Chapter III

Sustainable
finance trends
 The sustainable finance market grew but signs of a slowdown persist
Sustainable bond market Sustainable fund market
Global issuance, 2023: $872 billion +7%
Market value, 2023: $3 trillion
Green 587

Social 154 Net inflows

3% 557 ($ billions)
Sustainability 109 -89%
Sustainability- 22
linked
161 63
Cumulative issuance since 2018: $4 trillion
2018 2019 2020 2021 2022 2023

More institutional investors Stock exchanges help drive

reported on sustainability sustainability disclosure
performance in 2023

58 public pension funds and 59% provide written guidance

sovereign wealth funds report…
42 Top
100 58
31% enforce mandatory rules

…but only 17 target fossil 12%

fuel divestment and renewables 66% provide training
investment

Regulations and standards are proliferating; greenwashing remains a challenge

Sustainable finance regulation Sustainability disclosure
94

50% growth in sustainable 17 countries adopted

finance measures, 2023 63
new ISSB standards

Greenwashing: only 20%

Developing economies:
of “green fund” portfolios are
60% of new policies
2022 2023
exposed to climate-positive assets
 Chapter III
Sustainable finance trends

A. Sustainability-themed capital
market products

The sustainable finance market continues to grow. In 2023, the

value of sustainable investment products, encompassing bonds
and funds,1 reached more than $7 trillion, a 20 per cent increase
from 2022. Although the picture is nuanced, the overall positive
trend in the sustainable finance market points to continued investor
confidence and the resilience of sustainable investment strategies.
Sustainable bonds were the main driver of growth in sustainable
capital market products. Issuance climbed to $872 billion, a 3 per
cent rise from 2022, bringing the cumulative value of the market
since 2018 to more than $4 trillion. Despite continued growth in
number and asset value, though, sustainable funds experienced
strong headwinds in 2023. Net inflows dropped from $161 billion
in 2022 to $63 billion in 2023. Greenwashing remains the most
significant challenge to the sustainable fund market.

1. Sustainable bond markets

Global issuance of green, social, development. However, the near-record
sustainability and sustainability-linked levels of issuance of green bonds and
bonds (box III.1) has grown fourfold since sustainability-linked bonds were offset by
2018. As a share of global bond markets, falls in issuance of social and sustainability
the sustainable segment represented 5 bonds – partly related to the phasing out of
per cent in 2023, unchanged from 2022. social and sustainability bonds related to the
This consistent share as well as record coronavirus disease (COVID-19) pandemic
levels of outstanding bonds and increased (generally referred to as COVID-response
annual issuance of sustainable bonds signal bonds) – which contributed to a slowing in
the rising importance of such bonds as the five-year compound annual growth rate
a mechanism for financing sustainable of the sustainable bond segment (figure III.1).

1
This chapter covers publicly traded sustainable finance products only, namely bonds and funds. It excludes
derivatives whose value may be unrealized, as well as voluntary carbon markets, whose value - for now -
remains insignificant

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Box III.1
What is the difference between green, social, sustainability and
sustainability-linked bonds?

All four types of sustainable bonds are fixed-income securities designed to target sustainable outcomes while offering a
financial return to investors. Green, social and sustainability bonds are generally tied to the financing of a specific project or
use of proceeds, whereas sustainability-linked bonds instead integrate in their design a level of sustainability performance
(such as greenhouse gas (GHG) emissions).
Green bonds raise funds specifically for projects with environmental benefits, such as renewable energy or pollution
prevention, with issuers providing transparency on how the proceeds are used. These bonds are typically linked to assets
and backed by the issuer’s balance sheet. Historically, the focus has been on direct financing of physical assets and
projects and indirect financing thereof (e.g. loans to suitable assets or projects).
Social bonds raise funds for projects with positive social outcomes, such as education, health care, affordable housing
and employment generation, especially for underserved or marginalized communities. Issuers of social bonds also commit
to transparency regarding the use of proceeds and the impact of the projects funded, ensuring that investors can see
the social benefits derived from their investments.
Sustainability bonds combine elements of both green and social bonds to finance projects with both environmental and
social benefits. The proceeds from these bonds are used to fund a diverse range of initiatives, such as renewable energy
projects, water conservation, sustainable agriculture, affordable housing and health-care facilities. Sustainability bonds are
also designed for investors looking to support comprehensive projects that contribute to the Sustainable Development
Goals. Like green and social bonds, issuers of sustainability bonds provide transparency and reporting on the allocation
of proceeds and the impact of the projects financed, ensuring accountability and alignment with sustainability objectives.
Sustainability-linked bonds tie the cost of financing to key performance indicators of sustainability. These bonds
differ from green, social and sustainability bonds in their structure and objectives. Whereas traditional green, social
and sustainability bonds focus on financing or refinancing projects that have specific environmental or social benefits,
sustainability-linked bonds are uniquely characterized by their performance-based approach. The financial or structural
characteristics of the bond (such as the interest rate) are directly linked to the issuer’s achievement of predefined
sustainability targets. Transparency and credibility are maintained through regular reporting on progress towards the
targets and through third-party verification to ensure objectives are met, making these bonds a powerful tool for promoting
sustainability in finance.

Sources: UNCTAD and Climate Bonds Initiative.

Figure III.1
The sustainable bond market recovered in 2023, aided by green
bond growth
Global sustainable bond issuance by year and by category
(Billions of dollars and percentage year-on-year growth)
+42%

$4 trillion
+3% +15% cumulative
-17%
issuance since
2018
+100%
25%
CAGR
587 2018−2023
1 015
843 872
+58%
716
-7%
+27%
154
358 -31%
227 +83%
109
22
2018 2019 2020 2021 2022 2023 Green Social Sustainability Sustainability-
linked
Total sustainable bond market

Source: UNCTAD, based on information from Climate Bonds Initiative.

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 Chapter III
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Issuers based in Europe account for 46 hedging can lead to demand for higher
per cent of the global market, with 2023 yields to compensate for the additional
issuance up slightly from 2022 (figure III.2). risks, ultimately increasing the costs of
The Asia-Pacific region accounted for a financing. The involvement of international
third of total issuance, a rise of nearly 40 per development finance institutions such as
cent from 2022. Issuers in North America the World Bank, the International Finance
accounted for 11 per cent of the global Corporation and regional development
market in 2023. Supranational issuance, banks can be crucial in mitigating
which is an important source of sustainable these risks and reducing the financing
bonds, fell to $24 billion in 2023, from $106 costs linked to currency mismatches in
billion in 2022, a drop of 77 per cent. bond issuances (UNCTAD, 2023f). In
addition, deepening local capital markets
Reflecting this regional distribution, the
and issuing debt instruments in local
euro is the most common currency used
currencies can also be effective, ensuring
for sustainable debt issuance, accounting
that sustainable bonds make a greater
for over 40 per cent of total cumulative
contribution to sustainable outcomes.
issuance to date (in equivalent United
States dollars). This is followed by the In terms of cumulative issuance (outstanding
dollar (30 per cent), renminbi (9 per cent) debt), supranational issuance remains
and pound sterling (4 per cent), with the larger than any single country and thus
remaining 17 per cent in other currencies. an important generator of finance for
sustainable projects. As a group, developing
Developing countries that issue bonds in
countries remain underrepresented in global
major reserve currencies while generating
sustainable bond markets, even compared
revenues in local currencies encounter
with traditional bond markets, although
currency mismatch risks. Investors,
China and Chile rank among the top 15
especially large institutional ones, often
issuers for cumulative sustainable bond
have better access to a variety of financial
issuance, with $431 billion and $53 billion,
instruments such as futures, options or
respectively, at the end of the third quarter
swaps, allowing them to hedge against
of 2023. Their sustainable bond issuance
these currency risks. However, this
has been helped by strong policy support

Figure III.2
European issuers of sustainable bonds lead the market
Global sustainable bond issuance by region, 2023
(Billions of dollars and percentage change from 2022)

Europe 405 +0.75%

Asia-Pacific 288 +39%

North America 97 -28%

Latin America and the Caribbean 54 +74%

Supranational 24 -77%

Africaa 4

Source: UNCTAD, based on information from Climate Bonds Initiative and Environmental Finance.
a
Percentage change not available because data source and coverage for 2022 differed.

