Sustainable finance is often used in a broad sense to refer to financing activities that contribute to sustainable development. It refers to the process of taking environmental, social and governance (ESG) considerations into account when making investment or financing decisions, leading to more long-term investments in sustainable economic activities. Environmental factors might include environment broadly as well as climate change mitigation and adaptation. Social factors could refer to equality, inclusiveness, human rights, supporting human development, local communities. Governance refers to how companies and organizations are run and governed, including management structures. By considering these factors, investors can make choices that benefit both people and the planet.

The counterpart term of sustainable finance in the development field is often called “innovative finance”. There is no single definition currently in use. In general, it includes mechanisms and solutions that explore alternative sources of finance to traditional Official Development Assistance ODA and public spending, with the goals of generating climate and social outcomes. According to the UN Secretary- Generals Progress Report, “the concept of innovations now extends to such diverse forms as thematic global trust funds, public guarantees and insurance mechanisms, equity investments, growth-indexed bonds, countercyclical loans, distribution schemes for global environmental services, microfinance and mesofinance, and so on.”

Innovative finance should have at least one of the below functions:

• Mobilize additional volume of funds for development outcomes through new sources or partners.
• Improve development finance more results oriented.
• Enhance the efficiency of financial flows by reducing the delivery time and/or costs.

Yes! A diverse range of instruments have emerged to expedite financing for sustainable activities in such as education, clean energy, vaccination, women’s entrepreneurship, biodiversity conservation etc. These range approaches including both public and private from debt, loans or credit, equity, real assets, insurance, guaranty, result-based payments, blended finance, to fiscal tools, and voluntary solidarity contribution etc. Learn more about the different types of financial instruments and how these can be used to advance sustainable development goals within UN Women’s Sustainable Finance Training.

Gender lens investing has gained significant interest in recent years, but currently, there is no single definition for gender lens investing that has gained universal acceptance across the impact investment industry. According to the Global Impact Investing Network, gender lens investing is “a strategy or approach to investing that takes into consideration gender-based factors across the investment process to advance gender equality and better inform investment decisions”.

Impact investing is referred to as an activity taking place across all asset classes, in which investments are made with the intention to generate positive, measurable social and environmental impact alongside a financial return.

Gender impact investing is a subset of gender lens investing which involves the intentional allocation of capital to projects, initiatives, and companies that are working towards improving outcomes for women and girls. Achieving gender equality sits at the top of objectives for gender impact investing which seeks to eradicate gender disparities and boost financial flows towards empowering women economically. In practice this means ensuring women and girls have access to education, healthcare, job opportunities, addressing gender pay equity, ensuring women are represented in leadership positions, and combatting gender-based violence. Investors keen to align with these goals assess the returns of their investments by looking at how their investments influence gender equality objectives.

A bond is a type of financial instrument, through which governments or corporations raise capital from multiple investors for a predetermined period of time. The issuer of a bond agrees to make periodic interest payments to bondholders (investors) until then and pay back the bond's face value (known as “the principal”) at maturity.

In 2022, the global bond market totaled USD $133 trillion. Given its lion’s share in the global capital market, the world can mobilize institutional investors to invest in sustainable activities, if bond instrument can be harnessed in an accountable and effective way.

Over the last decade, there has been an exponential growth in using bonds for climate and social objectives, known as thematic or sustainable bonds. The issuance of sustainable bond has reached around USD 1 trillion in 2021.

Sustainable bonds often are structured through two routes:

• Use of proceeds bonds – the ways in which the bond proceeds can be used are specified at the outset in the bond framework, only enabling to finance eligible projects in specific areas such as climate change, healthcare or education, etc.
• Sustainability-linked bonds – is a performance-based debt instrument where issuers commit to achieving future improvement on specific environmental or social outcomes within a defined timeframe in exchange for lower interest rates.

Gender bonds essentially are a type of sustainable bond to credibly access financing for projects and strategies that advance gender equality and women's empowerment, contributing to the achievement of Sustainable Development Goal (SDG) 5. They are issued by governments, development banks, or private entities with the goals to empower women in leadership, employment, supply chain, productivity or services and communities, or to achieve a life free of violence, socioeconomic advancement and empowerment, and redistribute and reduce unpaid care and domestic work for women.

Social bonds are any type of bond instrument that exclusively applies the proceeds, or an equivalent amount, to finance or re-finance, in part, or in full, new or existing eligible social projects that align with the four core components of the Social Bonds Principals:

• Use of proceeds.
• A process for project evaluation and selection.
• Management of the proceeds.
• Reporting.

Greenwashing or impact washing is deceitful marketing when an individual, company, or organization exaggerates their current or past sustainable outcomes and goals to falsely promote their work or products when these are not aligned with green or social goals and benefits. This practice can include misleading labels tactics and false claims that products or services adhere to certain environmental or social standards.

Asset class means a group of financial instruments that have similar financial characteristics and behave similarly in the marketplace.

Private debt refers to debt instruments to companies, in the form of direct lending, mezzanine, microfinance strategies.

Private equity entails stakes in privately held companies or funds such as venture capital, growth, buyout strategies.

Public debts are publicly traded fixed income securities: investment grade or high yield, focused on green bonds and municipal and community infrastructure and affordable housing issuers.

They are equity stakes in publicly traded companies, from small-cap to mid-cap and large-cap.

Real assets include real estate, infrastructure, farmland and cropland, and timberland and forestry assets.

Institutional investors are providers of capital, such as outsourced Chief Investment Officers, pension funds, insurance companies, family offices, sovereign wealth funds, endowments, foundations, banks, fiduciary managers and discretionary investment consultants.

Sustainability bonds are bonds that exclusively apply the proceeds to finance or re-finance a combination of both green and social projects. Sustainability bonds align with the four core components of both the Green Bond Principles and the Social Bond Principles. The Green Bond Principles are especially relevant for green projects, and the Social Bond Principles for social projects.

Sustainability-linked bonds are instruments with financial and/or structural characteristics that depend on whether the issuer achieves predefined sustainability/environmental, social, and governance objectives, and that align with the five core components of the Sustainability-Linked Bond Principles:

• Selection of Key Performance Indicators.
• Calibration of Sustainability Performance Targets.
• Bond Characteristics.
• Reporting.
• Verification.