About this report

The concept of sustainable investment is not new. Its origins lie in the 1980s with the advent of socially responsible investment. However, particularly since 1995, investors have taken measures to include environmental, social and governance (ESG) factors in their decision-making processes. “Green” investment has come to be very much tied to developments in the most established of “sustainable” finance markets, the green bond market. 

Since the first green bond was issued by the European Investment Bank in 2007, the green finance sector has grown exponentially. Green bond issuance almost quadrupled from US$45bn in 2015 to US$167.6bn in 2018, investment in green energy grew to US$335.5bn in 2017 and assets under management incorporating an ESG mandate were US$1500trn in 2016.

Last year also saw inaugural sovereign green issues from five countries—Ireland, Indonesia, Belgium, Lithuania and the Seychelles. However, as concerns around “greenwashing” (falsely representing a project as being green grow), companies, investors and society at large are looking at the much broader concept of sustainability and how truly “green” finance may fit in.

Green finance now goes beyond green bonds to climate bonds, green index-linked bonds, carbon credits, green project finance, green venture capital and private equity, green revolving credit facilities, eco-securitisation, concessional loans, green bilateral loans, green syndicated loans, green asset finance, green deposits, government credit guarantees, and green technology leasing. 

Much like the concept of sustainability, what is and is not “green” has been an issue primarily for regulators and other standard-setters. But how aware of green finance initiatives are investors and businesses across a range of sectors? How do they think about environmental change in their risk management practices? Who do they turn to for advice on green financial products? And what are the barriers to green finance for them?  

In a survey conducted by The Economist Intelligence Unit in the first quarter of 2019, we asked senior executives from a range of industries in some of the leading global financial markets about these questions and how they saw the future of green finance. This report examines the survey results and what they may mean for the continued development of green and sustainable finance. 

Key findings

• Green is the way forward for finance: eight out of ten respondents believe that green finance will grow in size and strategic importance over the next five to ten years; a quarter foresee that it will grow significantly.
•  A range of green finance products are used on a widespread basis by a significant proportion of survey respondents. Green project finance (35%) is the most issued or used product, followed by green asset finance (32%)  and green technology leasing (31%). 
•  The green policy best known by our respondents is Principles for Sustainable Insurance (recognised by 39%). It is also the most participated-in initiative (20%). The Sustainable Banking Network comes second, at 36% (with a participation level of nearly 20%), followed by GreenInvest, at 34% (with participation of 19%). 
•  There is generally a moderate level of awareness of green reporting guidelines among respondents, and actual following and participation levels are low. In terms of following guidelines, those of the Companies Act (23%), the Sustainable Accounting Standards Board (19%) and Climate Disclosure Standard Board (19%) are the most followed overall.
•  Almost nine out of ten (87%) respondents state that their organisation understands how climate change could financially affect the business. Half of those surveyed have developed a range of strategies to deal with the effects of climate change on the value of their holdings.
•  Artificial intelligence (AI; cited by 49% of respondents) and data analytics (47%) are seen as the leading technology drivers in the development of green finance in the next five years across all regions. The Internet of Things is also cited as promising by 44% of those surveyed.
•  Investor education initiatives are viewed by the largest share of respondents (39%) as the most efficient policy measures to boost green finance. Incorporating green standards into the fiduciary responsibility of asset owners (33%), the development of a dedicated label for green funds and products (28%), tax exemptions (nearly 28%), and the mandatory appointment of a board member with environmental expertise (27%) also rank highly. 
•  Unsurprisingly, at 59%, the EU is cited as the geographical region where the majority of respondents expect green finance to grow the most. More surprisingly, the US comes second, at 42%. The third region is Canada, cited by 38%. 
•  Synthetic green securities are expected by 43% of respondents to be the main area of interest within green finance over the next five years, followed by alternatives (private equity, managed futures; 40%) and results-based instruments such as results-based warrants (33% overall).
•  In the light of heightened investor demand, a shortage of green bonds is likely to boost the green loan market. Sustainability-linked loans also have a promising future, owing to clearer benefits and easier implementation for companies. 
• Nearly half of respondents view energy as the sector where green finance would experience the strongest growth, followed by technology and ICT, cited by one-third. Nearly one in three also foresee manufacturing, biotechnology and agriculture as priority growth industries for green finance.