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Figure III.3
Corporate issuers dominated sustainable bond issuance in 2023
Global sustainable bond issuance by issuer type
(Billions of dollars)

Green Sustainability-linked Social Sustainability

2
Non-financial corporate 172 13 22
1
Financial corporate 163 25 17

Government-backed entity 73 91 11

Sovereign 120 7 6 25

Development bank 48 10 15

Local government 12 18 18

Source: UNCTAD, based on information from Climate Bonds Initiative.

for the growth of local and international supported by a recovery in sustainable

markets (Climate Bonds Initiative, 2023). bonds issued by financial corporates to
$163 billion, eclipsing the record highs of
Financial and non-financial corporate entities
2021, and by non-financial corporates to
were the largest issuers of sustainable
$172 billion, which was just short of the
bonds in 2023, followed by government-
2021 high point of $174 billion. Notably,
backed entities (figure III.3). Among the
sovereign issuance jumped 45 per cent to
latter, public pension and sovereign wealth
$120 billion in 2023, up from $83 billion in
funds (PPFs and SWFs) have become more
2022 and surging past the previous all-time
active issuers of sustainable debt as well
high in 2021 of $92 billion (figure III.5).
as more active buyers. Sovereign issuers,
the next largest issuer type, account for In a year of declining values for some
one tenth of total cumulative issuance of sustainable equity investments, the rising
sustainable bonds but about two thirds of demand for green bonds in 2023 could
the overall debt market, suggesting that be the result of investors looking for lower-
there is significant potential to expand risk routes to gain exposure to sustainable
the share of sovereign debt in sustainable sectors and/or emerging markets, in
bond markets (Climate Bonds Initiative). addition to a general rebalancing towards
fixed income in an environment of higher
a. Green bonds interest rates. Research by the Climate
Bonds Initiative has shown that investors
The value of green bonds issued grew 15 are willing to absorb a “greenium” (lower
per cent to $587 billion in 2023, from $509 yield and/or higher price) that is usually
billion in 2022, representing two thirds of associated with green bonds, indicating
sustainable bond issuance. Looking at the strength of demand for green versus
use of proceeds categories, this strong traditional bonds (Climate Bonds Initiative,
growth – reversing 2022 trends – was 2021). On the supply side, the rise in
mainly driven by increases in the energy, sovereign issuance may be helping
transport, information and communication countries to diversify their investor base
technology, waste and industry sectors and provide credibility to green policies.
(figure III.4). The increase was also

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Figure III.4
Energy, transport and buildings accounted for 75 per cent of the green
bond market in 2023
Global green bond issuance by sector
(Percentage)

Energy 35
Transport 22
Green buildings 18
Land use and marine resources 6
Water 6
Waste 5
Climate adaptation and resilience 4
Information and communication 2
technology
Industry 2

Source: UNCTAD, based on information from Climate Bonds Initiative.

Figure III.5
Sovereign issuance of green bonds saw the largest gains in 2023
Green bond market size by type of issuer
(Billions of dollars and percentage change from 2022)

Non-financial corporate 172 +35%

Financial corporate 163 +13%

Sovereign 120 +45%

Government-backed entity 73 -26%

Development bank 48 +2%

Local government 12 –

Source: UNCTAD, based on information from Climate Bonds Initiative.

b. Social, sustainability and from $157 billion to $109 billion. Despite

sustainability-linked bonds the growing awareness of climate and
environmental sustainability issues and the
The values of both social and sustainability opening of more investment opportunities
bond issuance both fell in 2023. Social in social and sustainable projects, both
bonds issuance declined by 7 per cent, types of bonds continued falling to pre-
from $165 billion to $153 billion, while that pandemic levels of issuance (figure III.6).
of sustainability bonds fell by 30 per cent, The fall is likely directly related to recovery

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Figure III.6
Social and sustainability bond issuance continued to decline in 2023
(Billions of dollars)

Social Sustainability

$1.5 trillion -7%

cumulative combined CAGR
issuance since 238 2020–2023
2018
212
199

169 165
157 154

109

68

39
15 15
2018 2019 2020 2021 2022 2023

Source: UNCTAD, based on information from Climate Bonds Initiative.

from the pandemic, during which the Latin America and the Caribbean is the
value of COVID-response bonds surged only region where the value of outstanding
– momentum that has now subsided. social, sustainability and sustainability-
Nevertheless, together these two categories linked bonds is higher than that of green
still represent 38 per cent of cumulative bonds; they account for more than 90
sustainable bond issuance since 2018. per cent of total cumulative issuance,
according to the Climate Bonds Initiative.
In contrast, the annual issuance of
Despite social bond issuance there
sustainability-linked bonds increased 83
being on a par with that in Europe and in
per cent, from $12 billion in 2022 to $22
Asia, the region could be missing out on
billion in 2023. This continues a constant
considerable financing opportunities in the
annual increase since the introduction of
green bond segment, especially in sectors
the first such bond by Enel (Italy) in 2019,
such as energy, transport and industry.
bringing cumulative issuance of such bonds
to $47 billion. Unlike green, social and In 2023, social bonds were more favoured
sustainability bonds, sustainability-linked by government-backed entities and financial
bonds are not tied to use of proceeds. This corporate entities. Sustainability bonds
potentially gives issuers more flexibility but were more popular with local government,
may also call into question the sustainability non-financial corporates and sovereign
impact of this debt instrument, reflected in issuers. Sustainability-linked bonds were
the lower alignment of this category with overwhelmingly favoured by non-financial
sustainability screening criteria (for further corporates and sovereign lenders.
discussion, see WIR 2020 (UNCTAD, 2020).

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 Chapter III
Sustainable finance trends

2. Sustainable funds

a. Market trends billion in 2022 to $324 billion in 2023,

representing about 11 per cent of the global
The sustainable fund market continued to market. The market share in the rest of
expand in 2023, albeit at a slower pace. the world remains at about 5 per cent.
The number of sustainability-themed funds
Although the increasing number and value of
worldwide reached 7,485, up 7 per cent
sustainable funds indicate continued growth,
from 2022. These funds remain highly
sustainable funds faced a challenging
concentrated in Europe and the United
environment in 2023. High interest rates,
States, representing 73 per cent and 9 per
lagging performance, lukewarm demand and
cent of the global market, respectively. The
rising concerns about greenwashing issues
share of the market in the rest of the world
all contributed to growing uncertainties in
increased slightly, from 16 per cent to 19 per
the market. As a result, the number of new
cent, with growth witnessed in Australia and
launches has continued to drop, from a
Canada and in developing Asia (figure III.7).
record high of 240 in the fourth quarter of
The total assets of sustainable funds 2021 to 121 in the fourth quarter of 2023.
reached almost $3 trillion in 2023, mainly In total, 565 launches were recorded in
driven by rising share prices in equity 2023, down from 682 in 2022. The decline
markets, in particular in Europe and the was more than offset by the restructuring of
United States. Europe remains by far conventional funds into sustainable ones,
the largest market, with assets of nearly in particular in Europe, leading to continued
$2.5 trillion, or 85 per cent of the global expansion of the universe of sustainable
market. The value of sustainable funds in funds. Sustainability-themed funds remain
the United States increased from $286 an important tool to tilt capital markets

Figure III.7
The market value of sustainable funds recovered in 2023, reaching a
record high
(Billions of dollars and number)

Europe United States Rest of the world Number of sustainable funds

8 000
7 485
7 000

6 000

112
106 5 000
83 324
357 4 000
286
74 3 000
236
1 714 91 2 492 2 000
2 231 2 078
140
56 68
40 82 89 1 460 1 000
49 51 63
673
277 262 302 389 428 0
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Source: UNCTAD, based on Morningstar data.

