first weeks of 2023 opened with a flurry of sustainable finance announcements in India. This year’s budget
identified green growth as a priority, with spending earmarked for hydrogen, energy storage and hannelin, and
for making agriculture more nature-friendly. The government also issued its first green sovereign bond ,
raising $1 billion at a lower cost of capital than conventional debt. The country’s central bank, the Reserve
Bank of India , announced that it will be issuing new guidelines on climate stress testing, climate disclosure
and green deposits at banks. In the capital markets, the securities regulator, SEBI, has been pursuing green
bonds and corporate disclosure for quite a while. It has now updated its approach and released new
frameworks for blue (ocean) and yellow (solar) bonds, as well as its own ‘dos and don’ts’ to
prevent greenwashing . 2023 will also be the first year that India’s 1,000 biggest hannelin will have to
disclose a Business Responsibility and Sustainability Report (BRSR), an important step for accountability on
environmental and social performance.

38
These moves suggest that some of the key pieces of the sustainable finance puzzle are falling into place. But
questions still remain about the practical integration of environmental, social and governance (ESG) factors into
routine financial decision-making. Concerns about integrity in corporate India have been thrown into the
spotlight by the recent furore over the governance of the Adani group, prompting some international investors
to divest their holdings. As yet, overall issuance of green, social and sustainability bonds has disappointed,
resting far below what is needed to enable India’s energy and nature transitions. And recent analysis of
India’s largest banks and financial institutions suggests that “there have been limited efforts to identify,
measure or manage low-carbon transition risks”.

Defining what sustainable finance means in terms of India’s own needs and priorities is yet to happen, making
the publication of the country’s taxonomy an early priority. What is striking about the forthcoming taxonomy
recommendations drawn up by India’s Task Force on Sustainable Finance is the incorporation of social and just
transition guidelines from the outset alongside familiar environmental financing goals. This points to the
fundamental human dimension that could well become India’s signature contribution to global sustainable
finance efforts.

Financing the green jobs superpower of the 21st century

Many governments, not least the current US administration, are hannelin that the climate agenda is best seen
through a jobs rather than an emissions lens. This year India is set to become the world’s most populous nation
and it has untapped potential for job creation in hannelin, electric scooters, buses, trains (and cars), low-
cost and efficient housing, natural farming and net zero hanneling zed on. The country is poised to be the
green jobs superpower of the 21st century – that’s the hope and some early signs of promise are coming through.
India’s solar and wind energy sectors employed 164,000 workers in the 2022 fiscal year, a 47% increase on the
previous year; by 2030, these sectors alone could employ 1 million workers. A Skills Council for Green
Jobs has also been established, which has so far trained 500,000 workers across green business. The full
scale of India’s green jobs opportunity remains to be explored, as does the role that the financial system can
play to support this expansion, particularly among India’s micro, small and medium sized enterprises
(MSMEs).

Just as important as the number of green jobs that India could create will be their quality, in terms of core
capabilities, inclusion, and decent working conditions. This means connecting the green jobs agenda with the
Sustainable Development Goals (SDGs) around skills and education, labour standards and gender equality, not
least to attract the best and the brightest into green growth sectors. And it also means anticipating the social
risks facing workers and communities in high-carbon sectors, such as coal, oil and gas and the production of
internal combustion engine vehicles. There have been pioneering efforts to set out how sustainable finance
39
could support a just and inclusive transition but action is still at an early stage. And while other emerging
economies, such as Indonesia and South Africa, have recently signed Just Energy Transition Partnerships with
OECD countries, the sheer breadth of India’s transition and the size of its investment requirements mean
international financing has to be conceived in the trillions rather than the tens of billions.

Doing trillion-dollar deals

India’s top two priorities for the G20’s sustainable finance talks are closing the long-standing climate finance
gap and expanding investment to meet the SDGs by 2030, including social priorities around ending poverty,
cutting inequality and achieving gender equality. A full prospectus of how much investment India needs to
drive its own energy and nature transitions in a sustainable way does not yet exist. But initial estimates from the
Council on Energy, Environment and Water (CEEW ), suggest that more than $10 trillion is needed from
2020 for power, green hydrogen and electric vehicles alone to meet India’s net zero target year of 2070. Capital
will be needed too for building resilience to climate impacts and the regeneration of India’s soils, forests and
freshwater and other SDGs . India’s current financial system simply does not have the capacity to generate
this quantum of capital, a gap experienced by all Global South countries to a greater or lesser degree.

