Financial Innovation for a Sustainable Economy

Climate change and its management and mitigation are unquestionably among the main risks facing our society in the coming decades. The financial sector plays a key role in this challenge, firstly because of its exposure and the consequent capital shocks if this risk crystallises, and secondly because it has the task of financing the investments needed to transform our economy into a sustainable one. This article reviews various initiatives under way in the private financial sector to introduce the variable “sustainability” into its decision-making process in order to achieve a balance sheet with a smaller carbon footprint (transformation of stock) and to develop a business strategy aligned with responsible investment principles and international standards (transformation of flow). We analyse the innovations emerging along the path to sustainable finance, looking particularly at:

1) new suppliers and services in the market,

2) the creation of sustainability-linked financial instruments,

3) the adaptation of financial risk management policies, and

4) the interaction of technological progress with climate change.