• Development Finance Institutions , which provide finance to the private sector for investments that promote development in countries with various restrictions on access to market finance. • Outcome-based funder s, which focus on monetizing future social and environmental outcomes, often in impact bond contracts. • Governments and policymakers , which address systemic social risks through longer-term planning and investment. • Sovereign wealth funds and government-owned investment vehicles that take excess national revenues and grow them for longer-term country stability, savings, and strategic advantage.
Context
It is increasingly recognised that significant global challenges threaten economic and political stability globally 3 and that conventional valuation models may be ill-equipped to deploy the investment that may help ameliorate such challenges. 4 Indeed, they may even exacerbate them. 5 According to Kotz et al (2024) 6 , by 2050, climate change is projected to inflict $38 trillion in annual damages, which is the equivalent to a 19% contraction in global GDP relative to a baseline without climate impacts. This is roughly six-times the cost of mitigation. The damage range is between 11% and 29% of global GDP, accounting for uncertainties in physical climate and empirical data. These projections assume current emissions pathways, making the damages essentially ‘committed’, i.e., they cannot be avoided even if immediate mitigation efforts are implemented. To put this into context, global GDP declined approximately c.3% during the 2020 pandemic 7 . At this level of magnitude, irrespective of geographical location, sector or approach to risk, the longer-term effects of climate change will be catastrophic. In the context of unavoidable climate impacts, the UN Sustainable Development Goals (SDGs) were launched in 2012 to provide a pathway for channelling capital into addressing the world's most urgent social and environmental challenges. 8 The SDGs offer a proactive approach to mitigate future risks in. Despite a widespread adoption of the model by institutional investors, the flow of capital remains insufficient to achieve targets. A review at the midpoint of the 2030 timeline revealed that the annual investment gap across all SDG sectors has widened from $2.5 trillion in 2015 to more than $4.2 trillion per year in 2025. 9
Despite the total estimated value of the ‘sustainable’ finance market reaching $6.7 trillion in 2024 10
3 For example, https://www.ecb.europa.eu/press/financial-stability- publications/fsr/html/ecb.fsr202505~0cde5244f6.en.html#:~:text=While%20it%20is%20hard%20to,growth%2C%20inf lation%20and%20asset%20prices. 4 For example, https://www.oaktreecapital.com/insights/memo/the-calculus-of-value, https://www.westminsteram.com/wp-content/uploads/2025/01/Article-58-Westminster-Asset-Management-the- limitations-of-valuation.pdf, https://www.professionalpensions.com/opinion/4412316/cost-climate-risk- mispricing#:~:text=Long%2Dterm%20impact%3A%20Over%20time,%2C%20agriculture%2C%20and%20real%20est ate. 5 See, for example: https://www.pwc.com/gx/en/services/audit-assurance/corporate-reporting/esg-reporting/esg-impact- company-valuation.html; Udohaya, N. (2025). Rethinking Financialisaton. In: Impact Investing and Financial Inclusion. Sustainable Development Goals Series. Palgrave Macmillan. For a positive perspective ss: https://mybrand.schroders.com/m/3e994d36a0864d84/original/Impact-and-Financial-Performance-PDF-Final.pdf. 6 Kotz, M., Levermann, A. & Wenz, L (2024). ‘The economic commitment of climate change’. Nature 628, 551–557. 7 Our World in Data (2024): https://ourworldindata.org/grapher/global-gdp-over-the-long-run?time=1990. 8 https://sdgs.un.org/goals. 9 UNDP (2025): https://www.undp.org/news/undp-leverages-every-dollar-promote-investments-nearly-60-sustainable- development-shows-new-report. 10 https://www.globenewswire.com/news-release/2024/10/04/2958387/28124/en/Sustainable-Finance-Market- Projected-to-Reach-6-71-Trillion-in-2024-Exponential-Growth-and-Innovation-Pave-the-Way-for-Future-
2
Powered by FlippingBook