The value of sustainability-themed investment products amounted to $3.2 trillion in 2020, up more than 80% from 2019.
Ain Beni Mathar thermo-solar power plant. World Bank/Dana Smillie
Sustainability-themed investment in the global capital markets experienced strong growth despite volatile markets in 2020, according to UNCTAD's World Investment Report 2021, published on 21 June.
With a growing need to mobilize the vast sums of capital needed to meet the Sustainable Development Goals (SDGs) by 2030, the report analysed the latest trends in sustainable finance and the global capital market, or the upstream segment of the investment chain.
UNCTAD estimates that the value of sustainability-themed investment products amounted to $3.2 trillion in 2020, up more than 80% from 2019, showing that the capital market is increasingly aligning itself with sustainable development outcomes, including the SDGs.
These products include sustainable funds (over $1.7 trillion), green bonds (over $1 trillion), social bonds ($212 billion), and mixed-sustainability bonds ($218 billion) (Figures 1 and 2).
Figure 1 - Number and AUM of sustainability-themed funds, 2010-2020
(Billions of dollars)
Source: UNCTAD based on Morningstar and TrackInsight data.
Notes: Numbers of funds do not include those that were liquidated; the numbers for 2020 are as of 30 June.
Figure 2 - The $1.5 trillion sustainable bond market continues growth in 2020
(Billions of dollars)
Source: UNCTAD based on Bloomberg data.
However, most sustainability-themed investment products are domiciled and invested in developed economies. "To maximize impact on sustainable development, more funds should be invested in developing and transition economies," said UNCTAD's director of investment and enterprise, James Zhan. Meanwhile, there are persistent concerns about greenwashing and the real impact of these products.
Role of institutional investors and financial service providers
Institutional investors are in a strong position to influence change on sustainability through asset allocation and active ownership, and have become an important financing source for sustainable development.
With over $60 trillion worth of assets under management, pension funds and sovereign wealth funds have enormous influence on corporate sustainability.
Insurance companies can contribute to sustainable development through their role as risk solution providers and as investors (with assets under management worth more than $30 trillion). The banking sector can foster sustainable development through corporate lending. By 2020, the sustainable loan market had reached about $200 billion.
Role of stock exchanges
Stock exchanges exert sustainability impact through their influence on corporate environmental, social and governance (ESG) behaviour and through the promotion of sustainable finance products (Figure 3).
Figure 3 - Stock exchange trends, 2000-2021 (Number of exchanges)
Source: UNCTAD, SSE database
The number of stock exchanges with written guidance for listing firms on ESG disclosure (SDG 12.6) has grown rapidly, from 13 in 2015 to 56 at the end of 2020.
Mandatory ESG reporting is on the rise. The number of exchanges covered by mandatory rules on ESG disclosure have more than doubled in the past five years, to 25 today.
The number of stock exchanges with dedicated sustainability bond segments (SDG 13) increased by 14 between 2019 and 2020, taking the total to 38.
Future of sustainable finance
Looking ahead, the market needs to tackle concerns of greenwashing and address its geographical imbalance.
Much work has been done over the past decade by asset owners, institutions, exchanges, regulators and policymakers.
"In the coming years, the sustainable investment market needs to transform from a niche to a mass market that fully integrates sustainability in business models and culture," Mr. Zhan said. "To this end, UNCTAD, together with partners, will launch the UN Global Sustainable Finance Observatory." Mr. Zhan said the observatory will address the challenges of fragmentation in standards, proliferation in benchmarking, complexity in disclosure, and self-declaration of sustainability.
"It will integrate the relevant instruments and outputs on its virtual platform to facilitate the assessment, transparency and integrity of sustainable finance products and services," he added.
The observatory will work in tandem with the standard-setting processes of the financial industry and regulatory bodies to promote the full and effective integration of sustainable development, as defined by the SDGs, into all aspects of the global financial ecosystem.
The observatory will be launched officially at UNCTAD's World Investment Forum in October 2021, which will bring together the global investment-for-development community, including all capital market stakeholders along the global investment chain.