The Finance of Sustainability: New Trends, Opportunities, and Challenges

Abstract

Corporate sustainability programs and strategies must balance opportunities and risks associated with sustainability in order to create long-term shareholder values. One of the major barriers to the adaptation of sustainability is the cost increase when sustainability is pursued over a business-as-usual approach. Sustainability, however, is moving beyond risk management to cost reduction and revenue generation. To minimize the risks and the liability, and in the absence of national regulations, many companies have developed voluntary sustainability initiatives and programs, some of which could and have achieved higher returns through higher worker productivity, healthier employees, and reduction in energy, material, and water usage. This chapter provides an overview of the critical and evolving field of sustainability financing and describes why it is crucial to develop clear policies that can attract investor support for sustainability projects. Also discussed are some of the hot-button issues in the finance of corporate sustainability and the financial instruments and potential avenues available for external financing of sustainability projects. Theories and practical applications that financial professionals can leverage to simultaneously earn a profit and positively impact the environment and society are presented and discussed.