Abstract
In 2016, the Global Sustainable Investment Alliance estimated the market for sustainable investments to have reached 22.89 trillion USD of assets under management. While financial institutions have embraced the idea of sustainable finance as a business opportunity, they have arguably done little, but to piggy-back on investors’ demand. Today, it is not unusual for a single firm to retail fossil free investment funds and concomitantly offer commercial loans towards fracking, coal, and Arctic drilling. This paradox is underpinned by a major gap in the way sustainability has permeated primary and secondary markets which, we argue, calls for a serious rethinking of the sustainability transition in finance. This article proposes two contributions in this direction. First, we develop an original conceptualisation of finance as a socio-technical system to discuss the dynamics that both hinder and promote a transition from mainstream to sustainable finance. Second, we propose to study how investment banks integrate sustainability in their underwriting services. To do so, we filter through close to half a million of debt and equity underwriting deals (2005–2017) using the Government Pension Fund Global of Norway’s list of 153 excluded companies. Our results suggest that investment banks do not shy away from underwriting companies that have been flagged for major environmental, social, and governance misconduct, neither do they restrain from underwriting companies providing contentious products, such as tobacco, coal, and nuclear weapons. Moving forward, we suggest ways to address this problem and call for further research on the responsibility and agency of finance and advanced business services firms in sustainability transitions.
Highlights
Investment banks connect issuers of debt and equity securities with investors [1]
Banks do develop corporate social responsibility (CSR) programs [6,7,8,9] and contribute to philanthropic activities [10,11], our results suggest that underwriting is a banking activity that has entirely missed the sustainability transition in finance
The article is organised as follow: In Section 2, we review key developments pertaining to primary markets in sustainable finance
Summary
Investment bank syndicates function as centralized agents that promote and guarantee the transmission of newly issued securities from issuers to asset managers. As such, they provide a crucial transactional function in capital markets. They provide a crucial transactional function in capital markets They have considerable informational advantages, including access to insider information about their clients, as well as a privileged network of sizable investors and other investment banks participating in syndication. Investment banks help corporations and governments raise trillions of USD of new finance in global capital markets. They constitute a powerful segment of the financial industry [4]
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