Green finance – investing sustainably

Image credit: Joshua Mayo

From green bonds to sustainable banks, a quiet revolution is changing the way money flows. Green financing is no longer a niche concept, but it is developing into a central pillar of global economic policy and corporate strategy worldwide.

With burgeoning climate and other environmental issues, there is a strong possibility that green finance activities and products will increasingly become a necessary part of individual, organizational, corporate and government strategy.

Green finance is a structured financial activity that ensures a better environmental outcome.  It goes hand in hand with sustainable financing which integrates environmental, social and governance factors into investment decisions to promote long-term economic growth, social outcomes and environmental sustainability.

Green finance encompasses a range of investment instruments offered by financial institutions, including green bonds, green loans and ethical equity funds that collectively support projects that promote environmental sustainability and social outcomes.

Green bonds

Green bonds are one of the most used instruments. These are fixed-income investments that are used to finance environmentally beneficial projects. In 2024 Australia issued the first green bond worth $7billion. It supports projects aimed at mitigating climate change, adapting to its impacts and improving environmental outcomes. While Australia’s green bound market is still developing, the European Union demonstrates a more advanced model of green finance. By the end of 2023, the European Investment Bank’s (EIB) had issued 197 billion under its Green Bond Program – a figure much higher than that of Australia’s entire green bond market.

Green Loans

Green loans support investments in areas such as renewable energy, energy efficiency, pollution reduction, sustainable agriculture and clean transportation. An investor might receive a discount on the loan’s interest rate, relative to the lender’s standard product. There are different types of loans: 

• Green mortgages are available for the purchase of green homes or renovations to satisfy green criteria such as solar systems.

• Green automotive loans are available for the purchase of new green vehicles.

• Green personal loans fund improvements to the energy efficiency of a home.

Global sustainable loan issuance slowed in the first half of 2025, falling to US$206 billion, down 21% from US$261 billion in the same period in 2024. Green loans still accounted for 48% of the total. In Australia, the green loan market remains relatively small at around US$9 billion.

Ethical Equity Funds

While green loans offer direct financing, ethical equity funds enable investors to participate in the growth of companies in the form of shares that prioritize sustainability and responsible behavior. In Australia prominent providers of sustainable and ethical Exchange-Traded Funds (ETFs) are Betashares, Australia Ethical and VanEck. According to the UN the global market value of sustainable funds amounted to $3.2 trillion in 2024. This represents an increase of 8 % over the previous year and demonstrates a clear growth potential.

The growing popularity of ethical equity funds reflect a broader trend: investors are motivated not only by financial returns but also by the desire to contribute to positive social outcomes. For clients, investing in or borrowing from socially responsible institutions can be highly appealing. It creates a sense of alignment between financial decisions and personal values – a psychological incentive as much as an economic one. However, this dynamic also carries risks. How can investors be certain that the funded projects will deliver the expected returns or social impact?

The renewable energy industry provides a telling example: while it promises sustainability and growth, it is also subject to technological uncertainty, policy shifts, and fluctuating market demand - making it riskier to invest.  These sector-specific risks highlight some broader challenges that green finance faces across industries.

Greenwashing in finance

Greenwashing occurs when companies sell their products with false or misleading claims about the sustainability benefits to boost their sales.  Michelin’s Indonesian rubber operations provide a prime example of greenwashing: despite promoting “zero deforestation” and issuing green bonds for sustainable projects, deforestation occurred, and investor are questioning whether the promised environmental claims were realistic. Another example of green washing is Fiagro, a financial instrument created by the Brazilian parliament to attract private investment into agribusiness. While promoted as sustainable, some Fiagro-funded projects have been associated with illegal deforestation, cattle farming in embargoed areas, and the expulsion of Indigenous people from their territories, showing how the green label can mask environmental and social harm.  Where misconduct has no consequences, green sacrifice zones arise – areas where environmental harm is tolerated in the name of advancing “green” goals. In practice, green finance often sustains business as usual, focusing on superficial solutions rather than tackling the systematic drivers of environmental crises.

