For more than a decade, sustainable finance has centred on one overarching theme: climate change. At the World Federation of Exchanges (WFE) Sustainability Conference in Luxembourg, investors, businesses and regulators discussed the sector’s future drivers of growth.
Green bonds, transition bonds, carbon markets, climate neutrality targets and the decarbonisation of investment portfolios have gradually transformed a niche market into an indispensable component of global finance. But as the market matures, a new question arises: what will be the next driver of growth in sustainable finance?
This was the central theme of the session ‘Beyond Climate: Expanding the Sustainability Frontier’. Behind the discussions on gender, inclusion, biodiversity and the just transition lies a far more strategic challenge: how to transform these new themes into asset classes capable of attracting institutional investors.
From climate to gender: the example of gender bonds
To begin the discussion, , head of sustainable finance at the Luxembourg Stock Exchange, presented the initiative developed by the exchange in relation to gender-focused bonds.
The idea was conceived in 2022 following discussions with UN Women. LuxSE was then asked a simple question: what does a stock exchange actually do to promote gender finance? The answer led to the creation of a specific methodology to identify and list bonds whose proceeds finance projects promoting equality between women and men.
What sets the Luxembourg approach apart is its focus on impact. “We don’t certify promises, but demonstrated impacts,” emphasised Laetitia Hamon. In other words, bonds are not designated as ‘gender-focused’ on the basis of mere commitments. Issuers must demonstrate their contribution in concrete terms through indicators and post-issuance reports. Today, around 500 gender-focused bonds are listed on the LGX platform.
For the head of the Luxembourg Stock Exchange, the issue goes far beyond the question of gender alone. “Investors need benchmarks; issuers need visibility. Stock exchanges have a key role to play in making these instruments identifiable and in bridging the gap between those seeking capital and those allocating it.”
His speech highlights a significant shift in the role of stock exchanges. Stock exchanges no longer merely list financial products. They now play a part in creating new investment categories by setting standards, ensuring data transparency and facilitating the matching of supply and demand.
The example of gender is telling. Behind this theme lies a market-driven logic: to make impact measurable, comparable and therefore investable.
The ESG data paradox
This issue of investability was the focus of the presentation by Roman Godau, director of public affairs at Novartis and representative of the Value Balancing Alliance. According to him, companies have already made significant progress in measuring their impacts.
Novartis currently tracks more than 80 indicators covering its entire value chain: emissions, economic value creation, contribution to employment, access to healthcare, and social and environmental impacts. However, this information remains largely underutilised.
“We already have full transparency regarding our environmental impact across our entire value chain. The data is there. For the time being, it is mainly used to inform our internal strategic decisions, as investors are not asking for it to a sufficient extent,” explained Roman Godau.
Whilst debates about the quality of ESG data often dominate discussions, the problem is no longer necessarily the production of information. According to Roman Godau, the key question now is whether financial markets are ready to incorporate this information into their investment decisions. “The financial markets do not yet have the necessary capacity to make full use of all this data.”
This line of thinking ties in directly with the ambitions of the Value Balancing Alliance, which seeks to develop methods for quantifying all of a company’s positive and negative impacts. For Romain Godau, the next step is to integrate social, health and economic factors into financial assessment mechanisms with the same level of sophistication currently applied to carbon.
Investors need guidance; issuers need visibility. Stock exchanges have a key role to play in making these instruments recognisable and in connecting those seeking capital with those providing it.
The battle of the standards
Even if new issues arise, they must still be able to be integrated into coherent market frameworks. This issue was addressed by Ilya Sverdlov, a representative of the Alliance for Financial Inclusion (AFI), a network comprising more than 80 central banks and financial authorities from emerging economies.
His message is clear: while the objectives may be global, their implementation must remain tailored to local circumstances. “A one-size-fits-all approach cannot address the realities of every market,” emphasised Ilya Sverdlov, calling for a more proportionate implementation of international sustainability standards.
In his view, the uniform application of international standards risks excluding a significant part of the global economy. “We must pursue common objectives, but their implementation must remain proportionate and take local realities into account,” argued Ilya Sverdlov, believing that an overly uniform approach would risk excluding certain emerging economies, SMEs and local financial institutions.
Central banks in emerging economies are thus seeking to balance sustainability, financial inclusion and economic development. The experience of countries such as the Philippines, Bangladesh, Morocco, Egypt and Jordan shows that it is possible to pursue the same sustainability goals whilst adopting different approaches. For financial market participants, this issue is far from theoretical. The credibility of future sustainable asset classes will depend largely on whether standards are robust enough to reassure investors whilst remaining accessible to a wide range of economies.
The just transition as a financial challenge
The final major topic of the debate concerned the just transition. According to Ferruccio Santetti, chief of staff at the Global Green Growth Institute (GGGI), discussions on sustainability are often disconnected from the financial realities of emerging economies. “Development trajectories are often determined by the cost of capital,” he pointed out. In his view, the success of a just transition depends as much on access to affordable finance as on the climate targets themselves. In other words, governments’ ability to finance their transition depends above all on the cost of capital.
In his view, the social dimensions of the transition are still not sufficiently taken into account in financial mechanisms. For the countries supported by the GGGI, the success of the energy transition depends not only on climate targets but also on the ability to mitigate social risks, support employment and ensure a fair distribution of economic benefits. This approach significantly broadens the traditional scope of sustainable finance. Climate remains important, but it is no longer enough.
What ultimately stands out from this session is not so much the rise of a particular theme as the emergence of a new market dynamic. The first phase of sustainable finance involved establishing standards, taxonomies and transparency requirements. The second phase involves transforming sustainability issues into financial assets capable of attracting institutional capital.