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Redefining Sustainable Finance in a post COVID-19 world

Updated: Sep 4, 2021

Shivam Gujral

BSc Economics, UCL

Figure 1: The 2 distinct worlds: Rhetorical and Practical

Source: Image retrieved from NASA, 2017

Rhetorically, international organisations claim that the coronavirus pandemic has turned the world upside down as you can see above (UNICEF, 2020). Is this claim an extreme interpretation of the impacts of COVID-19? Or does the impact vary with regards to the sectors we look at? In this essay, I will venture out of the landscape of mainstream economic and financial thought and focus on a rather new idea which has made its way to the vocabulary of financial markets: Sustainable Finance.

In the wake of economic volatility created by the pandemic, it is clear that Environmental, Social, and Governance (ESG) issues are material factors that businesses must manage. Therefore, our main endeavour would be to redefine Sustainable Finance and its role in supporting global economies to ‘Build Back Better’.

Redefining Numbers

Figure 2: Outperforming ESG investments

Source: UNDP, 2020

With the onset of the pandemic, the ESG funds faced their first test in a bear market (UNDP, 2020). Showing resilience in a highly volatile market, we can see from Figure 2 as to how ESG related investments seem to have outperformed benchmarks in the crisis. The interesting point to observe is that there has been a strong inflow into these funds steadily during January- March 2020 at roughly US$ 4 billion per month. On the other hand, inflows into the top US equity ETF’s showed a steep fall during these times. This shows investor confidence in sustainable investing during the pandemic and gives us one potential sector which could be exploited when thinking of recovery.

Figure 3: Outperforming Green Bonds

Source: UNDP, 2020

Another aspect of Sustainable Finance is Sustainable Debt Markets. Figure 3 tells us a similar story of continued investor confidence and green bonds outperforming conventional corporate debt. A review of recent commentary by financial analysts from Bulge Bracket firms suggests a wide range of potential outcomes for different classes of issuers, stemming from the size and direction of the stimulus efforts, policy changes and divergence in the pandemic impacts. As you can see in Figure 2, the steep fall of the U.S. Green Corporate Bond Index seems to have dampened the Sustainable Debt Market in its near term prospectus. However, it still being above the US High Grade Corporate Index makes it a stronger financial tool in the long run.

Redefining Theory

In this new era of the ESG framework, novel economic models ought to be used to accurately justify the reasons behind the ‘sustainability’ trends in the market as seen in the previous section. Here, we would make use of one such evolved model by the Oxford Economist, Kate Raworth. This has caught the eyes of many economists, policymakers, and analysts and is known as the Doughnut Economic Model. To give a brief background, it is a visual framework for sustainable development, which is supported by a doughnut shaped diagram where the inner circle represents basic human needs and the outer one represents Earth’s ecological ceiling (Raworth, 2012). A visual representation of the model can be seen in Figure 4.

Figure 4: The Doughnut Economics model

Source: Raworth, 2012

In the age of coronavirus, the doughnut model seeks to balance the needs of both people and the environment. As a part of recovery, the model encourages the incorporation of green programmes into recovery plans with the intention to ‘rebuild better’. Fitting the ESG framework into this model of development, financial markets have to seize the opportunity of solving a wide range of sustainability issues like reduced climate engagement, increased domestic violence leading to inequality, and poverty from income loss. One example of using this model would be to indulge in Evergreen Direct Investments and bringing together investors like sovereign wealth funds, pension funds, and business leaders to make a regenerative economy. With this type of investing, the goal would be to optimize wealth creation through sustainable commercial competitiveness rather than maximising value extraction on sale.

With the pandemic underway, a key moment for investors could be to support healthcare systems though channelling capital to financing development institutions and corporates in the health supply chain and even mobilising their sources to help communities most effected. (BNP Paribas, 2020)

Therefore, the redefined theory by Kate Raworth proves that the model would assist sustainable finance in supporting the economy by focussing on the matters pertaining to sustainability.

Redefining sustainable finance

Revisiting the redefined numbers and theory, we can conclude that the world of finance is undergoing a paradigm shift towards the need for sustainable finance and use of market based sustainability solutions. To ‘Build Back Better’, we require a ‘whole economy’ effort to include sustainable finance in fiscal stimulus packages and assist in reforming the rhetorical world Figure 1 to its ‘right’ place.


1. (2019). Doughnut economics: superfood for finance? - BNP Paribas CIB. [online] A vailable at: economics-superfood-for-finance-_a-3- 2651.html#:~:text=Doughnut%20economics%20seeks%20to%20radically [Accessed 22 Aug. 2020].

2. MSFC, J.W.: (2015). What Is Earth? [online] NASA. Available at: k4.html [Accessed 22 Aug. 2020].

3. (2020). COVID-19: Sustainable Finance and the Future of the Global Economy | UN Global Compact. [online] Available at: global-economy [Accessed 22 Aug. 2020].

4. UNICEF DATA. (2020). How COVID-19 is changing the world: A statistical perspective. [online] Available at: changing-the-world-a-statistical-perspective/.

5. World Economic Forum. (n.d.).How doughnuts could guide the post-COVID-19 recovery. [online] Available at: model-amsterdam-coronavirus-recovery/.

6. (2020). How Covid-19 is refocussing sustainable finance. [online] Available at: refocussing-sustainable-finance [Accessed 22 Aug. 2020].


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