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The economic downturn caused by the Covid-19 pandemic has brought unprecedented uncertainty to the global banking system. Banks are facing critical market challenges driven by uncertain monetary policies, deterioration in credit quality, and regulation and compliance pressures. These challenges highlight the importance of better understanding the new role of financial intermediations in facilitating efficient capital allocations and economic development. This article reviews the related literature on monetary policy uncertainty, bank performance, digital finance, and introduces articles on these themes. Finally, we propose potential areas for future research. © 2023 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group.
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Artificial intelligence (AI) for sustainable finance has been increasingly employed over the past several years to address the sustainable development goals (SDGs). Two major approaches have emerged: institutional and societal AI for sustainable finance. Broadly described, institutional AI for sustainable finance is used for activities such as environmental, social and governance (ESG) investing, while societal AI for sustainable finance is used to support underbanked and unbanked individuals through financial inclusion initiatives. Despite the growing reliance on such digital tools, particularly during the coronavirus disease 2019 (COVID-19) pandemic, governance mechanisms and regulatory frameworks remain fragmented and underutilized or inhibit progress toward the 17 UN SDGs. While major proposals and reports were released by standard-setting and regulatory bodies leading up to 2020, the COVID-19 pandemic indeed caused major setbacks to adoption and implementation, which in turn have also resulted in inconclusive data and lessons learned. As the global community begins to navigate out of the pandemic, policy makers, through multilateral and cross-sector agreements, are looking to renew governance mechanisms that mitigate new and pre-existing risks while cultivating sustainability and facilitating innovation. © 2023, The Author(s), under exclusive license to Springer Nature Switzerland AG.
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today's prolonged crisis situations, such as the Covid-19 pandemic, the Russian-ukrainian conflict, and the energy and climate crisis call for climate neutrality in Hungary, although they make transition difficult in the short term. A number of studies suggest that Hungary will be able to reach the target by 2050 at the latest, and that the benefits, on the whole, will outweigh the macroeconomic sacrifices. Nevertheless, green transition, including the Hungarian economy, requires a huge amount of investment and financing, which makes it necessary to involve the private sector, and which central banks can assist effectively. Fortunately, a variety of solutions to finance green and sustainable investments have emerged recently, although we are still at the beginning of the process. The Central Bank of Hungary (Magyar Nemzeti Bank, MNB) has taken a number of measures – and is planning to take further ones – to promote green finance in Hungary, which, in addition to the development of a sustainable financial system will contribute to Hungary's transition to an environmentally sustainable economy. © 2023 Seventh Sense Research Group®
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This study aims to determine whether ESG funds can be used as an effective tool for environmental sustainability. ESG funds, which first appeared in the 2000s and were exported by environmentally friendly companies, are among the most effective tools for increasing firm value and managing environmental degradation. The causality relationship between the ESG funds, one of the environmentally friendly investment instruments, and the CO2 emission values, which are used as an environmental degradation criterion, was investigated in this study. The study used 209 daily data sets from July 31, 2020, to May 28, 2021. The symmetric developed by Hacker and Hatemi-J (Appl Econ 38:1489-1500, 2006), the asymmetric developed by Hatemi-J (Empir Econ 43:447-456, 2012), and time-varying asymmetric causality tests were used as models. According to the study results, while there is no symmetric causality between CO2 emissions and ESG funds, there is causality between CO2 emissions and ESG funds prices for negative shocks and between CO2 emissions and ESG funds trade volume for positive shocks. The results of a time-varying asymmetric causality test also support that this causality relationship varies by period. As a result, ESG funds can be used as a strategic financial tool to improve environmental quality during the COVID-19 period; however, this may vary for different sub-sample periods.
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The world is facing dual challenges of generating an economic recovery from the COVID-19 crisis, and transitioning to a low-carbon economy to tackle climate change. Strongly interrelated global challenges will require an integrated and coordinated response by all countries to manage the risk and lay the foundation for building back better. As the world's biggest emitter and the second-largest economy, China is a very important player in international collaboration and coordination in climate action. Against this backdrop, this paper looks into the increasingly crucial role that China is playing in global climate action, especially focusing on three aspects: China's domestic and foreign policymaking for the energy transition;its role in promoting multilateralism and international collaboration on building a sustainable world;and how it could accelerate climate action and diplomacy through research, development and innovation. In the critical decade of the 2020s, China has a great opportunity to further transform and upgrade its energy and industrial structures, promote research, development and the application of green and low-carbon technologies and intensify international climate cooperation on climate change. China should aim to be at the forefront of raising climate ambition and accelerating climate action for a sustainable and more equitable world. © 2023 IOP Publishing Ltd.
