1.2 Making sense of the sustainable finance landscape
· 8 min read
This article is part of the Sustainable Finance Guide, a new series by Globalfields in collaboration with illuminem. Together, we provide readers with clear, educational insights into where sustainable finance stands today and how it is evolving to support nature, regeneration, and long-term resilience.
We begin with a clear and intentional choice anchoring this guide not only in climate finance or green finance – but to focus on sustainable finance.
This is because sustainable finance offers an expansive, urgent, and future-facing lens, allowing us to understand the role of money in shaping our world. It inherently embeds both climate and green finance within it.
Sustainable finance is holistic: Unlike green or climate finance, which tend to focus narrowly on environmental or carbon-related outcomes, sustainable finance recognises that real change must be systemic. It weaves together environmental goals with the social and governance dimensions that ensure transitions are equitable, just and enduring. Alongside addressing carbon emissions, we’re confronting poverty, indigenous rights, ethical governance, and other intersecting global challenges. These issues are inseparable from a truly sustainable future.
Sustainable finance is naturally more aligned with the SDGs: The Sustainable Development Goals provide a universal framework for peace, prosperity, and planetary health. Sustainable finance aligns with these goals by directly speaking to these ambitions. It promotes financial strategies that foster inclusive, resilient, and sustainable societies, alongside preserving ecosystems.
Sustainable finance frameworks encourage systems thinking: Framing our discussions around sustainable finance allows us to explore how economic, social, and environmental systems are interconnected – as should our responses. Sustainable finance allows us to see the financial system not as an isolated engine of growth, but part of larger interacting environmental, social and economic systems. It prompts us to rethink how capital flows, how risk is understood and how value is defined in a world facing a climate crisis.
Sustainable finance is the broadest concept used to describe the practice of directing capital flows towards sustainable development.
The United Nations Environment Programme defines sustainable finance as “the financing of investments that provide environmental benefits in the broader context of environmentally sustainable development (green finance) as well as finance for education, social development, health and other aspects of sustainable development as defined by the 2030 Agenda and the SDGs” [1].
All financial activities aimed at redirecting capital flows toward long-term sustainable development goals can be understood within the framework illustrated in Figure 1.
Figure 1: Definitions and Concepts in Sustainable Financial Systems [2]Sustainable finance refers to the process of taking environmental, social and governance (ESG) considerations into account when making investment decisions in the financial sector, with the aim of yielding more long-term and holistic benefits from economic activities.
Simply put, it mobilises capital to drive positive change by enabling activities that serve and maintain ecosystems, improve social outcomes, and promote long-term, inclusive economic growth [3].
Environmental considerations can include climate change mitigation and adaptation, biodiversity preservation, pollution control and minimising waste. Social metrics include gender equality, human rights, workers’ protection and community engagement and impact. Governance refers to the internal practices and structures that determine how public and private corporations are managed and held accountable – shaping how they interact with stakeholders, such as suppliers, shareholders, governments and society at large [4].
(Further detail on ESG metrics and frameworks can be found in Article 4.3)
Green finance is broadly considered a subsection of sustainable finance.
It refers specifically to the allocation of capital towards projects and initiatives that generate positive environmental impacts, including climate change mitigation and adaptation, biodiversity preservation and overall reduction of environmental harm [5].
The key pillars of green finance are centred around achieving a sustainable and resilient economy capable of responding to the challenges posed by climate change, promoting a transition to a low-carbon economy and operating within the planetary boundaries.
Examples of green finance initiatives include renewable energy and energy efficiency, pollution prevention and biodiversity conservations, for example [6].
The European Commission offers a subtle but useful distinction between Greening finance and Green financing – two complementary pillars that underpin the broader sustainable finance ecosystem.
Greening finance aims to mainstream climate and environmental factors into the financial system and to improve the identification and management of financial risks related to the climate and the environment. It includes updating financial instruments, regulations and risk management procedures to better account for climate and nature-related risks.
On the other hand, green financing focuses on mobilising private capital flows in green investments, which directly support environmentally sustainable activities. These goals of mainstreaming climate risk and encouraging climate solutions are also the backbone of sustainable finance, as illustrated in Figure 1 [7].
Greening finance aims to reshape the financial system so that climate and nature-related risks are treated as financial risk. This transformation is already underway, where climate change is increasingly no longer seen as a distant concern, but a present and urgent financial threat. Regulatory bodies across the globe are responding with enhanced disclosure policies, environmental risk assessments and green taxonomies, which ultimately help guide responsible financial decision making.
Meanwhile, green financing is about scaling up the level of financial flows towards green investment. It utilises innovative financial instruments such as green bonds, green loans, sustainable bonds, sustainability-linked bonds, sustainability-linked loans and blue bonds to raise funds for environmentally oriented projects and programmes [8].
Together, greening finance and green financing are transforming the way that capital is allocated – moving from a system that only accounts for risk to one that actively drives solutions. However, green finance is only one part of the puzzle. Sustainable finance is the broader lens which accounts for social equity, governance integrity and long-term resilience.
Climate finance can be considered a subset of green finance.
Although there is no universally agreed definition, the UNFCCC states that “Climate finance aims at reducing emissions and enhancing sinks of greenhouse gases and aims at reducing vulnerability of, and maintaining and increasing the resilience of, human and ecological systems to negative climate change impacts” [9].
Climate finance is closely associated with international climate diplomacy, institutions and agreements, including the UNFCCC, the Kyoto Protocol and the Paris Agreement. These frameworks call for financial assistance from Parties with greater financial capacity (for example, the industrialised economies and economies in transition) to those that are less endowed and more vulnerable (for example, emerging and developing economies).
At the 2009 Copenhagen COP15, developed countries collectively pledged to mobilise USD 100 billion per year by 2020 for climate action in developing countries. This commitment, which was framed in the context of meaningful mitigation efforts and transparent implementation, was enshrined in Article 9 of the Paris Agreement and later extended to 2025.
At the 2024 COP29 in Baku, a new milestone was reached. The adoption of the New Collective Quantified Goal on Climate Finance (NCQG). This new agreement will triple finance to developing countries, from the previous goal of USD 100 billion annually, to USD 300 billion annually by 2035 [10].
Additionally, the agreement seeks to mobilise a total of USD 1.3 trillion annually by 2035 from both public and private sources – representing the scale and urgency of the investment required [11].
At COP30 in Belém, climate finance again took centre stage, with countries turning their focus to how the commitments made in Baku will be practically implemented. The Mutirão decision, introduced by the COP Presidency and adopted by parties, established a new two-year climate finance work programme to ensure continued political follow-up on the NCQG and the Baku to Belém roadmap. This programme creates a dedicated space to advance discussions on the climate finance goals outlined previously.
The decision further reaffirmed the need to triple adaptation finance by 2035. However, even as countries agreed to new work programmes and signalled intent to scale up support, the timelines and commitments on the table continue to lag behind the urgency faced by developing nations [12]. The gap is no longer just about ambition, but about persistent structural barriers that prevent finance from flowing to where it is most needed.
This widening disconnect underscores a deep truth. Although climate finance is a vital piece of the puzzle, it alone cannot address the full spectrum of environmental, social and governance issues we face.
Ultimately, if finance shapes the world, then sustainable finance could be the blueprint for building a better one – a future where people and our planet can thrive together. Understanding the full sustainable financial landscape is not a technical exercise, but it is a strategic imperative. The next article explores how sustainable finance is no longer peripheral, but has rapidly moved into the mainstream - reshaping markets, institutions and decision-making at scale.
The views expressed are for informational purposes only and do not constitute financial, legal, or investment advice.
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References
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