Essays on environmental sustainability in financial markets

Environmental sustainability has become a central issue in the global debate on financial development, both in theory and in practice (Adams, 2008), driven by a growing awareness of the long-term risks posed by climate change and environmental degradation. Financial markets play a critical role in allocating resources to sustainable practices and innovations (Busch et al., 2016), as well as in addressing corporate policy with shareholder advocacy (Haigh and Hazelton, 2004). Recent data highlights the significant economic impact that environmental factors are already having on the global economy. For example, the World Economic Forum reports that extreme weather, climate and water-related events caused almost $1.5 trillion of economic losses in the decade to 2019, up from $184 billion in the 1970s, a figure that is expected to rise as climate-related events become more frequent and severe.1 Looking ahead, according to the OECD, losses to GDP could reach 10% in 2100 if no action is taken to reduce carbon emissions.2 Moreover, the financial sector has a critical role to play in mitigating these risks. The GSIA notes that sustainable investments have grown to $35.3 trillion by 2020, representing 36% of total assets under management in major markets,3 underscoring the growing recognition of finance as a key lever in addressing environmental challenges. Thus, understanding environmental sustainability in this context is increasingly recognised as both urgent and essential. Overall, this study examines the overlap between environmental sustainability and financial markets, exploring how sustainability considerations are being integrated into financial decisionmaking and the wider implications for market behaviour, policy and regulation. Indeed, this nexus becomes therefore critical to designing effective policies and financial instruments that can support sustainable development goals.