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towards more sustainable investment and inflows plummeted to only $3 billion in

thus direct capital to sectors and areas that 2022. Moreover, 2023 marked the first
can contribute to sustainable development. annual outflows, which totalled $13
billion. In addition to dismal returns,
Net investment flows to sustainable funds
persisting greenwashing concerns and a
also continued to drop, from $161 billion
backlash against sustainable investment
in 2022 to $63 billion in 2023, marking
strategies in the United States market
a significant decrease from the record
(see section C.2) also contributed
of $557 billion set in 2021 (figure III.8).
to a chilling effect on demand.
Throughout 2023, European sustainable
funds received net investment inflows of In terms of financial performance,
$76 billion, nearly halved from the $149 sustainable equity funds underperformed
billion of 2022. In addition to a challenging relative to conventional funds for the second
macroeconomic environment and persistent consecutive year (Henry and Furdak,
geopolitical risks, some investors have 2024). Article 9 funds, the “dark green”
remained cautious about environmental, products known for their commitment
social and governance (ESG) investing to specific sustainable investment
because of the overall underperformance objectives and substantive approach to
in 2022 and lukewarm returns from popular sustainability integration under the European
sustainable investment assets, such as Union Sustainable Finance Disclosure
renewables, in 2023. However, compared Regulation (SFDR), underperformed their
with annual outflows of $50 billion from benchmark by more than 6 per cent in
European conventional funds, the European 2023. Article 8 funds, the “light green”
sustainable fund market has remained products that take environmental or social
relatively resilient, demonstrating continued sustainability into consideration in asset
interest by investors in this asset category. allocation, also underperformed, but by
a narrower margin of less than 1 per
The investment momentum in sustainable
cent. Only Article 6 funds, which do not
funds in the United States reversed
incorporate sustainability considerations
completely in 2023. Following a surge in
into their investment strategies beyond
inflows in 2020 and 2021 ($290 billion
basic ESG risk assessments, nearly
and $472 billion, respectively), new
matched their benchmarks.

Figure III.8
Net flows to sustainable funds continued their slide in 2023
(Billions of dollars)
557

352

159 161
28 24 33
72 60 63
2014 2015 2016 2017 2018 2019 2020 2021 2022a 2023

Source: UNCTAD, based on Morningstar data.

a
The figure for 2022 has been updated since its publication in WIR 2023.

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This disparity in performance may be The persistence of greenwashing has

attributed to short-term market dynamics demonstrated that more systemic efforts
that work against some popular sectors are needed to tackle the issue. In response
in sustainable investments. Renewable to concerns about the implementation
energy, for example, has been particularly of the SFDR, in December 2023 the
affected by elevated interest rates, since European Union Commission launched a
the sector is particularly characterized by consultation with the industry and other
higher upfront costs and lower operational stakeholders on a general review of the
expenses over time. Such short-term regulation, focusing on bringing more
fluctuations should not overshadow clarity and credibility to the sustainable
the long-term benefits of sustainable fund market so as to tackle greenwashing
investing, underscoring the importance concerns. This consultation addresses
of taking a long-term perspective. critical issues such as the interaction with
the European Union taxonomy and other
b. The greenwashing challenge sustainable finance legislation, potential
changes to disclosure requirements and
As sustainable investment products gain the establishment of a categorization
popularity, concerns about greenwashing system for financial products. In parallel, the
are also growing. Greenwashing poses European Supervisory Authorities published
the most significant challenge to the a final report amending the draft Regulatory
sustainable fund market, primarily because Technical Standards for the Delegated
of the lack of specific product standards Regulation supplementing the SFDR. The
for sustainable funds, including in leading report proposes additional social indicators
markets. UNCTAD analysis of global green for disclosing the principal adverse impacts
funds published in WIR 2023 revealed of investment decisions on the environment
that their average net exposure to climate- and society, new product disclosure
positive assets (low-carbon assets minus
Exposure
requirements regarding GHG emissions
total fossil fuels) is slightly more than 20 reduction and improvements to disclosures to climate-
per cent, casting doubt on their proclaimed on the “do no significant harm” principle. positive assets
green credentials. According to Morningstar These measures are designed to bring more only 20 per
data, just over 20 per cent of Article 9 funds clarity to the SFDR and its implementation
reported minimum sustainable investments
cent, casting
standards and enhance its consistency
aligned with the European Union taxonomy with the European Union Taxonomy
doubt on green
between 0 and 10 per cent, and only 8 per Regulation with the aim of improving its credentials
cent target taxonomy-aligned investments robustness and effectiveness in addressing
of at least 10 per cent. Meanwhile, only greenwashing. (For further discussion
4 per cent are completely free from oil of policy responses to greenwashing
and gas investments, and 15 per cent in other countries, see section C.)
allocate more than 5 per cent of their
The complexity of defining and combating
assets to oil and gas as of December 2023
greenwashing underscores the critical need
(Bioy et al., 2024). These figures suggest
for clear, verifiable sustainability disclosure
that, even among products regarded
rules and effective enforcement to ensure
as “dark green”, a substantial portion
market integrity. In addition, it is essential
might not live up to their sustainability
to establish well-defined rules and product
claims. It is not surprising that concerns
standards that clearly outline the criteria
about greenwashing have dampened
required for a product to be labelled as
investor demand, partly explaining the
sustainable. Moreover, reliance on self-
loss of momentum in investment within
assessment should be replaced by external
the European market and leading to
auditing and third-party ratings to ensure
outflows in the United States market.
market transparency and credibility.

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B. Sovereign and public institutional

investors

Institutional investors made progress on sustainability performance

and compliance with international sustainability reporting
standards in 2023. Since UNCTAD began monitoring in 2019, the
number of these funds that report has grown from one in four to
almost three in five. Nevertheless, this means that a significant
number of these funds still do not disclose any information on their
sustainability performance. SWFs and PPFs, with their long-term
investment horizons, continued to integrate sustainability into their
investment strategies and improve their climate risk management.
Yet, a majority of funds still have not committed to net zero in
their investment strategies. Both SWFs and PPFs must comply
with a range of reporting standards and obligations and have tried
to keep pace with the rapidly evolving international landscape for
sustainability reporting, especially on climate action.

With assets of more than $30 trillion at development agenda, especially in

the end of 2023 – a significant portion developing countries. For many funds,
originating from developing economies – fiduciary obligations still limit their
SWFs and PPFs have received growing exposure to sustainable sectors and
attention as potential sources of investment, to developing countries, which have a
especially in sectors relevant to the higher risk premium. Addressing this
Sustainable Development Goals and in challenge may require education and
developing countries. As the world’s largest training for funds about markets and
institutional asset owners, some SWFs and opportunities in developing countries.
PPFs have substantial market influence
UNCTAD analysis of the top 100 institutional
through their allocation decisions and
asset owners identified 70 PPFs and
strategic influence over the investments
30 SWFs, representing more than $24
they hold through active ownership. PPFs
trillion in assets under management in
and SWFs also differ from other investors
2023, or 80 per cent of global PPF and
in terms of their liabilities, which are
SWF assets. More than two thirds of the
generally long term, and their mandates,
top 100 are from developed economies;
which are often aligned with public policy
SWFs are predominantly based in
objectives, such as achieving net zero.
developing countries (figure III.9).
However, these funds are not always
required to disclose and report on their In 2023, some 58 of them reported on
governance or sustainability performance. their sustainability performance, either in a
dedicated sustainability report or in annual
Robust regulatory and policy frameworks
financial reporting. Among these funds,
are needed to ensure that institutional
PPFs are, in general, relatively better at
investment can contribute to the sustainable
disclosing sustainability-related information

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Figure III.9
The top 100 sovereign wealth funds and public pension funds manage
$24 trillion in assets
Funds by type and by region and economic grouping
(Number)
Developed Asia-Pacific
4
North America
2 Europe Europe
Africa 3 15
1

Middle East
11
Developed-
Developing- SWFs economy
economy funds
funds 30 69
31
Emerging $24
Asia-Pacific
9 trillion
Africa PPFs
1
Middle East
70 North America
2 33

Emerging Asia-Pacific
7

Developed Asia-Pacific
12

Source: UNCTAD, based on Global SWF (2023).