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Drawing from the extremely novel impact investing landscape and the limited existing literature on the topic, it appears that investing in social enterprises should come at the cost of partially sacrificing financial returns to invested capital. This paper investigates the existence of this tradeoff by assessing how the performance of impact investing funds compares to that of traditional private equity and venture capital operators. Focusing on portfolio firm operating performance, we construct a dataset of 85 impact-investing observations and 5310 traditional observations over the period ranging from 2009 to 2020, in order to compare the performance of the traditional investor-backed firms with those of sustainable companies participated by social impact investors. Advanced matching methods such as Radius and Kernel matching suggest that the composition of the shareholding structure significantly affects the profitability of the company, with traditional firms outperforming their socially-concerned counterparts. Looking instead within the subsample of impact investor portfolio companies, and focusing only on the post-investment observations, we analyze how the percentage owned by the impact investors impacts the performance of the owned companies. The results show that, similarly to traditional ownership, a greater share controlled by impact investors leads to higher returns.
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Recently, the management of the green financial sector has been widely influenced by global socio-economic concerns such as the COVID-19 pandemic and the energy crisis. The purpose of this paper is to evaluate, besides their environmental attitude, what opinions and experiences the affected stakeholders have about the sustainability-related processes in the Hungarian banking sector in the early 2020s. To assess this subject extensively, two questionnaire surveys were conducted in two consecutive years (2020/2021 and 2021/2022), involving 600 and 1,600 participants randomly chosen from banking databases, respectively. The results indicate that both residential and corporate participants have various but broadening knowledge of green financial instruments. Hungarian residential customers have pointed out the inconveniences of the most popular green loan product (Green Home Program), while there appears a distinct difference in green investment preferences between the two groups of respondents. Hungarian stakeholders are quite eco-conscious, and so are banks adopting sustainability and climate risk assessment actions, however, the implementations have much potential to exploit. Respondents also identify the energy crisis-related risks, while their trust in the banking system remains high even under volatile circumstances. These findings demonstrate that the Hungarian green banking sector has a high degree of crisis resistance with residential and corporate stakeholders behind giving trust and thereby the driving force toward the successful green transition. © Anita Boros, Csaba Lentner, Vitéz Nagy, Dávid Tőzsér, 2023.
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Socially Responsible Investments (SRI) have recently generated much interest among asset owners, managers and academicians. Though the Efficient Market Theory suggests that stock prices fully reflect all available information, few existing studies indicate that Environmental, Social and Governance (ESG) portfolios deliver superior risk-adjusted performance. ESG investing is at a nascent stage in India but is growing rapidly, especially after the COVID-19 pandemic. Asset managers always face the dilemma of choosing between different screening methods, screening intensities and stock weighting schemes to deliver outperformance. Our study attempts to investigate the impact of these portfolio construction criteria on the risk-adjusted performance of ESG portfolios in India. Our results show that there exists a trade-off between superior investment performance and unsystematic risk of ESG portfolios. Investors can benefit from investing in equally-weighted best-in-class portfolios constructed using ESG scores. We highlight the implications of our findings for asset owners, managers, index providers and regulators, and also provide directions for future research in the area of ESG portfolio management. © 2023 John Wiley & Sons Ltd.
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Energy poverty is a global challenge and the scarcity has been emerging as a global issue. Therefore, the relationship among energy scarcity, sustainable finance, and carbon emissions is analyzed with the help of global data from 40 developing countries until the beginning of the COVID-19 era. For empirical results' estimation, the study analyzed a panel data ranging from 2000 to 2019. To measure the energy poverty, some part of population that has no access to energy is considered, and empirical analysis based on augmented mean group (AMG) regression method was carried out. The findings of the study suggest the inverse relation among energy poverty and carbon emissions. Moreover, a negative relationship was also observed between sustainable finance and carbon emissions. These findings highlight that alleviation of energy poverty can intensify environmental pollution. While improvement in access to clean energy will benefit society by alleviating energy poverty and controlling carbon emissions. Moreover, improvement in the share of sustainable finance in total investment may improve the environment quality by reducing carbon emissions. Therefore, it is suggested that regional plans along with sustainable finance are required on a priority basis for the promotion of clean energy to control carbon emissions and alleviate energy poverty at the household level.