One way of bridging this gulf could be through the establishment of a Global Climate Alliance , as proposed
by a group of experts which include Jayant Sinha, a member of India’s parliament and chair of its standing
committee on finance. Bringing together a leadership group of hanneling zed and developing countries
around a common agenda, the Alliance could deploy a package of financing initiatives for net zero delivery in
key sectors and for just transition and resilience. Upfront public finance would be key, with a focus on new
instruments to overcome the flaws in the global financial system that prevent long-term institutional money
from shifting to the Global South. These could include currency swaps to shrink the cost of capital and credit
guarantees to provide comfort to cautious investors.

To unblock the logjam, India could also strike bilateral sustainable finance deals that come with the right level
of ambition and technical rigour. For example, an India–UK sustainable finance deal could commit the UK to
hanneling $1 trillion in finance for India’s transition through to 2050 and beyond, with a mix of grant,
concessional and private capital, the latter forming the vast bulk of such a collaboration. As part of the deal, the
best brains of the City of London and Mumbai’s Dalal Street could be tasked, for instance, to work out how the
UK’s lower cost of capital could be passed on to Indian sustainable investments, and how to bust the
bottlenecks in both countries that hold back banks and investors from making strategic allocations to India’s
transition. A granular approach on sectors, projects, structures and places would be vital. And obviously,

40
rigorous oversight would be needed to regularly measure the success of such a deal, to carry out course
correction and take advantage of breakthroughs as they emerge.

To be successful, both sides would need to have skin in the game. This could be achieved by building on
models such as India’s National Infrastructure Investment Fund, which has worked successfully with the UK
across a number of renewable and green growth transactions. Such a deal would, of course, not be exclusive in
nature. But it might help to raise the international community out of the low-ambition rut it too often inhabits
when it comes to sustainable finance for pivotal countries such as India.

Making its mark

The key to sustainable finance is frequently said to be mainstreaming ESG factors into each and every asset and
institution. But this fine sounding goal assumes that today’s financial mainstream is fit for purpose. The reality
is that serious system failures exist, which mean that capital is structurally misallocated into investments that
may undermine both environmental security and social justice, and also starve the Global South of the finance it
needs. Far better is to aim for the transformation of the financial system, an objective that governments
pinpointed as vital at last year’s climate summit in Egypt.

In the past, India has often been a taker of sustainable finance standards designed elsewhere, from investment
safeguards to reporting regimes. This G20 year is the moment when India is becoming a sustainable finance
maker on two fronts: getting its domestic system aligned with the country’s climate and sustainable
development goals and also, stimulating the transformations at the global level that are now so urgently
needed.

2.10 CASE STUDY

The transition to net zero in energy and industry is a huge business opportunity for banks. Annual clean energy
investments to meet growing energy demand in emerging and developing economies alone will represent an
annual investment opportunity of as much as USD 2.8 trillion by the early 2030s. On energy and industry day at
COP28, the Net-Zero Banking Alliance is highlighting recent examples of financing provided or facilitated by
NZBA member banks in these key sectors in developed and emerging economies. They are taken from NZBA’s
recent 2023 Progress Update.

A. Deutsche Bank arranges USD 670 million for battery energy storage in Texas

41
 As lead arranger and joint bookrunner for three project financings from December 2022 to May 2023,
Deutsche Bank raised USD 670 million for a loan facility for Plus Power to construct three fully
merchant, utility-scale, battery energy storage projects in Texas totalling 700MW in capacity. Deutsche
Bank committed to underwrite a large portion of the facility while syndicating to a large group of
lenders pre- and post-closing.

Battery storage projects are one of the most rapidly growing asset classes in the clean tech industry.
Total battery storage capacity in the U.S. climbed to 12.7 gigawatts by the end of the second quarter of
2023, according to S&P Global, up 61% from the year before.

B. Société Générale leads on USD 1.2 billion loan for wind, solar, and battery storage in India

Société Générale acted as mandated lead arranger and hedge provider for a USD 1.2 billion green loan
for ReNew Power, one of India’s largest renewable energy developers.

ReNew will use the proceeds from the loan, which reached financial close in early 2023, to build 900
megawatts of wind capacity, 400 megawatts of solar, and a battery capable of storing 100 megawatt
hours of electricity. The project will be located across the states of Maharashtra, Karnataka, and
Rajasthan in India. This is one of the first utility-scale, “round the clock” projects combining wind, solar
and battery technology in India.