To avoid greenwashing financial institutions and investors should look for third-party verification. This year the Australian government has introduced the Australian Finance Taxonomy – a classification system designed to define and categorize economic activities based on their environmental and social sustainability. This taxonomy enables to compare investment products, thereby strengthening investor confidence in claims and mitigating greenwashing. In fact, it builds and expands on the EU taxonomy’s approach while covering key sectors including green mining, metals, minerals and agriculture and has an explicit focus on credible transition activities. It is also the world’s first taxonomy to set out expectations for collaboration with First Nations peoples and the management of cultural heritage.  At the global level, the UN has established a high-level expert group to develop stronger and clearer standards for net-zero emissions pledges by companies, financial institutions and regions, and to accelerate their implementation.

Financial Institutions Incapability

Many banks and lenders lack the expertise, risk assessment tools, and long-term financing structures needed for green projects, as green finance is more technically demanding than conventional financing. Bankers often struggle to navigate the taxonomy of green finance terminology, and the operational capacity of the financial institutions frequently falls short of the high demand from green industry players craving credit assistance to green financing their projects.

Political and Regulatory Uncertainty in European Green Finance

In Europe, the political landscape has shifted from relative stability to a more volatile state. Rising military spending is placing additional pressure on the continent’s financial agenda, including green finance. The increase in defense spending raises questions about the future availability of resources for climate-related initiatives, creating uncertainty for investors.

At the same time, there are signs of a possible rollback of sustainability regulations. While the EU remains committed to its environmental objectives, recent regulatory changes- including the European Commission’s proposal to ease corporate sustainability reporting - have generated uncertainty. Critics argue that reducing reporting requirements by 25% risks undermining corporate accountability and investor confidence in ESG commitments. Nevertheless, ESG investments continue to grow in the EU, reflecting a sustained market’s ongoing interest in sustainable finance despite these challenges.

To wrap up green finance is a financial instrument designed to support environmentally friendly projects. While green finance faces significant risks and uncertainties, emerging regulatory frameworks and guidance from international organizations such as the Australian Finance Taxonomy and the UN expert group, offer important tools to enhance transparency, accountability, and investor confidence.

With all the risks and uncertainties of green finance, the new Australian Finance Taxonomy and the UN’S expert group help to mitigate these risks.

You have choices in how to invest, but only one planet. Green finance, if conducted the right way for the right reasons can provide the opportunity to make a difference.

Article by Jule Veith

ESG Investing (the basics)

ESG investing

ESG investing stands for Environmental Social Governance investing and is also commonly referred to as impact or socially responsible investing. According to Forbes “investing via an ESG fund is an easy way to gain exposure to a number of businesses with ethical practices”. Companies are analyzed based on three main parameters which, as you may be able to guess, are: Environmental, Social, and Governance metrics. Environmental parameters take into account how companies are combating and preparing for climate change through business practices. Environmental efforts could look like emissions reductions, participation in the circular  economy, or regeneration and restoration of nature and sustainability practices. The social aspect explores how companies are integrating diversity, equity, and inclusion efforts into the organization on all levels.  Finally, governance refers to fair and transparent promotion and hiring decisions and accounting practices. Ways that social and governance could manifest is through ethical supply chain practice, human rights compliance, diverse staff and leaders, and accessibility.  

According to Bloomberg Intelligence, ESG assets surpassed $30 trillion in 2022 and are projected to surpass $40 trillion by 2035 making up over 25% of projected assets under management. As ESG’s market share grows, prospective investors need to understand what ESG investments entail.

The quandary of ESG investing

From a bird’s eye perspective, ESG looks ideal because it is a way of growing capital through investment while also not having to sacrifice your moral values in the process. However, one main issue with ESG investing is that there are not universal guidelines as to how a company can be considered compliant with ESG standards. Instead, indexes, NGOs, consulting forms, and even government groups have individual ways of determining the standards for an ESG investment. This in turn causes rating systems to have “incompatible structures” which can disincentivize companies from working to improve practices because it may not have a significant impact on their ratings across the board. The main divergences are the difference in ranking of relative importance of attributes, the difference in measuring indicators of an attribute, and what attributes are considered when determining a ranking. The difference in how indicators were measured created the largest divergence between rating systems. This is problematic because a measurement should be an objective way of understanding a company’s commitment to ESG initiatives.