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Following the COVID-19 outbreak, orientation toward sustainability is a critical factor in ensuring firm survival and growth. Using a large sample of 1,204 firms in Europe during the year 2020, this study investigates how more sustainable firms fare during the pandemic compared with other firms in terms of risk-return trade-off and stock market liquidity. We also highlight the drivers of the resilience of more sustainable firms to the pandemic. Particularly, we document that higher levels of cash holdings and liquid assets in the pre-COVID period help these firms to perform and absorb the COVID-19 externalities better than other firms. Our results are robust to a host of econometric models, including GMM estimations and several measures of stock market performance. These findings contribute to the theoretical and empirical debate on the role of the sustainability as a source of corporate resilience to unexpected shocks.
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This paper adopts quantile regressions to scrutinize the dynamics of green investment funds in relation to the outbreak of the COVID-19 pandemic. We use data on three of the largest green investment funds (BNP PARIBAS Funds Climate Impact, Nordea Global Climate & Environment, and AMUNDI Funds Global Ecology ESG), whose proceeds finance environmental-focused projects. We consider explicitly how different types of COVID-19 measures impact on these green assets. We show evidence that economic support due to COVID-19 has a positive effect on the green assets. The effect is especially strong when the returns are negative. We further report that strigency owing to the pandemic is also positively associated with green investment funds, but again, for negative returns. On the other hand, the effect of confirmed deaths is not as strong shows up mainly at lower quantiles. A similar results applies to infectious disease equity market volatility. We account for the broader macroeconomic environment and subject our models to a battery of sub-sample robustness checks. Our research offers interesting insights in terms of investment and portfolio diversification, that can be applied to the analysis of asset management and policy making.
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The global economic recession caused by COVID-19 has posed a severe threat to the feasibility of renewable energy projects, hampering the United Nation (UN) sustainable development goals. Sustainable financing (SF) is a crucial instrument for promoting investment in renewable energy (IRE) sources, as it is regarded as a crucial aspect in achieving long-term sustainability. This study sheds insight on the impact of SF, geopolitical risk (GPR), economic growth (EG), and environmental regulation (ER) on IRE sources by evaluating 10 years of data from 35 Chinese energy businesses from 2012 to 2021. The data analysis is done by utilizing quantile regression and dynamic analytic techniques, demonstrating that SF, EG, and ER have a significant positive effect on IRE sources. However, GPR has a significant detrimental impact on IRE in China. This is one of the early studies to examine the crucial role of SF, GPR, EG, and ER in IRE, which is critical for environmental sustainability. In addition, it provides policymakers and environmentalists with crucial insights for developing and executing environmental strategies that can deliver long-term benefits and meet SD goals.
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In recent years, financial markets have been hit hard by the Great Financial Crisis of 2008, the acceleration of climate change, and now the COVID-19 pandemic. The result of these events is the acceleration of the implementation of a new model of socioeconomic development of societies referred to as the environmental, social, and governance (ESG) model. It has been particularly evident in the financial investment sector. Analyses of the relative performance of ESG funds is inconclusive due to the lack of a clear definition of responsible investments, and insufficient quality of the available data and ESG ratings. However, most of the studies find a positive correlation between ESG factors and company's financial performance. The analyses showed that these positive results are more pronounced over the longer term and impact the stock prices of those companies. ESG funds offer better downside protection during crises in relation to traditional funds. Despite the lack of legal barriers, the Polish economy has experienced very long delays in implementing the ESG model and the gap is even more pronounced in the financial industry. This is surprising as Poland is a very interesting market for sustainable investment given its current underdevelopment and overall potential related to green transformation. In Poland, only 17 investment funds deeply integrate ESG criteria. Educational and communication barriers have been identified as the main obstacles to the development of the sustainable finance market in Poland. Education of all participants in investment processes is a prerequisite for success.
