What Interests Me About Sustainable Finance

When I think about what drew me into sustainable finance, I often return to a pattern I first began noticing while working with UNCDF in Senegal. Many of the initiatives I supported at the time involved strengthening essential infrastructure or improving cooperation around shared water resources, both of which were deeply tied to environmental pressures and long-term resilience. The communities involved understood the importance of these efforts, and the public sector partners were often strongly committed. Yet when the conversation turned to mobilizing commercial capital, the momentum frequently stalled. Similar situations appeared in other regions as well, whether the focus was river-basin cooperation, coastal protection, or locally driven adaptation measures. These projects delivered clear public value, but translating that value into a form that investors could act on was consistently challenging. Research on sustainable infrastructure financing shows that this difficulty is common globally, as long-term environmental projects rarely match the risk–return profile sought by private investors.¹ At first, I took each case as unique. Only later did I recognize how similar they were.

Across these contexts, I kept seeing the same tension. Environmental and social benefits were widely acknowledged, but they did not automatically generate the type of financial signals that investors are expected to prioritize. The gains often unfolded over long time horizons, while investors operated under mandates that required measurable financial performance in the near or medium term. That disconnect left me wondering why capital struggled to flow toward initiatives that were so clearly aligned with long-term societal needs. In the water sector specifically, studies also find that cooperation initiatives and basin-level projects struggle to attract private capital unless concessional or blended instruments are present, due to high coordination costs and unclear revenue pathways.²

Research from a large global survey of equity portfolio managers offers part of the explanation. Edmans, Gosling and Jenter (2024) find that most investors do incorporate environmental and social information, but primarily when it improves returns or reduces downside risk, and only a small minority are willing to sacrifice even a modest amount of return for better environmental or social outcomes.³ Their decisions are shaped by fiduciary duty, client expectations and fund mandates. These constraints apply across both traditional and sustainable funds, which behave more similarly than their labels suggest. When I read these findings, they resonated with what I had seen in Senegal and elsewhere. Projects that strengthened shared water governance, expanded access to resilient infrastructure or supported ecosystem restoration often required concessional or blended capital not because they lacked importance, but because they did not align with prevailing investment structures. This aligns with broader evidence showing that blended finance is most effective in sectors where public goods and environmental benefits dominate, precisely because private returns alone cannot justify early-stage participation.⁴

Another insight comes from recent work on biodiversity risk. Giglio, Kuchler, Stroebel and Zeng (2023) show that biodiversity loss creates real physical and transition risks across a wide range of industries, from agriculture and energy to real estate and pharmaceuticals.⁵ They construct measures tracking biodiversity-related news and sector exposures, and find that while concern about biodiversity is increasing, the pricing of these risks in equity markets remains incomplete. Many market participants believe that biodiversity risks are not yet adequately reflected in asset values. This perspective reflected what I had encountered in practice as well. Whether the issue was declining ecosystem services, water stress or increased climate volatility, the people closest to these challenges understood their severity long before those risks appeared in financial assessments.

Taken together, these studies highlight that the challenge is structural rather than merely informational. Environmental risks that are highly visible at the community or ecosystem level do not automatically translate into the financial indicators that shape investment decisions. Blended finance plays a bridging role by helping projects advance when commercial capital is not yet prepared to absorb or price long-term environmental benefits. But as ecological pressures intensify, relying on concessional resources alone will not be enough.

Recognizing this has shaped how I understand sustainable finance. The field is often framed around metrics, reporting and risk models, but at its core it is about aligning incentives with the environmental realities that increasingly define economic life. If risks such as biodiversity loss or water stress remain underpriced, then meaningful investment in resilience, restoration and cross-border cooperation will require new ways of structuring financial incentives. The research on investor behavior and biodiversity risk shows both the limitations of current practice and the opportunity for innovation. For me, the most compelling work in sustainable investing sits at the intersection of development experience, financial analysis and environmental urgency. It is the space where capital can begin to respond not only to immediate financial metrics, but also to the long-term environmental conditions that shape livelihoods, stability and economic possibility.

References

¹ Meng, J., Ye, Z., & Wang, Y. (2024). Financing and investing in sustainable infrastructure: A review and research agenda. Sustainable Futures, 8, 100312.

² OECD (2019). Making Blended Finance Work for Water and Sanitation: Unlocking Commercial Finance for SDG 6. OECD Publishing.

³ Edmans, A., Gosling, T., & Jenter, D. (2024). Sustainable investing in practice: Objectives, beliefs, and limits to impact (Finance Working Paper No. 1028/2024). European Corporate Governance Institute.

⁴ Kaur Juneja, M. (2024). How blended finance can reorient cautious private investors to infrastructure. World Bank Blogs.

⁵ Giglio, S., Kuchler, T., Stroebel, J., & Zeng, X. (2023). Biodiversity risk (NBER Working Paper No. 31137). National Bureau of Economic Research.