The Sustainable Finance Products

The Sustainable Finance Products

Insights of the Frankfurt School of Finance Programme Certified Expert in Sustainable Finance

As promised in my first article I will this time provide you with some information regarding the program “Expert in Sustainable Finance” at Frankfurt School of Finance and, as I finalized the unit about the products, summarize some key messages in this regards.

The “Expert in Sustainable Finance” is an online course with an optional classroom training. The course is offered in two languages (English and German) The program has a 6-months duration and lasts either from March to August or from September to February. The workload is estimated with 5-8 hours per week. To graduate, an examination needs to be passed and this contains assignments (case studies) and a final exam.

The course is structured in overall 8 units which I already listed in part one of my report. The student base is very international with many people joining from outside Europe. The program offers network possibilities and also personal coaching and support.

In case you are interested you can find more information here: sustainable-finance

Now back to the content: Unit three focuses on the different sustainable financial products and starts with a market overview showing the characteristics of sustainable investments.

One of the key messages of this chapter is:

“There is no one fits all solution” in regards to the sustainable product solution, as the variety of risks and uncertainties nowadays is just as broad as the development of sustainable financial products.

It is highlighted that today most of the important asset managers announce their commitment to sustainable investing. This is also reflected in the growing number of signatories to the UN PRIs from 100 back in 2006 to around 2.000. By the way, Fondation de Luxembourg became a UN PRI signatory in 2020 and currently I am working on our first reporting.

One of the key assumptions is the importance to integrate market standards to increase transparency and avoid green washing. The actors within the sustainable finance industry are more or less the same than the ones in “traditional” markets. It is noted that, although environmental and social aspects play an important role when taking investment decisions, most of the investors are still financial return driven.

It is emphasized, that the “green” in finance in not clearly defined; for the script, the following definition is used:

“Green finance” comprises the financing of public and private green investments in the following areas:

  • Environmental goods and services
  • Prevention, minimization and compensation for damage to the environment and to the climate
  • The finance of public policies that encourage implementation of environmental and environmental-damage mitigation or adaptation projects and initiatives
  • Components of the financial system that deal specifically with green investments

When it comes to the underlying definitions of “green” etc. there is still a lack of consistency in the definition as well.

Descriptions for the different debt instruments is provided hereafter; the nature of returns and characteristics of the instruments are presented. I will only mention some of the them for illustration reasons.

Within the debt instruments the sustainable development bonds (SDB) can be seen as the general term for investment vehicles developed to finance the needs of the SDGs (Sustainable Development Goals). Main differentiation criteria of an SDB is the nature of its returns and can have the characteristics of a debt instrument with fixed returns or an equity-like instrument where the return is based on the success of the project.

Another type of debt instruments are the green bonds, set-up to mobilize capital to support the SDGs and the objectives of the Paris Agreement.

In the Microfinance section a look back to the beginning of microfinance activities and the person related to it, Dr Muhammed Yunus in Bangladesh was provided. This inspired me to read a bid more about this amazing person and Noble Price winner and about the origins of microfinance. I can really recommend to spend some moments on it. Really inspiring!

The chapter closes with the summary on equity instruments (direct equity investments and alternatives for direct equity investments) showing an overview of the sustainable (impact) investment market structure. With that I will also close my second article. I´m looking forward to learn more about sustainable finance within the next few weeks.

To be continued…

Author: Esther Meyer

To read Esther Meyer first article click here