Why should sustainable finance be given priority? Lessons from pollution and biodiversity degradation

The purpose of this paper is to demonstrate that the relatively new concept of sustainable finance, although very apt and timely, needs to address many major issues for it to be meaningful and if it is to achieve its desired objectives.

The study identifies some of the major issues that need to be clarified and addressed including: defining the kind of sustainability that is envisaged; examining issues relating to the use of high‐discount rates and its compatibility with the goals of sustainability; the case of excessive pollution due to adverse selection, moral hazard and lobbying; and specialisation and path dependent systems that are detrimental to future production.

The paper demonstrates why the concept of sustainable finance is timely and why it is necessary to take into account the potential major issues that need to be considered and adequately addressed.

The challenges that lie ahead are many, and the sooner they are addressed, the more credible and potent sustainable finance will be.

This paper discusses the major issues and examples of pollution and biodiversity degradation that need to be considered with sustainable finance. The paper also shows why economic growth without considering pollution impacts and path dependent systems is detrimental to future production, which violates the concept of sustainable finance.

Sustainable finance is a relatively new concept that is fast becoming important as financial investments are increasingly required to prove sustainability credentials. However, despite its increasing popularity many major issues need to be dealt with if this concept is to be truly meaningful and potent in achieving its objectives.