Abbreviations: PPF = public pension fund, SWF = sovereign wealth fund.

than SWFs (60 per cent of PPFs disclose, some funds in the United States recently
against just over 50 per cent of SWFs). experienced pushback against their
Disclosure is strongly linked to the regulatory sustainable investment strategies and
environment in a fund’s jurisdiction. Europe sustainability disclosure at the State level
stands out, where 90 per cent of the funds as well as from public campaigning.2
report on sustainability performance, a figure
Among the top 100, developing-country
related to the more comprehensive reporting
funds tend to report on sustainability
requirements of the European Union.
performance less than developed-country
Among the funds that report, Canadian funds. A majority of funds in the emerging
pension funds make up the majority of Asia-Pacific markets do report, but even
those in North America, again reflecting in countries that have relatively advanced
the relatively advanced regulatory policy environments, such as China
environment in that country. Conversely, and Singapore (see section C),3 several

2
Economist Intelligence Unit (2023), Anti-ESG sentiment in the US weakens ESG markets, 29 June, https://
www.eiu.com/n/anti-esg-sentiment-in-the-us-weakens-esg-markets.
3
UNCTAD Sustainable Finance Regulation Platform: http://gsfo.org.

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funds in the top 100 do not report. This also likely related to regulatory requirements
58 of top 100 reflects some implementation challenges that are weaker than in Europe.
PPFs and SWFs and weaker disclosure obligations in
At the same time, the funds that do report
reported on these jurisdictions. In the Middle East, a
exhibit some of the most advanced policies
region with many SWFs, fewer than one
sustainability in three SWFs – and no PPF – reports
on sustainability integration. They are making
sustained efforts to address sustainability
performance sustainability-related information, indicating
risks, both for the material threat to their
in 2023 that policy measures to strengthen
business models and out of an ethical
sustainability reporting would be helpful.
stance towards future generations. This
Despite advances, the dichotomy in group of asset owners comprises many
disclosure persists. Forty-two funds first movers, several of which have been
still do not report on their sustainability addressing sustainability issues for many
performance. This group includes almost years already and now employ, for example,
half of the SWFs in the top 100, with a complex climate modelling analysis and
noticeable concentration in the Middle East valuation models and rigorous screening
and emerging Asia. In the case of PPFs, the of investments. The following analysis is
tendency not to report is skewed towards based on the public disclosures of the
North America. This is partly the result of the 58 reporting funds in the top 100.
weight of these regions in the top 100 but

1. Sustainability integration strategies and practices

Most reporting funds articulate a clear rights, executive pay, tax contributions
vision for sustainability integration and have and board diversity. A similar number of
implemented policies and guidelines to funds also reported impact strategies,
manage sustainability risk, such as specific especially on the environmental side;
strategies on climate change mitigation. these can involve sectoral targeting,
Many funds have also created dedicated such as renewables, and capital market
sustainable investment teams. Yet, despite instruments, such as green or sustainability
the existence of such climate strategies, bonds. Less than half mentioned the
only one in three of these funds reported a integration of the Sustainable Development
target for fossil fuel divestment in 2023, a Goals in their investment decisions.
share unchanged from the preceding year.
Another way funds integrate a sustainability
perspective in their investment strategies
a. Investment strategies
is through active ownership. In 2023,
almost 80 per cent report engagement with
Sustainability risk has been driving PPF and
their investees (figure III.11). This enables
SWF investment strategies and decision-
funds to influence the behaviour of their
making for several years. In 2023, 9 out
portfolio holdings through discussion or
of every 10 funds reported the general
voting for policy changes. While more than
integration of sustainability considerations
two thirds of funds reported providing
in their investment strategies (figure III.10).
guidance on ESG criteria and Goals criteria
Four out of every five funds reported the to their asset managers and investees,
integration of social and governance less than a quarter offered their asset
dimensions in their investment strategies by managers training on these topics.
taking into account issues such as labour

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Figure III.10
Sustainability shapes investment strategies used by funds in 2023
(Percentage of reporting funds)

General integration of sustainability 91

considerations

Integration of social dimensiona 84

Integration of governance dimensionb 80

Impact investmentc 79

Negative screening or exclusion 61

Positive or best-in-class screening 59

Integration of Sustainable
45
Development Goals considerations

Source: UNCTAD, based on latest fund reporting (2023); some latest reports from 2021 and 2022.
Note: Funds can report more than one strategy.
Abbreviation: ESG = environmental, social and governance.
a
Includes issues related to child labour, diversity and others.
b
Includes issues related to to executive pay, board diversity, tax and others.
c
Includes ESG-oriented sectors (e.g. renewable energy, green housing) or capital market instruments
(e.g. green bonds, ESG funds) or markets (emerging and developing economies) in ESG investment.

Figure III.11
Institutional investors are active owners of their assets
(Percentage of reporting funds)

Active engagement activities 79

Guidance on ESG (and Sustainable
Development Goals) provided to 68
asset managers or investees
Voting policy that takes ESG factors
into account 63
Training provided for asset managers or
investees 23

Source: UNCTAD, based on latest fund reporting (2023); some latest reports from 2021 and 2022.
Abbreviation: ESG = environmental, social and governance;

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b. Climate-related actions (Norway), which are transitioning towards

more sustainable energy solutions.
Reporting funds demonstrate significant
Despite robust investments in renewable
engagement on climate change mitigation,
energies, PPFs in North America
with 9 out of 10 funds having developed
take varied approaches to fossil fuel
specific strategies addressing climate
divestment, influenced by diverse state-
issues. This is partly the result of regulations
level policies and public opinion. PPFs,
and fund commitments in this area and
such as the Healthcare of Ontario Pension
partly because of the nature of climate-
Plan (Canada) and the New York State
related reporting metrics available to
Common Retirement Fund (United States),
funds. Nonetheless, while this commitment
lean heavily towards renewable energy
is significant, the actions taken vary in
investments, but these funds are less
depth and potential effectiveness and
proactive in divesting from fossil fuels. This
point to areas for further development.
difference reflects the balancing act between
Funds are more likely to set targets for sustainable commitments and funds’
investment in renewable energy than to fiduciary duty to ensure stable returns.
define a target for divestment from fossil
Middle Eastern and African funds, such
fuels, with just under a third of funds
as Mubadala (United Arab Emirates),
doing both (figure III.12). Among those
which receives funding from sources
that do have targets for both, funds
in the hydrocarbons industry, and the
in Europe, particularly those in Nordic
Public Investment Corporation (South
countries, take the lead with a dual strategy
Africa), which is linked to an energy sector
that includes significant investments in
still dependent on coal, temper their
renewable energy and assertive fossil fuel
approach. The result is a careful balance
divestments. This approach aligns with the
between exploring renewable energy
comprehensive climate policies in Europe
investments and maintaining stakes in
and reflects strategic diversification. This
fossil fuels. This nuanced approach reflects
is also true for hydrocarbon funds, such
the complex interplay between these
as Norges Bank Investment Management

Figure III.12
Only 30 per cent of funds have targets for renewables investment and
fossil fuel divestment
Funds by type of target
(Number)

Targets for both

17 Target for investment
in renewable energy
22

Target for divestment

No targets for either from fossil fuels
17 2

Source: UNCTAD, based on latest fund reporting (2023); some latest reports from 2021 and 2022.

