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Derivatives in Sustainable Finance

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  • Lannoo, Karel
  • Thomadakis, Apostolos

Abstract

In recent years, sustainability has risen in scope and importance on the agenda of policymakers. In Europe, this has translated into the EU Sustainable Finance Action Plan, which aims to: i) reorient capital flows towards sustainable investments; ii) manage financial risks stemming from climate/environmental/social issues; and iii) promote transparency and long-termism in financial and economic activity. A market that could play a significant role towards Europe�s green transition is derivatives. The market has been tightly regulated since the 2007-08 financial crisis, making it safer and more transparent. Derivatives facilitate capital-raising via the hedging of risks related to sustainable investments. Moreover, they enhance the transparency and the price formation process of the underlying securities, and thus foster long-termism. This report highlights how derivatives markets can � through their forward dimension, their global and consolidated nature, and their proper regulation � contribute to: i. enabling the EU to raise and channel the necessary capital towards sustainable investments; ii. helping firms hedge risks related to ESG factors; iii. facilitating transparency, price discovery and market efficiency; and iv. contributing to long-termism.

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  • Lannoo, Karel & Thomadakis, Apostolos, 2020. "Derivatives in Sustainable Finance," ECMI Papers 29791, Centre for European Policy Studies.
    • Handle: RePEc:eps:ecmiwp:29791
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    2. Thomadakis, Apostolos, 2021. "2020 ECMI Statistical Package: key findings," ECMI Papers 32242, Centre for European Policy Studies.
    3. Małgorzata Janicka & Aleksandra Pieloch-Babiarz & Artur Sajnóg, 2020. "Does Short-Termism Influence the Market Value of Companies? Evidence from EU Countries," JRFM, MDPI, vol. 13(11), pages 1-22, November.
    4. Małgorzata Janicka & Artur Sajnóg, 2022. "The ESG Reporting of EU Public Companies—Does the Company’s Capitalisation Matter?," Sustainability, MDPI, vol. 14(7), pages 1-17, April.
    5. Yao Cheng, 2022. "Carbon Derivatives-Directed International Supervision Laws and Regulations and Carbon Market Mechanism," Sustainability, MDPI, vol. 14(23), pages 1-13, December.

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