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What is sustainable finance?
Research / 12 March, 2019
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Professor of Sustainable Energy Finance
Ulf Moslener is professor for sustainable energy finance at the faculty of Frankfurt School. As Head of Research of the UNEP Collaborating Centre for Climate and Sustainable Energy Finance his current fields of research are the economics of climate change, financing sustainable energy systems and climate finance. He is representing Germany in the UN Standing Committee on Climate Finance.

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Expected Correlation and Future Market Returns

Basically a financial market is a machine that takes money from investors and distributes it to entre­preneurs that need money for their businesses. Those businesses promise a return to the investors.

Depending on the business an in­vestment comes with a certain risk. The risk and return profile of a business usually helps investors to choose where to invest.
Sustainable finance takes a look beyond the simple numbers of risk and return:

It looks at the impact of the invest­ment. Does the investment have a negati­ve effect on environmental, social or governance aspects?

In sustainable finance these impact-related issues do matter for the investment decision and they might even matter for the risk profile. Some investors might prefer a more sustainable investment over another project with a smaller risk and return profile. Others may only consider sustainable projects in general. Considering the fact that a bad long-term sustainability can actually change the risk and return profile sustainable finance adds a whole new perspective to investments.

Now, which investments exactly can be called “sustainable” is a difficult matter. In this context, the topic currently becomes tremendously important for many companies and financial institutions.

The EU is working on a standard – or taxonomy – determining what can be classified as a sustainable invest­ment.

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