Authors Mario La Torre, and Helen Chiappini, in a book on: Contemporary Issues in Sustainable Finance, Creating an Efficient Market through Innovative Policies and Instruments, have said sustainable investments, although not yet working under a comprehensive regulatory framework, represent a growing, worldwide phenomenon.
According to them, such growth reflects the renewed public and private interest in environmental issues such as climate change, poverty and financial inclusion, as well as growing support from conscious investors looking to finance environmental and social initiatives.
However, they said despite the growing interest among governments, investors and practitioners, sustainable investments still face a number of challenges in the areas of sustainable finance, social impact investing, development finance and alternative finance that must be addressed.
To address these, the 11-chapter book focused on various issues as they affect different regions, including enhancing efficiency in sustainable markets, financing sustainable goals (economic and legal implications), taxation of impact investments, and profitable social impact bonds.
Others are social stock exchanges, the economic and social impact of microfinance in Sub-Saharan Africa, green bonds as instruments of impact investing, green banking, and the challenges of investing in climate-smart agriculture.
The writers concluded by assessing the opportunities and risks linked with sustainability and, in turn, with sustainable finance, with specific reference to investor preferences and the recent diffusion of new sustainability business models and regulations.
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Specifically, they urged that sustainable finance should be assessed through a discussion of the relevant debates related to the financing of social and environmental initiatives, noting that the 2030 Agenda on Sustainable Development Goals (SDGs) leaves open the question of how best to consider alternative forms of economy, social relations and governance.
While admitting that there have been academic discourses around sustainability issues in entrepreneurship, they insisted that corporate legal models and finance remain fragmented, as “each specific discipline analyses these topics from a narrow perspective.”
They further said that significant barriers between financial actors and sustainable entrepreneurs exist, and requires the adoption of a multidisciplinary approach given the diverse nature of sustainability.
In the area of taxation of impact investments, the writers looked at the critical issues and opportunities of a tax model based on social impact. “In this perspective, the impact is taken as a substantial legal criterion. Tax concessions to companies and investments, in other words, are not recognized according to the mere purpose of social impact, but on its concrete measurement.”
“In this perspective, it would be possible to conceive the system of tax expenditures, in favour of social entrepreneurship and impact investing, as a form of social investment,” they added.
While identifying Social Impact Bonds (SIBs) as an innovative solution to convey private resources into welfare expenses, which has witnessed increased interest in the last decade, but still presents numerous downfalls, which impede the growth of a strong market. This, therefore, calls for some modifications to the scheme to redistribute both exposure and benefits between investors and the other parties involved, which could become an effective tool to raise capital for innovative enterprises and to widen the market of pay-for-success products.
They observed that around the globe, new investment models able to reflect responsible behaviour have been claimed in order to keep financial markets in tune with the development of society.
Given the upsurge in social entrepreneurship and impact-driven business models, there is no shortage of investors and financiers eager to absorb this demand, which is where the social stock exchanges come in. “The problem, as emphasized by the World Economic Forum, lies in matching assets that create positive impact with investors in a manner that is efficient, effective, transparent, and scalable.”
On the Economic and Social Impact of Microfinance in Sub-Saharan Africa, the writers agreed that the issue remains open to question. “While in some cases microfinance has had the desired results, in many others it has not lived up to the expectations of the development community. In addition, macro-level effects of microfinance have not been analyzed thoroughly and there are only a limited number of empirical cross-national studies on the relationship between microfinance and development,” they said. Studies revealed a robust empirical evidence for a positive, albeit relatively weak, overall effect of microfinance on GDP/capita and human capital.
In terms of environmental impact investments in Europe, the writers explored the environmental impact on investment panorama in light of the new European regulatory process on sustainable finance and of worldwide impact on investing practices.
These reveal that the emergent European regulation on sustainable finance appears tilted in the direction of impact investing, with green bonds and environmental funds falling within the perimeter of impact investing, while crowdfunding shows similarities with sustainable finance.
Thy added that environmental impact investing is experiencing a delay in Europe in terms of innovative financial models such as environmental impact bonds (EIBs), and should be considered within models able to finance environmental strategies.
Given the increasing importance of green bonds as instruments of impact investing, they said there are new possibilities for investors who consider important Environmental, Social and Governance (ESG) considerations.
Moreover, with a growing number of banks have been going green worldwide, and therefore there is a need to explore green banking practices implications for sustainability.