Subject(s)
Investments , Sustainable Development , Humans , Climate Change , COVID-19/prevention & control , Pandemics , PolandABSTRACT
The connection between the green economy, technology, and finance has recently become a popular topic for analyzing economic and policy matters. Financial technology can provide not only an opportunity to tap into new pools of private capital to finance green and sustainable projects through innovative financial instruments but also provide support to clean technologies through the adoption of voluntary sustainability codes of conduct. However, there is still a lack of clear scientific evidence in the literature about how the green economy interacts with these relevant indicators of sustainable finance. Thus, this paper examines the time-varying causal relationship between indexes of financial technology (FinTech), clean technology (CleanTech), and the green economy (GECON), by applying the novel method proposed by Shi et al., 2018, Shi et al., 2020 on daily data from June 15, 2012 to December 15, 2021. This study finds a higher volatility and causality running from GECON to CleanTech and FinTech for the entire period. Furthermore, the green economy Granger causes FinTech and CleanTech with very significant episodes, especially at the start of the COVID-19 pandemic. The robustness of the results was checked with a rolling window and recursive evolving techniques that overall confirm bidirectional causal relationships between green economy and technology variables. The findings imply that global initiatives to achieve low-carbon economies need to be complemented with the use of clean technologies in the production process and the continuous digitalization of financial sectors. The promotion of clean technology production by governments and the increased interest of investors in FinTech industries will stimulate green economic growth.
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The paper examines the role of green bonds in hedging the risk against industry portfolios and other major asset classes. It mainly focuses on how the greenness of the portfolio reduces the risk of green portfolios containing green bonds and 11 industrial sectors and major financial assets from October 2014 to November 2021. The results show that the risk of green portfolios is lower than that of unhedged (non-green) portfolios. Furthermore, our study provides evidence that the hedging effectiveness of green portfolios improves during the COVID–19 pandemic. Finally, the results show that investors across the risk aversion spectrum gain higher utility after considering the transaction costs while investing in green portfolios. These results are new additions to prior literature that can interest investors, fund managers, and policymakers.
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Amid funding shortfalls to address ongoing ocean degradation, blue bonds are being designed to finance sustainable development and conservation projects in ocean and coastal areas via private sector investment. Blue bonds seek to deliver both positive environmental and/or social impact alongside a financial return on investment to investors. However, there has been limited academic scrutiny of these early initiatives to evaluate whether this rhetoric is justified. This article leverages 15-years of scholarship on green bonds to develop an analytical framework that is applied to five of the world’s first blue bonds. A comprehensive content analysis of sources such as blue bond project documents and secondary interviews is used to synthesise their characteristics, and consider trends related to their thematic scope, geographical scope, environmental impacts, and financial returns. Thematically, blue bond proceeds are channelled towards projects aligned with Sustainable Development Goal (SDG) 14 ‘Life Below Water’, the Blue Economy, and policy discourse around the ‘blue recovery’ from covid-19. These projects range from marine protected area (MPA) creation, to improved fisheries management, and potentially, oil and gas exploration. However, greater explanation of the logic through which project activities are expected to deliver impact and returns is warranted. Equally, impact measurement is often underwhelming, with many bonds targeting easy-to-measure outputs (e.g., area conserved) rather than outcomes and impacts (e.g., increases in fish abundance). While an alluring and useful financial innovation, greater disclosure on the individual projects and enterprises that blue bonds finance is necessary to validate their sustainability credentials and inform investor decision making.
