World Investment Report 2023 – Chapter 3: Capital Markets and Sustainable Finance

Author: UNCTAD

Year Published: 2023

The sustainable finance market remains an important source of capital for investment in sustainable development and the Sustainable Development Goals (SDGs), as well as a driver of change in business mindsets and investment strategies. The value of the global sustainable finance market (bonds, funds and voluntary carbon markets) reached $5.8 trillion in 2022, despite the turbulent economic environment, including high inflation, rising interest rates, poor market returns and the looming risk of a recession that all affected the financial markets.

As the sustainable finance market moves from a voluntary to a mandatory governance architecture, the number of national, regional and international policies and regulations is increasing. According to UNCTAD’s monitoring, at the end of 2022, 35 developed and developing economies and country groupings – accounting for 93 per cent of global GDP – had 388 sustainable finance-dedicated measures in force, with at least 50 introduced in 2022 and more than 50 in development. This underscores the importance that policymakers now attach to the sustainable finance market and their recognition that
it plays a crucial role in achieving net zero and increasing investment in sustainable energy.

Progress is being made along the entirety of the investment chain, but a new approach is now needed to move up a gear in our collective climate response and accelerate the energy transition. The first era of sustainability integration, the pioneering era of niche sustainable finance activities, roughly from the 1990s to 2005, gave way to the mainstreaming era, roughly from 2005 to the adoption of the SDGs and the Paris Agreement in 2015, after which many big players, such as exchanges, fund issuers and institutional investors, realized the materiality of sustainability risks and opportunities. Since then, the world has entered the third era of sustainability integration, characterized by standardization and increasing codification, with the development, for example, of the European Union (EU) taxonomy and the standards of the International Sustainability Standards Board (ISSB). The next step requires rapid education and support for investors and other market players, especially in developing countries, before time truly runs out.