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regions’ economic priorities, including to transitional and physical risks, and to

employment in fossil fuel industries, and explore new opportunities (table III.1). North
their sustainable development objectives. American funds, such as the California
State Teachers’ Retirement System, are
Among funds that have committed to
pioneers in climate scenario analysis,
achieving net zero or carbon neutrality,
exploring how various global warming
most have set the target year of
scenarios could influence its portfolio. SWFs
2050. Some have set more ambitious
in oil-rich regions often integrate broader
targets, while others, particularly those
risk management approaches, possibly
associated with hydrocarbon sectors,
because of their exposure to the fluctuating
have set later targets, such as 2060.
dynamics of the energy sector amid global
Three quarters of reporting funds have decarbonization efforts. Sectoral analysis
adopted sophisticated, systematic climate is gaining traction among European funds,
risk assessment strategies. This signifies which scrutinize specific industries for
a commitment by a majority of reporting climate-related vulnerabilities, allowing for
funds to integrate climate risk into their more targeted risk mitigation efforts. About
risk management frameworks, aiming 20 per cent of funds also conduct climate
to mitigate vulnerabilities and exposure stress testing of their investment portfolio.

Table III.1
Most funds systematically assess sustainability and climate risk

Category Number of funds

Integrated risk management 25

Climate scenario analysis 20

Sectorial analysis 7

Stress testing 7

Portfolio testing 6

Source: UNCTAD, based on latest fund reporting (2023); some latest reports from 2021 and 2022.
Note: Number of reporting funds = 41.

2. Sustainability disclosure

a. Reporting frameworks and Financial Reporting Standards (IFRS)

standards used by funds Sustainability Disclosure Standards set by
the International Sustainability Standards
In 2023, PPFs and SWFs maintained Board (ISSB), the Global Reporting
their commitment to the standardization Initiative (GRI) and the Sustainability
of sustainability reporting. The Task Accounting Standards Board (SASB).
Force on Climate-related Financial
The growing adoption of the new ISSB
Disclosures (TCFD) and the Principles
standard, which incorporates the elements
for Responsible Investment are the two
of the TCFD standard, represents a
main frameworks that funds use for their
significant development in SWF and
sustainability reporting (figure III.13).
PPF sustainability reporting, showing the
Following closely are the new International

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Figure III.13
Most funds use a global sustainability reporting standard or framework
(Number of reporting funds)

Task Force on Climate-Related Financial

Disclosures 33
Principles for Responsible Investment 22
International Sustainability Standards
Board 16
Global Reporting Initiative 13
Sustainability Accounting Standards
Board 12
Corporate Sustainability Reporting
Directive 5

CDPa 5
European Union Taxonomy 4

Source: UNCTAD, based on latest fund reporting (2023); some latest reports from 2022.
a
CDP was formerly known as the Carbon Disclosure Project.

potential rise of the standard as a global These calculations are typically applied
baseline for sustainability disclosure. to portfolios: funds generally monitor
Nonetheless, the variety of frameworks scope 1 and scope 2 GHG emissions (in
and standards in use shows that further tons of carbon dioxide equivalent), with
convergence will be beneficial for a small minority of funds going further
enhancing comparability and consistency and reporting on scope 3 emissions.
in disclosure among SWFs and PPFs.
For those funds that use emissions
intensity metrics, the largest number use
b. The main reporting metrics
the carbon footprint indicator, describing
used for sustainability the total carbon emissions for a portfolio.
disclosure Nearly half use the TFCD-recommended
weighted average carbon intensity, which
While almost 95 per cent of reporting
indicates the portfolio’s exposure to carbon-
funds have put in place policies on
intensive companies, expressed in tons
sustainability, fewer funds – 64 per
of carbon dioxide equivalent per million
cent – clearly disclose the metrics or
dollars of revenue. It assesses a portfolio’s
methodologies they use to measure
carbon efficiency by considering each
sustainability performance and impact.
investment asset’s revenue-based emissions
Reporting funds mainly use 16 indicators to intensity and its weight in the portfolio.
measure their sustainability performance,
Some funds consider operational emission
categorized into five reporting areas (figure
reduction actions of invested companies,
III.14). Climate and GHG emissions are the
including energy consumption, renewable
main area of disclosure and measurement:
energy usage and operational carbon
among the 37 funds reporting on
footprint calculation. However, few funds
indicators, more than 60 per cent have
incorporate science-based climate targets
set specific ones for GHG accounting.
into their metrics system. Regarding
The indicators are categorized into three
environmental protection and resource
types: absolute emissions, emissions
consumption, specific indicators include
intensity and total carbon footprint.

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Figure III.14
SWFs and PPFs reported sustainability metrics in five areas in 2023
Number of
Reporting indicator funds reporting Examples
GHG accounting 36
• Carbon footprint of investments 13
• Scope 1 and 2 GHG emissions of investments 7 • Total portfolio emissions (tCO2e)
• Carbon intensity (no specific calculation methods) 5
• Portfolio carbon intensity (tCO2e/$ million of portfolio value)
• Scope 3 GHG emissions of investments 4
• Weighted average carbon intensity 4 • Portfolio weighted average carbon intensity (tCO2e/$ million of revenue)
• Absolute emissions of investments (no scope) 3

Sustainable investment targets 17

• Sustainability considerations in investments 8 • Electricity production from renewable energy sources
• Investments in Sustainable Development Goals and climate solutions 6
• Exposure to fossil fuels 3 • Fossil fuel revenue

Climate risk and emissions reduction 17

• Climate risk and climate stress test 7 • Climate-neutral and circular internal business operations
• Emissions reduction of operations 7
• Science-based climate target • Number of portfolio companies with science-based net-zero
3
2050 target

Corporate governance-related targets 12

• ESG/sustainability related 5
• Work-related injuries, net new hires and employee engagement
• Others 4
• Diversity related 3 • Gender, age, ethnic and cultural background, and work capacity

Environment-related targets 5

• Waste management, environmental performance of properties

• Environmental protection and resource consumption 5
• Water withdrawal

Source: UNCTAD, based on latest fund reporting.

Abbreviations: ESG = environmental, social and governance, GHG = greenhouse gas, PPF = public pension
fund, SWF = sovereign wealth fund, tCO2e = tons of carbon dioxide equivalent.

expenditure on environmental protection reporting funds use third-party verification.

by portfolio companies, water withdrawal Despite its importance for ensuring credibility
rates and whether portfolio companies and trust (and combating greenwashing),
have a responsible waste management auditing is currently voluntary. Nevertheless,
system. Regarding corporate governance, the International Auditing and Assurance
funds predominantly use ESG and Standards Board (IAASB) is developing
sustainability-related metrics; company the International Standard on Sustainability
diversity and issues such as employee Assurance (ISSA) 5000, General
training are also reported. In general, social Requirements for Sustainability Assurance
areas are underreported compared with Engagements, which will be issued before
environmental and climate areas. Social the end of 2024. It is intended to serve as a
issues are typically considered within the general standard suitable for any assurance
broader context of sustainability, with purpose. According to the IAASB, it will
only one fund specifically addressing the apply to sustainability information reported
social impact of portfolio companies. across any sustainability topic and prepared
under multiple frameworks, including
To ensure the quality of sustainability
the recently released IFRS Sustainability
reporting, third-party verification or auditing
Disclosure Standards S1 and S2.
is important, in the same way that financial
reporting is audited. Yet only one in four

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C. Policies, regulations and

standards

In 2023, the IFRS Foundation launched the Sustainability

Disclosure Standards, which have attracted significant interest
globally. The emergence of international standards, including the
IFRS and European standards, has created spillover effects that
affect developing economies and their small and medium-sized
enterprises (SMEs). Progress has been made in enhancing the
interoperability of international standards. Stock exchanges also
continue to play a vital role in the adoption and implementation
of sustainability reporting. Governments from both developed
and developing economies have accelerated sustainable finance
policymaking, focusing on leveraging capital markets for climate
transition. In 2023, 26 of the 35 economies tracked by the UNCTAD
Global Sustainable Finance Observatory introduced more than 90
measures dedicated to sustainable finance, marking a significant
increase from the 63 measures adopted in 2022. Countries are
integrating sustainable finance into national development strategies
more and more, prioritizing policy impact and effectiveness.