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The need to take action to mitigate the effects of climate change is widely recognized by governments and economic actors around the world. Likewise, an awareness of a more holistic approach to financing policy goals, so that all social, economic, and environmental aspects receive adequate consideration, has been on the rise, too. The UN sustainable development goals (SDGs) combined with the European Green Deal objectives have themselves induced a major funding challenge, which is now aggravated by the COVID crisis and the war in Ukraine. Development finance and investment are strongly needed. In the public finance sector, besides European institutions and national governments, national development banks (NDBs) play an important role in providing funds and implementing development and investment programmes. By using public and private funds, they are actively involved in financing infrastructure projects as well as they are acting as holding fund managers or financial intermediaries for different financial instruments such as investment platforms or EU funded financial instruments. The paper assesses the compliance of European national development banks with sustainability requirements by exploring their strategic objectives and investment activities. The aim of the paper is to examine whether and how the contradiction between stimulating growth and maintaining a sustainable fiscal strategy can be resolved. The new obligations stemming from the EU Taxonomy rules and the weight of national development banks in investments and specifically in infrastructure finance gives particular relevance to the enquiry. European National Development Banks satisfy a wide range of specific missions to address market failures. They can be clustered based on the basis of the duration of their operations, the financial market situation and level of economic development in their country as well as the sustainable development index. The level of commitment the government makes to green growth and of the influence it holds over the bank has been observed to correlate with bank’s contribution to sustainable finance. The results of the analysis of their various management and investment areas show that the investments they currently finance are to a large extent harmonized with the sustainable finance requirements and regulations of the European taxonomy. Meanwhile, their mandates and the wider context of national development strategies continue to provide strong incentives for sustainable finance. © 2022. DETUROPE.All Rights Reserved
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Green finance (GF) supports the global fight against climate change and its impacts. It is critical to attaining the Paris Agreement and the United Nations Sustainable Development Goals. Since GF is regarded as the future of finance and investment, it needs to be fully understood. This paper presents the first mixed-methods systematic review with both bibliometric and qualitative analysis of the state-of-the-art and trends in GF research. A bibliometric review was performed to quantitatively examine 995 related publications retrieved from Scopus and validated with the Web of Science, Google Scholar, and ScienceDirect. Results showed that GF is still relatively an immature but interdisciplinary research area. A further qualitative-systematic analysis of 60 selected publications was conducted to identify the key findings, challenges, and recommendations for future research. Findings revealed six major research hotspots in GF: (i) green bond market and greenium, (ii) green credit (loan), (iii) carbon investment and market, (iv) green banking, (v) market stress (e.g. the COVID-19 pandemic) and GF, and (vi) domestic and international climate finance policies. This study provides insights into key applications of GF as it applies to specific research fields, a and as the pathways to realize the accruable benefits of GF to enhance research and development. © 2022 Informa UK Limited, trading as Taylor & Francis Group.
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There is beyond any doubt that Latin America is one of the most important emerging markets in the world, which has increased its importance in the last decades. In effect, the issues of green, social, and sustainability (GSS) bonds are gaining more and more importance in the Latin American and the Caribbean (LAC) financial markets. They are specifically focused on raising funding for public expenditure programs that contribute to achieving several objectives, such as climate and environmental projects, energy efficiency, pollution prevention, sustainable agriculture, fishery and forestry, etc. The main objective of this paper is to provide a literature revision of the evolution of the issuance of GSS bonds in the LAC region and to analyze the economic growth of the countries which issue this type of bond. We will apply multiple linear regression to relate the economic growth of some countries of the LAC region with the variables proposed by the IFC Emerging Market Green Bonds Report (2019). It has been shown that the economic growth of the countries in the LAC region that are issuing GSS bonds is significantly related to the Sovereign Green Issuance (Total Planned), the ratio of Private Credit/GDP, and the Rule of Law Index. However, this research has had the limitation of the scarcity of available data in the LAC markets.
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In 2015, the governments of 193 United Nations member states adopted the 2030 Agenda for Sustainable Development, followed by the Paris Agreement. Their detailed solutions assume the inclusion of the concept of sustainable finance into investment decision-making processes, including directing capital towards sustainable investments and stopping climate change. The main subject of the study is sustainable finance, which is one of the pillars of the sustainable development of the global economy, which has also become an important objective of the European Union, enshrined in the Treaty of Lisbon. The main aim of the paper is an extrapolation of risks appearing in the unstable environment of credit institutions, which are increasingly boldly directing their expectations on their inclusion in the sustainable finance concept implementation. The empirical research included in the first stage a questionnaire survey, while in the second one, a quantitative comparative analysis. The research was aimed at verifying the research hypothesis stating that after the global financial crisis, banks meet the new prudential capital regulations, however by their inclusion in the concept of green finance, they will increase a share of mitigation in the bank risk management strategy. The research, carried out in the Polish banking sector, has shown that domestic banks meet all prudential requirements resulting from the new capital norms. However, investment strategies, based on the composition of the portfolio in accordance with the principles of sustainable finance and on high rates of return in the long term, will change banks’ resilience to key risks from the perspective of sustainable development.