Sustainability, climate change and financial innovation: Future research directions

Abstract

In 2015, the United Nations embraced the Sustainable Development Goals (SDGs) as a worldwide appeal to safeguard the Earth, eradicate poverty and hunger, and advance equality and diversity, among other objectives, by 2030.Climate change has led to recent episodes of environmental disasters, coupled with the COVID-19 crisis and geopolitical and economic instability (Heo, 2024).Climate change also poses the greatest risks to vulnerable companies, such as those with the most debt (El Ghoul et al., 2024), thereby exacerbating existing risks and instabilities.Investigating how technology and financial innovation can contribute to achieving the SDGs has become a key policy concern within the realm of sustainable finance.Several countries around the world have adopted new initiatives aiming at a gradual transformation to greening their financial systems by repositioning their investments towards inclusive, net-zero carbon and resilient economies.There is no doubt that funding the transition to a green, sustainable, low-carbon economy is a major challenge.Financial innovation has changed the landscape of financial markets and plays a key role in developing new instruments for critical sustainability solutions (e.g., green, blue, and Social/Sustainabilitybased sustainability-based bonds).According to Reuters, 1 in 2021, Green bonds recorded the most substantial issuance at $481.8 billion, trailed by social bonds at $191.8 billion and sustainability bonds at $177.2 billion).This special issue includes papers presented at the annual conference of the Sustainable Financial Innovation Research Centre (SFiC), sponsored by the European Financial Management (EFM) journal, held at the University of Birmingham in Dubai.The papers included in the special issue discuss timely topics related to sustainability and financial innovation in financial markets.The geopolitical instability witnessed worldwide led to a significant downturn in the global capital markets in 2022.This was prompted by the Russian invasion of Ukraine and the prevailing higher inflation environment, further compounded by the ongoing aftermath of COVID-19.This has led to a substantial drop (24%) in the thematiclabelled bonds. 2 The ongoing debate in the literature on whether the performance of Socially Responsible Bonds (SRI) could beat the market has been addressed in this special issue; Hornuf and Yüksel (2023) using meta-analysis methodology, interestingly, find that SRI does not outperform or underperform market portfolio.However, they find that global SRI portfolios outperform regional sub-portfolios.

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