Starting early in the scientific discussion of sustainable finance, the lack of an all-encompassing definition for this object of consideration was a fact often cited by critics and advocates alike. With the rise of interest in the topic generated by both the political agenda of a green transformation and the banking supervision activities to protect banks against climate and ESG risks, the call for a definition gets even louder—generating the unfortunate side effect that some practitioners simply postpone the issue until it has “properly matured”, proven by a compact and universally accepted definition. After all, in conventional economics, there is no end of definitions, and in many branches of science, a problem lacking a clear definition is agreed to be a problem that cannot be solved.
In this chapter, we argue that the lack of definition is due to the simple fact that the roots of sustainable finance have produced not one but three trunks—being very different in size, appearance, and power. Developing from a movement to include ethics into business in a general way, the necessity to act against environmental destruction has called for more effective instruments, and the risks emerging from the said transformation require consequent action—both quite independently from any value conceptions a person or company may or may not have.
With the categorization into the three forms of value-driven, action-driven, and risk-driven sustainable finance, these very distinct and different approaches can be much better captured and described than with a one-size-fits-all definition, and it is much easier to capture their very different motivations, properties, stakeholders, and required measures.
This categorization is developed in this chapter, and while the concept can by no means be considered a complete roadmap to the new landscape of sustainable finance, it is intended as a robust basis for a new, more differentiated approach and as a farewell message to the futile search for a one-sentence definition.
