Sustainable finance

Sustainable finance, also called green or environmental finance, refers to allocating investment and lending to sustainable governmental institutions, corporations, and projects. This accelerates the transition to a low-carbon, circular, and inclusive economy. The financial system moves from a traditional investment and lending approach that maximizes financial value subject to risk, often in a narrow and short-term way, toward investing and lending for long-term value creation that optimizes financial, social, and environmental value subject to risk. Sustainable finance thus involves considering environmental and social value, alongside financial value. Traditional finance assumes efficient markets, which means that all available information is incorporated in (stock) market prices. Finance can thus help in making production more sustainable, accelerating ecological modernization. By contrast, a business-as-usual scenario may lead to stranded assets.