1. International sustainability reporting standards

a. New standards statement has been received as a strong

signal from market regulators to encourage
June 2023 saw the launch of the first the adoption of the ISSB standards.
two of the IFRS Sustainability Disclosure
The ISSB, created in 2021 by the IFRS
Standards by the ISSB, after a global
Foundation, develops standards that
consultation process. The International
form a global baseline for disclosure of
Organization for Securities Commissions
sustainability-related risks and opportunities,
(IOSCO) issued a statement endorsing the
to meet the needs of investors and other
standards and called on its 130 member
capital market participants. It was formed
jurisdictions, which regulate more than 95
in response to strong demand from capital
per cent of the world’s financial markets,
market participants and international
“to consider ways in which they might
policymakers, including the members of
adopt, apply or otherwise be informed by
the Group of Seven, the Group of 20 and
the ISSB standards within the context of
the Financial Stability Board, to harmonize
their jurisdictional arrangements, in a way
and simplify the landscape of investor-
that promotes consistent and comparable
oriented sustainability disclosure standards.
climate-related and other sustainability-
related disclosures for investors.” This

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The first standard, IFRS S1 General to ensure accelerated readiness among

Requirements for Disclosure of jurisdictions to adopt the standards. A 17
Sustainability-related Financial Information, dedicated IFRS Sustainability Knowledge jurisdictions
sets out a requirement for an entity Hub was also launched to guide report
using ISSB
to disclose information about all risks preparers. Third, in support of adoption
and opportunities related to material of the standards by jurisdictions, the
standards, with
sustainability that could reasonably be ISSB has been engaging with regulators others working
expected to affect the entity’s prospects. worldwide and has published a preview towards
It provides conceptual foundations to aid of a jurisdictional guide for the adoption adoption
the disclosure of this information, as well as or other use of the standards.
core content requirements applicable to all
sustainability-related risks and opportunities. b. Status of adoption
IFRS S2 Climate-related Disclosures
provides more detailed requirements for the An increasing number of jurisdictions have
disclosure of climate-related information. already adopted the ISSB standards, with
many others working on adoption (table
At its formation, the ISSB merged with four
III.2). While some intend to implement the
formerly independent bodies: the TCFD, the
standards fully as the globally consistent
Climate Disclosure Standards Board (CDSB),
baseline, others plan to introduce
the SASB and the International Integrated
amendments to them, which may result
Reporting Council (IIRC). As a result, the
in inconsistencies in the information
ISSB standards draw heavily from the
reported by complying entities.
voluntary investor-focused standards and
frameworks produced by those four bodies. In response to the rise of international
Companies using ISSB standards should and regional standards and their
make disclosures about their governance spillover effects through global supply
and risk management of sustainability and and investment chains, many countries,
climate-related risks and opportunities, including developing ones, are taking
as well as the strategy, metrics and action to modernize their company
targets used to manage those risks and reporting systems by aligning them more
opportunities. In line with the concept of closely with international best practices.
providing a globally consistent baseline, However, several challenges could pose
national policymakers may add building severe barriers to policymaking in this
blocks to the ISSB’s standards in order to area in developing economies (UNCTAD,
meet local reporting objectives, provided 2024c). They include (a) the fragmentation
that local provisions do not obscure of international standards, (b) the lack of
information required by the global baseline. robust national sustainability reporting
Following the launch of the ISSB standards infrastructure, (c) insufficient knowledge
and their endorsement by IOSCO, the ISSB and human capacity, and (d) limited access
set three new priorities. First, for future to sustainability data. Addressing these
areas of disclosure standardization, the issues would require enhanced international
ISSB is exploring biodiversity, ecosystems coordination on sustainable finance
and ecosystem services, as well as human regulations, especially in standard-setting,
capital. It has also published educational while considering the specific needs and
material on nature and social aspects of challenges faced by developing economies.
climate-related risks and opportunities. Technical support will also be essential.
Second, in support of adoption of the Towards this end, UNCTAD, through its
standards by market participants, the ISSB Intergovernmental Working Group of
has established a partnership framework Experts on International Standards of
for capacity-building, working with public Accounting and Reporting, is supporting
and private organizations, global and local, countries in reinforcing their regulations and

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Table III.2
Jurisdictions move toward adopting ISSB standards
Jurisdiction Status as of April 2024 Implementation date

Consulting on standards until 1 March (currently adopting Staggered implementation from January 2025
Australia
only IFRS S2)

Introduced mandatory requirements for banks and finance January 2024

Bangladesh
companies

Brazil Adopting in full (IFRS S1 and S2) January 2026

Consulting on draft standards from March to June 2024 January 2025 for listed companies, January 2027 for
Canada
unlisted companies with assets of more than $1 billion

Adopted in full (IFRS S1 and S2) in 2024 Phased mandatory adoption for public companies (January
Costa Rica 2025) and companies classed as large taxpayers (January
2026)

Japan Issued standards for consultation March 2025

Kenya Developing a road map -

Consulted on standards Phased mandatory adoption for listed and unlisted

Malaysia
companies December 2025–December 2027

Morocco Reviewing disclosure and target-setting requirements Early 2025 (currently only for banks)

Consulted on adoption road map Phased mandatory adoption for listed companies and
Nigeria
SMEs between January 2027 and January 2030

Consulting on adopting IFRS S1 and S2 Phased mandatory reporting between January 2025 and
Pakistan
January 2027

Revising sustainability reporting guidelines for listed January 2025 for listed companies, January 2027 for
Philippines
companies to incorporate IFRS S1 and S2 unlisted companies with assets of more than $1 billion

Republic of Korea Finalizing standards for June 2024 January 2026 or later

Introduced mandatory climate-related disclosures January 2025 for listed companies, January 2027 for
Singapore
(currently adopting only IFRS S1 for climate reporting) unlisted companies with assets of more than $1 billion

Türkiye Adopted in full (IFRS S1 and S2) January 2024

United Kingdom Consulting on standards until July 2024 -

Hong Kong, China Developing adoption road map -

Source: UNCTAD.

institutions, and building human capacity are vehicles for facilitating the exchange
to implement international standards, such of good practices in the implementation
as those of the ISSB. Since 2021, UNCTAD of sustainability reporting standards.
has been launching regional partnerships
to promote high-quality sustainability c. Policy spillover effects
reporting in developing countries. The
Partnerships in Africa (29 countries and The effects of these international standards
58 institutions) and in Latin America (30 can extend beyond the jurisdictions where
institutions in 15 countries) have become they are formally adopted, through global
operational over the past two years. At the supply chains. Large companies and
2023 World Investment Forum, UNCTAD financial institutions increasingly require
announced additional regional partnerships their suppliers or investee companies
for Asia, Eurasia, and the Gulf States and to report on sustainability. For example,
neighbouring countries. These partnerships beyond disclosing scope 3 GHG emissions