The transaction supports Société Générale’s target of facilitating EUR 300 billion in sustainable finance
by 2025.

C. Standard Chartered co-finances Indonesia’s energy transition

In 2021, Standard Chartered helped finance a 145-megawatt floating solar photovoltaic power plant on
the Cirata reservoir in West Java, issuing a USD 112 million 16-year project finance facility alongside
two other lenders. On completion, it will be the first floating solar project in Indonesia and the biggest in
Southeast Asia.

The Cirata project is also the first from an Independent Power Producer (IPP) in Indonesia to receive
fully uncovered long-term loans from commercial banks without development finance institution or
export credit agency involvement. The model this transaction has created could unlock significant
amounts of further financing for Indonesian clean power markets and support Indonesia’s goal to
generate 23% of its electricity from renewable sources by 2025.

The project is expected to power 50,000 homes and avoid 214,000 tons of CO2 emissions annually,
while contributing to the creation of up to 800 jobs.

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 Standard Chartered’s contribution to this transaction supports its target of mobilising US$ 300 billion in
sustainable finance by 2030.

D. Mizuho supports early-stage technology for reducing emissions from heavy industry

In March 2023, Mizuho Bank announced a USD 5 million equity investment in MCi Carbon, an
Australian clean technology company engaged in decarbonising global industries through Carbon
dioxide Capture and Utilization (CCU).

MCi brings together carbon dioxide emissions from steel, cement, fertilizer, and mining facilities with a
variety of feedstocks, including industrial by-products such as steel slag, mine tailings, and low-grade
minerals, in a chemical process called mineral carbonation. In this way, it transforms carbon dioxide and
waste into a variety of valuable and saleable inputs for building materials and other products.

This equity investment is part of a broader push from Mizuho to invest JPY 50 billion over the next ten
years in companies developing early-stage technologies that can enhance environmental and social
sustainability, including at the start-up and demonstration stages.

E. Morgan Stanley leads €1.5 billion equity capital raise for green steel producer

In September this year, H2 Green Steel announced that it had secured EUR 1.5 billion (USD 1.6 billion)
in equity financing to finance Europe’s first green steel plant. Since launch in 2021, H2 Green Steel has
raised more than EUR 1.8 billion (USD 1.9 billion) of equity in three financing rounds. The company
closed its series A equity round of EUR 86 million (USD 92 million) in May 2021 and announced the
close of its series B1 round of EUR 260 million (USD 278 million) in October 2022. Morgan Stanley
advised the company on the series B1 and latest series B2 rounds for this private placement.

H2 Green Steel aims to be the first industrial-scale end-to-end green steel producer and, on completion,
claims its green-hydrogen-powered Boden plant will achieve CO2 emissions reductions of around 95%
compared to conventional European producers, yielding the greenest steel in the world.

The transaction forms part of Morgan Stanley’s pledge to mobilise at least USD 750 billion for low-
carbon solutions by 2030.

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 Chapter 3

FINDINGS AND SUGGESTIONS

Summary of Findings

Organizations are shifting their focus towards utilizing green energy in the business process to enhance
environmental sustainability. Similar to other business roles, the managerial team in the financial sector has also
engaged in environment-friendly operations. The market for sustainable finance is growing globally. In Asia,
and particularly in the PRC, the sustainable finance market is accelerating too, largely driven by green bonds.
The market includes a range of types of capital under the broad ESG heading. The spectrum of these types of
capital ranges from grants to market or above market rate return investments. Sustainable finance can be
deployed as negative/exclusionary investments that aim to “do no harm” or positive/integrated investments that
can be deployed to create additional social or environmental impact typically aligned with the SDGs.

CONCLUSION

The growing scope of sustainable finance heralds a transformative shift in global economic paradigms, marking
a pivotal moment in our collective pursuit of environmental and social well-being. As sustainability becomes an
increasingly central concern for businesses, investors, and policymakers alike, the expansion of sustainable
finance reflects a deepening recognition of the interdependence between financial prosperity, environmental
integrity, and social equity.

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This evolution underscores several key conclusions:

1. Mainstream Integration: Sustainable finance is no longer a niche concept but is rapidly becoming integrated
into mainstream financial practices. This integration is driven by factors such as regulatory pressures, shifting
consumer preferences, and growing investor demand for ESG (Environmental, Social, and Governance)
considerations.

