Do financiers truly believe in sustainability?

Hong-Hue Thi Nguyen
Shinhan Bank

March 23, 2025

“Hearing is one thing; they all want to eye-witness such skills.”

—In “Guru Bird”; Wild Wise Weird [1]

[SCIENCE DIGEST]

Sustainability has become a pivotal issue in global finance, shaping investment decisions across sectors. However, skepticism remains: do financiers genuinely prioritize sustainability, or is it merely a strategic response to evolving market trends and regulatory pressures?



Recent research presents a nuanced view. While sustainability has attracted substantial investor interest, the motivations behind these investments are not always clear-cut. A study by Hartzmark and Sussman [2] found that mutual funds with high sustainability ratings experienced significant inflows, exceeding $24 billion, whereas those rated as low sustainability faced outflows of more than $12 billion. This suggests that investors perceive sustainability positively, often associating it with lower risk and higher long-term returns. However, empirical data reveal no consistent correlation between sustainability ratings and financial outperformance, indicating that investor enthusiasm may be driven more by non-financial motives than by purely rational economic expectations [2].

Despite initial enthusiasm, recent developments reveal a retreat from sustainability commitments among major financial institutions. Kirk [3] highlights how the Net Zero Asset Managers Initiative and other ESG-related pledges have weakened in response to political and market pressures. Many financial players, once vocal advocates of sustainability, are now scaling back their commitments, suggesting that previous enthusiasm may have been more opportunistic than deeply held [3]. This raises concerns about whether sustainability remains a core financial principle or is simply a passing trend dictated by external pressures.

Meanwhile, the need for sustainable infrastructure investment remains critical. Global infrastructure demand is projected to reach $6 trillion annually, yet current investment levels meet only half of this need. Private-sector participation is crucial to closing this gap, but investors face significant barriers, including high upfront costs, uncertain regulatory environments, and inadequate risk-adjusted returns. Encouraging greater private investment requires transparent policies, risk-sharing mechanisms, and stronger institutional support to ensure the bankability of sustainable projects [4].

To foster long-term commitment to sustainability, financial stakeholders must operate within a framework of clear, standardized metrics and transparent reporting mechanisms. Lützkendorf et al. [5] emphasize that investor motivations vary widely, necessitating tailored incentives to encourage sustainable investment practices. Aligning financial incentives with sustainability goals through reliable, data-driven strategies can help ensure that sustainability remains a viable and attractive investment priority.

The financial sector’s engagement with sustainability remains complex and, at times, inconsistent. While investor behavior indicates a strong interest in sustainability, the wavering commitments of financial institutions suggest a fragile and often strategic relationship with the concept [6]. Moving forward, robust transparency, standardized sustainability metrics, and alignment between financial incentives and sustainability goals will be essential to fostering genuine and lasting commitment in the financial sector [7].

References

[1] Vuong QH. (2024). Wild Wise Weird. https://www.amazon.com/dp/B0BG2NNHY6/

[2] Hartzmark SM, Sussman AB. (2019). Do investors value sustainability? A natural experiment examining ranking and fund flows. Journal of Finance, 74(6), 2789-2837. https://doi.org/10.1111/jofi.12841

[3] Kirk S. (2025). Do financiers believe in sustainability or not? https://www.ft.com/content/9b9cda60-b3a2-4cb3-bbaf-b66c224396dc

[4] Bielenberg A, et al. (2016). Financing change: How to mobilize private-sector financing for sustainable infrastructure. McKinsey & Company.

[5] Lützkendorf T, et al. (2011). Engaging Financial Stakeholders: Opportunities for a Sustainable Built Environment. Building Research & Information, 39(5), 483-503.

[6] Nguyen MH. (2024). How can satirical fables offer us a vision for sustainability? Visions for Sustainability. https://ojs.unito.it/index.php/visions/article/view/11267

[7] Vuong QH, Nguyen MH. (2025). On Nature Quotient. https://dipot.ulb.ac.be/dspace/bitstream/2013/390547/3/wp25003.pdf