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along supply chains, the ISSB S2 standard d. Interoperability

requires financial institutions to report
“financed emissions” – the emissions With the shift from voluntary disclosure
associated with their investments, including initiatives towards mandatory reporting
those in SMEs. The SFDR of the European requirements, there has been a renewed
Union includes similar requirements. As impetus to examine the consistency and
sustainable finance gains traction, all interoperability of the sustainability reporting
companies, including SMEs, are increasingly landscape. As new requirements are
expected to provide sustainability introduced, businesses operating across
reports to meet investor demands. jurisdictions may face inconsistent disclosure
obligations, leading to greater workloads
In some cases, companies may need to
and potential inconsistencies in the
comply with regulations in markets where
information reported from one jurisdiction
they have significant operations, even if
to another. Similarly, investors operating
they are not listed there. For example,
internationally may face an additional
under the European Union Corporate
challenge when comparing the disclosures
Sustainability Reporting Directive (CSRD),
of companies they are assessing.
non-European Union companies will have
to report if they generate more than €150 Overall, the newly developed requirements
million in the European Union market. can be classified by their focus on single
It is estimated that about 3,000 United materiality or double materiality. Single Inconsistent
States companies and more than 10,000 materiality (sometimes referred to as disclosure
businesses worldwide will be affected by “investor materiality” or “financial materiality”)
the requirements (Huck, 2023). Similarly, is primarily intended to inform a general
obligations
the climate disclosure rules released investor audience and thus focuses on across
recently by the United States Securities the impact of sustainability on an entity’s jurisdictions
and Exchange Commission (SEC) include prospects and financial performance. creates
requirements for not only local, but also Examples of such requirements include
more work
foreign incorporated entities (SEC, 2024). the ISSB standards and the climate rule of
the United States Securities and Exchange for reporting
Sustainability reporting requirements can
further arise from legislative developments
Commission. Other requirements, such entities
as the European Sustainability Reporting
beyond the immediate standard-setting
Standards and the proposed requirements
community. For instance, the European
in China, take a double materiality (also
Union Carbon Border Adjustment
known as “impact materiality”) approach,
Mechanism is not specifically a sustainability
covering both the impact of sustainability
disclosure regulation, yet its implications
on the entity and the impact of the entity
for climate-related disclosures will extend
on sustainability. The GRI standards
well beyond Europe. Starting in October
focus specifically on double materiality.
2023, importers of certain goods into
the European Union are required to To minimize potential inconsistencies and
report quarterly on the direct and indirect issues with interoperability, standard-
emissions embedded in each product. setters have been working to align their
standards more closely. Notable examples
The requirements related to these standards
are the efforts by the European Financial
and related regulations will have a cascading
Reporting Advisory Group, which develops
effect, affecting exporters and their suppliers,
the European Sustainability Reporting
including SMEs from other regions, and
Standards, in achieving a “high level of
posing notable challenges for developing
alignment” with the GRI standards and the
economies. This challenge urgently requires
ISSB IFRS S2 standard on climate change.
international coordination, including
enhanced interoperability and consistency The IFRS Foundation and GRI have also
among international and regional standards. published a summary of interoperability

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considerations for GHG emissions, since 2017 and for the first time exceeding
Markets to support more efficient reporting for the number of markets covered by an ESG
that require companies that use both the ISSB equity index. For many years, sustainable
standards and the GRI standards. This finance focused primarily on equity markets,
sustainability
resource was developed under the two but this has changed in recent years
reporting: 38 organizations’ collaboration agreement, to as sustainability-themed products also
and growing. coordinate their sustainability-related work emerged in the bond market, derivatives
SDG 12.6 programs and standard-setting activities. markets and elsewhere. The past year also
on track As jurisdictions continue their
saw a continued upward trend in mandatory
listing requirements related to sustainability
implementation of sustainability disclosure
reporting, with 38 markets having such
regimes, international investors and others
rules, up from close to zero just a decade
continue to highlight the importance of
ago. The standardization and regulation
consistent requirements. Where existing
of sustainability reporting is also creating
requirements are in place or well under
greater demand for market education on
way, some have proposed that international
this topic, as a core mandate of exchanges
standards should be given equivalence to
is to educate market participants on
local requirements, especially in the case of
compliance issues and transparency and
foreign entities, to avoid potential conflicts
reporting. The past year saw a continued
within the requirements and allow for more
sharp upward trend in the number of
streamlined global sustainability reporting.
exchanges providing such training.
Such equivalence has been achieved in
financial reporting, where for example As of the close of 2023, about 59 per
foreign private issuers listed on a United cent (71) of all exchanges offered written
States exchange are permitted to prepare guidance to issuers on sustainability
their financial statements according to IFRS reporting, a more than tenfold increase from
accounting standards as an alternative a decade earlier. This written guidance, often
to the Generally Accepted Accounting voluntary, plays a critical role in preparing
Principles standards more commonly market participants for mandatory rules that
used by United States companies. typically follow. The trend lines over the past
decade show a strong relationship between
e. Stock exchanges promoting exchange guidance issuance and mandatory
adoption and implementation listing rules. In light of these ongoing trends,
the objective of Sustainable Development
As the interface between market regulators, Goal 12.6 concerning sustainability reporting
issuers (both bond and equity), investors is on track to be attained by 2030. The
and standard-setters, stock exchanges market is gravitating towards a more
are playing an important practical role in concentrated set of standards. Exchanges
promoting the implementation and adoption are actively endorsing global ESG reporting
of sustainability reporting standards and new frameworks. The GRI standards remain
sustainable finance products (figure III.15). the most frequently cited, followed by the
In 2023, the number of exchanges with four component standards of the ISSB
ESG-themed bond segments increased, (those of CDSB, IIRC, SASB and TCFD).
continuing a sharp rise in these segments

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Figure III.15
Stock exchanges continue to play an important role in promoting
sustainability standards and products
(Number of exchanges with standard or product)

Sustainability reports Written guidance on ESG reporting

Training on ESG topics Markets covered by an ESG index
Mandatory ESG listing requirements ESG bond segments
100

90

80

70

60

50

40

30

20

10

0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Source: UNCTAD, Sustainable Stock Exchanges database.

Abbreviation: ESG = environmental, social and governance.

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2. Policymaking at national and regional levels

a. Overview of 20 and selected financial centres.

Together these economies represent
The rapid expansion in the sustainable more than 90 per cent of global GDP
finance market has brought about the and the world’s largest capital markets.
parallel growth of national sustainable
In 2023, these economies introduced a
finance measures. National and regional
total of 94 sustainable finance policies and
governments are increasingly creating
regulations. This brings the cumulative
policies and regulatory frameworks to
number of sustainable finance measures
leverage capital markets to achieve their
since 2014 to 516, with nearly 60 per
net-zero goals. The UNCTAD Global
cent of them introduced in the past five
Sustainable Finance Observatory monitors
years, partly in response to the rapid
sustainable finance regulations and policy
expansion of the sustainable finance
measures in 35 economies (countries and
market and product availability (figure
economic groupings). They include the
III.16). Meanwhile, at least 69 sustainable
members of the Group of 20, the largest
finance measures are in development.
developing economies outside the Group

Figure III.16
Record level of new sustainable finance policy measures and regulations
adopted in selected economies in 2023
(Number of measures adopted by year)

Group of 20 economies Other economies

9 30

13

75
64
6 50
8 5 15
2
7 7
20 24
14 18 14
12 10
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Source: Global Sustainable Finance Observatory (GSFO.org), based on UNCTAD, PRI and World Bank data.
Notes: Encompasses seven key policy areas for sustainable finance: national strategy, national framework
and guidelines, taxonomy, product standards, sustainability disclosure, sector-specific regulations and carbon
pricing. Other economies are Switzerland; 13 developing economies (Bangladesh, Chile, Colombia, Egypt,
Kenya, Malaysia, Nigeria, the Philippines, Singapore, Thailand, the United Arab Emirates and Viet Nam, as
well as Hong Kong, China); and ASEAN. Relevant measures of the European Union included in Group of 20
economies.
a
Number updated to include incentive-related measures.