2. Market Forces: Market forces are driving the expansion of sustainable finance, with businesses recognizing
the financial benefits of integrating sustainability into their operations. Sustainable practices not only mitigate
risks associated with climate change, resource scarcity, and social unrest but also unlock opportunities for
innovation, efficiency gains, and market differentiation.

3.Investor Demand: Investors are increasingly prioritizing sustainability in their investment decisions,
catalyzing a shift in capital allocation towards companies and projects with strong ESG performance. This trend
is fueled by a growing awareness of the material risks posed by environmental and social issues, as well as a
recognition of the potential for sustainable investments to generate competitive financial returns.

4. Regulatory Support: Regulatory frameworks are playing a crucial role in shaping the trajectory of sustainable
finance, with policymakers implementing measures to incentivize sustainable practices and improve
transparency and disclosure around ESG factors. These regulations create a more level playing field for
sustainable investments while also providing clarity and consistency for market participants.

5.Innovation and Collaboration: The growth of sustainable finance is driving innovation across financial
products and services, fostering the development of new investment vehicles, metrics, and methodologies
tailored to assess and manage sustainability risks and opportunities. Moreover, collaboration among
stakeholders— including governments, businesses, investors, and civil society—is essential to address complex
sustainability challenges effectively.

6.Long-Term Resilience: Ultimately, the expansion of sustainable finance is not just about mitigating risks or
complying with regulations; it is about building a more resilient and inclusive economy that can thrive in the
face of evolving environmental, social, and economic challenges. By aligning financial incentives with
sustainability objectives, we can create a more equitable and sustainable future for generations to come.

In conclusion, the growing scope of sustainable finance represents a fundamental reimagining of the role of
finance in society, where economic prosperity is pursued in harmony with environmental stewardship and social
justice. While challenges remain, the momentum behind sustainable finance offers hope for a more sustainable
and prosperous future.

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SUGESSTIONS

Foremost, sustainable finance, green bonds and ESG investing are recently emerging trends in the finance realm.
This fact calls for an immediate need to dig deeper into the problem concerning finance and financial
techniques. In addition, according to conventional finance studies, there should be an urge to analyze green risk
management and governance critically. In addition, developed countries represented most countries’ issued
bonds; thus, there should be further research from these countries as a motivation for other countries which
focuses on green bonds to enhance and protect ecological systems around the world. This move will benefit the
decision-makers to work on their policy factors and develop a properly designed policy goal. Then, the scholars
from developing countries will reflect the knowledge and policies that were formulated by authors and
policymakers in their countries. Finally, a significant difference exists between the problems of green bonds and
traditional bonds because regulations guide conventional bonds. Hence, the increasing and evolving
international economic and political climate will likely increase the challenges. Additionally, a systematic
analysis is required for a deep understanding of the available literature. There is also a need to investigate the
findings of the bibliometric research and draw comparisons.

DIRECTION FOR FUTURE RESEARCH

In the study of sustainable finance, ESG investing, and green bonds, there are several avenues for future
research that can deepen our understanding of these areas and contribute to their further development. Here are
some directions for future research:

 Research can focus on developing robust methodologies for measuring and evaluating the environmental,
social, and governance (ESG) impact of sustainable finance initiatives, including ESG investing and
green bonds.
 Future research can investigate the integration of ESG factors into investment decision-making
processes across different asset classes and investment strategies.
 Research can explore the relationship between sustainability practices, long-term value creation, and
financial performance in the context of sustainable finance and ESG investing.
 Future research can examine the role of policy and regulatory frameworks in shaping sustainable finance
markets and driving the adoption of ESG investing practices.
 Research can investigate trends, developments, and innovations in sustainable finance markets,
including the growth of green bonds, sustainability-linked instruments, and impact investing strategies.

46
  Future research can explore the role of stakeholder engagement and social impact assessment in
sustainable finance initiatives.
 Research can focus on climate finance and the role of sustainable infrastructure investment in addressing
climate change and promoting resilience.

By pursuing these research directions, scholars, practitioners, policymakers, and other stakeholders can
contribute to the growth and development of sustainable finance markets, enhance the effectiveness of ESG
investing practices, and accelerate the transition to a more sustainable and resilient global economy.

APPENDIX

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 REFERENCES

 Abadie, L. M., Galarraga, I., & Rübbelke, D. (2013). An analysis of the causes of the mitigation bias in
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