Finance is widely seen as an obstacle to a better world. Principles of Sustainable Finance explains how the financial sector can be mobilized to counter this. Using finance as a means to achieve social goals we can divert the planet and its economy from its current path to a world that is sustainable for all. Written for undergraduate, graduate, and executive students of finance, economics, business, and sustainability, this textbook combines theory, empirical data, and policy to explain the sustainability challenges for corporate investment. It shows how finance can steer funding to certain companies and projects without sacrificing return and thus speed up the transition to a sustainable e...
Global governance of international banks is breaking down after the Great Financial Crisis, as national regulators are withdrawing on their home turf. New evidence presented illustrates that the global systemically important banks underpin the global financial system. This book offers solutions for the effective governance of global banks.
Traditional finance focuses solely on financial return and risk. By contrast, sustainable finance considers financial, social and environmental returns in combination. This essay provides a new framework for sustainable finance highlighting the move from the narrow shareholder model to the broader stakeholder model, aimed at long-term value creation for the wider community. Major obstacles to sustainable finance are short-termism and insufficient private efforts. To overcome these obstacles, this essay develops guidelines for governing sustainable finance. Moving from traditional to sustainable finance means having to counter attitudes that are embedded in the ways our economic systems are organised. Shifting away from them requires both new ways of operating but, importantly, new underlying principles that put sustainability centre stage to guide our thinking. It is important that we put this process in motion, and the earlier the better.
To guide the transformation towards a sustainable and inclusive economy, the United Nations has developed the Sustainable Development Goals (SDGs). Sustainable development is an integrated concept with three aspects: economic, social and environmental. This paper starts by reviewing the environmental and social challenges that society is facing. Why should finance contribute to sustainable development? The main task of the financial system is to allocate capital to its most productive use. Financial institutions have started to avoid unsustainable companies from a risk perspective, which we label as Sustainable Finance 1.0 and 2.0 in our new framework. The frontrunners are now increasingly investing in sustainable companies and projects to create long-term value for the wider community (Sustainable Finance 3.0).
Theory suggests that cross-border banking is beneficial as long as there is a non-perfect correlation across country-specific risks. Using a unique hand-collected dataset with cross-border loans for the 61 largest European banks, we find that cross-border banking in general decreases bank risk, and that the beneficial impact from cross-border banking increases when banks diversify more into countries with dissimilar economic and financial conditions. However, we find that banks do not fully utilize these diversification opportunities as banks mainly invest in countries that are economically more similar to their home country.