Introduction to Sustainable Finance & Investing

This chapter introduces Part II on Investment Implications of sustainability and other topics related to sustainable finance. The chapter begins with an introduction to finance and investing. In layman’s terms, finance is defined as an instrument to support the payment of everyday expenses for individuals (personal finance), companies (corporate finance), or governments (public/government finance). From this perspective, finance provides access to things that could not otherwise be purchased with cash at hand. Personal finance can assist an individual through a student loan, a consumer loan, or a mortgage to buy a house. Corporate finance can provide a company with resources for its operations or its growth to develop new products or acquire new equipment and other companies. The financial instruments used will depend on the company’s needs and the stage of its life cycle. Public/government finance can provide government resources to pay sovereign debt, country budgets (for education, social security, public health, national defense, etc.), and public servants salaries and pensions. The chapter then presents a brief history of the field of sustainable finance and describes various sustainable investment strategies ranging from risk management to mission-driven investments. It tries to bring clarity to what some call an “alphabet soup” of acronyms (MDGs, SDGs, SRIs, ESGs, etc.). The chapter notes several important challenges in sustainable finance that still need to be addressed such as the lack of a shared language and rigor in the use of terminology as well as the risk of “greenwashing” and mislabeling that fail to capture sustainability impact. The chapter concludes with a discussion on investor profiles and the relationship between sustainable investment strategies, risk, return, and impacts.