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The most popular policy area is sustainability of measures currently in development.

disclosure, accounting for 37 per cent of all
Thematically, most of the policy measures
measures (figure III.17). This highlights the
introduced in the last five years have focused
priorities of improving market clarity and
on climate change and the green transition;
credibility and addressing greenwashing
however, social sustainability and inclusive
concerns. Sector-specific measures,
development have started to attract more
which covered sustainable banking,
attention. Examples include the development
insurance, asset management and others,
in the European Union of a social taxonomy,
constituted 23 per cent of total measures,
the inclusion of economic activities
and national strategies and frameworks
targeting social sustainable development
another 17 per cent. Although specific
in the South Africa taxonomy and policy
measures targeting products such as
measures adopted by Bangladesh
sustainable bonds and funds, carbon
and China and by the Association of
pricing and taxonomy represent a smaller
Southeast Asian Nations (ASEAN) to
portion of the policy pool, policymaking
support the development of SMEs.
in these areas has been notably dynamic
in recent years, with a significant number

Figure III.17
Sustainability disclosure measures remain the most common policy
category
Sustainable finance policy measures by category, 2014–2023
(Percentage)

Taxonomy
Carbon pricing 3
9

Product-specific
measures Sustainability
11 disclosure
37

National strategy or
framework
17

Sector-specific
measures
23

Source: Global Sustainable Finance Observatory (GSFO.org).

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b. Regional developments package of measures to further strengthen

its sustainable finance regime, which
In 2023, the 35 economies or country includes expanding the taxonomy to cover
groupings tracked by the Global Sustainable additional activities contributing to climate
Finance Observatory adopted substantive as well as non-climate environmental
measures across six key policy areas: objectives, such as water and marine
national strategy or framework, taxonomy, resources protection, circular economy
sustainability disclosure, sector-specific transition, pollution prevention and control,
measures, product-specific measures and biodiversity and ecosystem restoration.
and carbon pricing. Policymaking was The measures also bring more transparency
most active in national strategies and and integrity to the market by introducing
frameworks, sustainability disclosure, rules on the ESG rating and provide
and sector- or product-specific measures guidance to support transition finance.
focusing on green bonds, sustainable
In the United States, at the federal level,
banking and investment (table III.3).
measures were adopted to promote
The European Union established a climate disclosure and sustainable finance;
comprehensive sustainable finance however, at the State level, the backlash
regulatory framework with the CSRD, against sustainable investment strategies
which entered into force in January 2023. continues: 17 States have passed legislation
Together with the Taxonomy Regulation prohibiting fund managers from considering
and the SFDR, these regulations lay ESG factors in their investment decisions
the foundation of an integrated policy or prohibiting States from contracting
framework governing sustainable finance in with asset managers that exclude certain
the European Union. To further strengthen industries, such as fossil fuels, from
the framework, the European Union is their portfolios (Malone et al., 2023).
conducting a comprehensive review of
A sharpening focus on policy effectiveness
the SFDR, the taxonomy and related
has also led to policy consolidation in other
technical standards, aiming to improve
developed economies. Australia, Japan,
their usability and effectiveness and to
Switzerland and the United Kingdom are
ensure consistency among different pillars
reviewing legislation related to sustainable
of the framework. It also announced a new

Table III.3
Measures in six policy areas adopted by monitored economies, 2023
Policy area Economy

Argentina, Brazil, China, France, India, Japan, Mexico, Switzerland, Türkiye, United
National strategy or framework
Arab Emirates, ASEAN

Taxonomy Mexico

Brazil, China, France, Germany, India, Republic of Korea, United Kingdom, United
Sustainability disclosure
States, European Union

Argentina, Australia, Brazil, China, India, Indonesia, Italy, Mexico, Switzerland,

Sector-specific measures
European Union

Product-specific measures Argentina, Australia, Brazil, China, Republic of Korea, European Union

Carbon pricing Australia, Canada, European Union

Source: UNCTAD GSFO Sustainable Finance Regulations Platform.

Note: Sector-specific measures cover sustainable banking, insurance, investment and credit ratings; product-
specific measures cover sustainable funds and bonds. Measures in development are not included.

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 Chapter III
Sustainable finance trends

finance, with a focus on sustainability a systematic approach to policymaking

disclosure and the development of related to sustainable finance. Larger
sustainable finance taxonomies.
Another important development concerns developing
Developing economies are becoming the increase in sector- or product-specific economies
increasingly active in sustainable finance measures, focusing on sustainable banking, are active in
policymaking. They accounted for 60 per sustainable insurance and green bonds. For
sustainable
cent of new policy measures in 2023 – a example, in 2023, Brazil and Chile adopted
record high. This surge demonstrates their national frameworks for sustainable bonds;
finance
systemic efforts to leverage sustainable the Philippines released guidelines on the policymaking,
finance for sustainable development. They issuance of “blue” or ESG bonds; and but smaller
are actively developing national strategies Bangladesh, China, India, Singapore and economies
and frameworks for sustainable finance. Thailand released policies to support the
In 2023, seven of them (Argentina, Brazil, banking industry in integrating sustainable
face multiple
China, India, Mexico, Türkiye and the United development considerations into operations, challenges
Arab Emirates), together with ASEAN covering sustainable deposits, sustainable
member States, rolled out national strategies loans and green credits (see table III.3).
or frameworks on sustainable finance. Most
Except for the largest States, developing
of these national strategies were informed
countries in general continue to face
by the overall national development agenda,
challenges in leveraging sustainable
aligning with national objectives under the
finance for development owing to a lack
2030 Agenda for Sustainable Development
of human resources and knowledge,
and the Paris Agreement. Such strategies
weak market infrastructure, and the
help establish policy objectives, priorities
fragmentation and inconsistency in
and key areas for actions to provide
international standards (UNCTAD, 2024c).
guidance and stimulate national efforts to
The persistently low level of sustainable
support the growth of sustainable finance.
investment in many developing economies
This trend underscores a growing poses another challenge to their adoption
commitment among countries to adopt of sustainable finance policies.

***

Some of the findings in this chapter are SWFs, with patient capital, understand the
positive and give hope for a future financial threat of sustainability risks to their business
system that is sensitive to sustainability model. Finally, it reveals the positive trend
criteria and measures of performance that in sustainable finance policymaking, as
go beyond financial return. Other findings governments have made more efforts to
are less positive, including the continued leverage the potential of sustainable finance,
prevalence of greenwashing, a backlash including through better harmonization
against sustainable investment in some of international standards to achieve
jurisdictions and foot-dragging by some comparable, high-quality reporting criteria.
important categories of investors that are
Going forward, policymakers, regulators
reluctant to report on sustainability risks.
and other stakeholders will have
Overall, the analysis in this chapter shows to address three challenges:
that the sustainable finance market
First is spillover effects resulting from
continues to expand and offers further
national and regional standard-setting and
potential for financing sustainable growth,
regulation, which have implications for
including in developing countries. It shows
companies around the world. These effects
that a majority of the top 100 PPFs and
primarily occur through global supply and

105
 World Investment Report 2024
Investment facilitation and digital government

investment chains, where large companies Addressing the issue will require improving
and financial institutions increasingly require the credibility of sustainable finance and
their suppliers or investee companies combatting the persistent challenge
to report on their sustainability. of greenwashing, in particular through
enhanced disclosure aligned with leading
Second is integrating sustainable finance
international standards, and the clear
frameworks into national sustainable
definition of sustainability concerning
development strategies. Most such
economic activities and sustainable financial
strategies have been informed by the overall
products. Meanwhile, delivering visible
national development agenda, aligning
impact would also be important, particularly
with national objectives under the 2030
for developing economies that have not
Agenda for Sustainable Development and
yet benefited from increased sustainable
the Paris Agreement. Such strategies help
investment flows to the real economy.
establish policy objectives, priorities and
key areas for actions to provide guidance The signals sent through capital markets
and stimulate national efforts in supporting can influence, direct and ultimately shape
the growth of sustainable finance. a future economy that is environmentally
sustainable, socially equitable and fairly
Third is ensuring that sustainable finance
governed. Addressing policy challenges
policymaking becomes more impact
and implementation issues, including
oriented, focusing on policy effectiveness.
policy harmonization and spillover effects,
Prioritizing the impact and effectiveness
will be essential for realizing any benefits
of sustainable finance measures is
from sustainable finance for the 2030
essential, given the concerns about a rising
Agenda for Sustainable Development.
backlash against sustainable investment.

106