In order to combat this, the International Sustainability Standards Board, led by the European Union, has produced standardized recommendations to increase the rigor of ESG obligations. After review,  these standards went into effect for annual reporting on January 1, 2024. This is an indicator that despite the current divergence of ranking systems, hopefully in the future ESG rankings and measurements will become more standardized and allow for greater trust in ESG compliant portfolios and companies.

Profitability

Beyond the rating system and impacts, the bottom line for investing will always be profitability. So, the question for prospective investors is: Is ESG investing worth it? In an aggregate study of over 1,000 papers analyzing the relationship between ESG and financial performance, researchers found  57% of corporate studies on climate change documented a positive correlation between ESG and financial performance, 29% found a neutral impact, 9% mixed, and 6% negative. Researchers concluded that sustainability practices are correlated with corporate financial performance because of improved risk management, increased innovation, downside protection in the event of a crisis, and enhancing potential growth over the long-term.  

Due to politicization of the climate crisis, ESG investing has acquired a fair few opponents that see impact investing as a money sink. In reality, ESG investing can provide the opportunity for investors to experience more long-term returns. Companies that integrate ESG principles into their organization have revenues 19% higher than those who do not and experience a 5.79% increase in stock price impact. Additionally, in a study conducted by Bloomberg Intelligence stated that 85% of investors found ESG led to better returns and resilient profiles, consistent with the conclusion of the previous study discussed.

 Investing wisely

For ethical investing, it’s important to use an index that is thorough with their assessment of potential ESG investments. When looking at different ranking systems, it’s essential to look for ones that utilize both positive and negative screening methods meaning they ensure that the company does not partake in ethically and environmentally destructive behavior and that the company has a net positive impact on the world.

World GDP is forecasted to decrease by 18% by 2050 if no climate mitigating measures are taken. With this in mind, even if ESG regulations are not uniform across the board, I believe investing in ESG compliant companies rather than non-compliant companies is wise due to their profitability, positive impact on the world, and resilience.

Article by Ava Albracht. Ava is passionate about sustainable development, fashion, traveling, and media.

Are ecocide laws an antidote for offset and carbon markets?

We need to talk about the travesty that is the carbon credit and offset market. Perhaps ecocide laws might be an antidote to this fallacy.

The irreversible damage done to ecosystems, pollution and biodiversity loss should not be commercialised and traded in a capitalistic way on a market.

It's been reported that the earth is facing its 6th mass extinction driven by human activity, primarily (though not limited to) the unsustainable use of land, water and energy use, and climate change.

In the pursuit of extreme extraction of virgin materials for manufacturing and extreme capitalism that doesn't care about the impact that it has on the earth, whether directly or indirectly, the notion of taking another action that cancels the damage the company has done should not even exist.

Meanwhile, because of the harm done in the name of overproduction and growth, there are animal and plant species that we will never get back. Ever. And their habitats are in too many cases polluted, poisoned or destroyed. Same goes for the human lives, communities, their land and environments that have been destroyed and will continue to be ravaged unless we end deceptive concepts like carbon credit markets.

The EU has voted to introduce crimes that can be 'comparable to ecocide' in its revised Environmental Crime Directive. Ecocide as a standalone crime would mean the most senior board members or policy makers would be held legally accountable for decisions that lead to mass environmental harm, regardless of how that harm is caused!

Jojo Mehta, Co-founder and CEO of Stop Ecocide International, said:

“The historic vote from the EU to include ecocide-level crimes in its revised crime directive shows leadership and compassion, and will strongly reinforce existing environmental laws across the region. It will establish a clear moral as well as legal “red line”, creating an essential steer for European industry leaders and policy-makers going forward.”

Take action by signing a petition here.

We need this type of reform in countries across the globe.