Sustainable Banking: New Forms of Investing under the Umbrella of the 2030 Agenda

Mariano Méndez-Suárez,Abel Monfort,Fernando Gallardo

doi:10.3390/su12052096

Mariano Méndez-Suárez, Abel Monfort + Show 1 more

Open Access

https://doi.org/10.3390/su12052096

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Abstract

(1) Social Impact Bonds (SIBs) foster the relationships between public and private sectors while adding value to new forms of investment that are closely linked to Socially Responsible Investments (SRIs). In this context, Sustainable Developments Goals (SDGs) aim to strengthen global partnerships in order to achieve the 2030 Agenda. Sustainable banking should consider its role in both new responsible investment products and the 2030 Agenda. This study aims to: (i) estimate the ROI of SIBS, (ii) define a financial formulation and a measurement system, and (iii) explain the relationship between SIBs and SDGs. (2) This research analyzes SIBs from an SDG approach, and proposes a valuation model based on a financial options valuation methodology that clarifies the financial value of the world’s first SIB (Peterborough Prison, UK). (3) Findings suggest that investors expect to have a negative return of 16.48%, and that this expected loss may be compensated for by the short- and long-term positive impact of an intervention in society. (4) It is shown that SIBs provide an opportunity to reach SDG 17 and improve sustainable investment portfolios, while providing an opportunity to strengthen a company’s Corporate Social Responsibility policy and its corporate reputation.

Highlights

The winds of change are affecting the banking and investment industries
This study aims to clarify this issue while connecting the rest of the opportunities that are present through responsible banking and, through Sustainable Development Goals (SDGs)
We propose where K is the present value of the payment to be received if the goal is met in discrete time t, the value of S represents the achievement of the social goal that we want to meet, and X is the value of the minimum achievement required to have the right to receive the payment

Summary

Introduction

The winds of change are affecting the banking and investment industries. At the end of 2018, Larry Fink, chairman of the world’s largest asset manager, Blackrock, asked in his Christmas letter that, in addition to maximizing profits, corporations contribute to the common good [1]. The banking sector may further contribute directly and indirectly to the achievement of the UN’s SDGs by developing sustainable strategies as part of a multi-stakeholder process and partnerships with state and non-state actors In this vein, Forcadell and Aracil [11] have identified two main issues in which banks could act directly in the design and implementation of SIBs as an investor, education and financial inclusion. Prior research has proposed frameworks for pricing methods [16,17], but the article unfolds a estimation of the return of investment as well as a financial formulation and a measurement system that shed light on previous concerns detected in the literature (e.g., [14,18,20,22]) These findings support studies that have claimed that SIBs can be an ethical investment aligned with corporate identity [13,22], and that they can strengthen both a company’s CSR policy and its brand image [23]. This would be in terms of supporting Agenda 2030

New Forms of Investment in the Context of SDGs

SIBs Barriers and Opportunities for Investors

SIBs: Features and Risks

Valuation of the Peterborough SIB

Findings

Conclusions