A senior figure at the UN-backed Principles for Responsible Investment (PRI) has called on investors to rethink a number of assumptions about the purpose and future of sustainable finance.

Speaking on a panel at the University of Oxford this morning, Nathan Fabian, the PRI’s chief sustainable systems officer, said: “We may once have thought that the key lever to a more sustainable economy was altering the cost of capital, but I’m not sure that’s right anymore.”

He argued that even though there is evidence of slightly better pricing for some companies that issue green bonds, “the idea that sustainable investing is consistently cheaper [for companies], or provides lower returns to investors in order to achieve a substantial economic restructure […] actually has some problems for the investors.”

In recent years, some mainstream investors have had to defend themselves over accusations that by improving the cost of capital for companies that pursue sustainability objectives – by, for example, accepting a lower coupon for green bonds compared with conventional paper – they are trading financial returns for environmental and social performance.

“So we’ve got to really think carefully about the cost of capital side [of the argument],” said Fabian.

In addition to cost, there is a belief in some corners that developments in sustainable finance will drive reductions in the overall availability of capital to unsustainable companies, but Fabian argued: “We have a world that’s still fairly flush with liquidity, and we have countries moving at different paces, so it’s always possible to find some investors, somewhere. So we’ve also got a problem on the availability side [of the argument].”

“We need to reinterrogate the idea that cost and availability of capital are key levers,” he concluded.

He added that influencing governments to adopt decarbonisation targets and develop sector-level policies and subsidies was one more effective lever, but warned: “When it comes to engaging on policy, the truth is, we are losing.”


Nathan Fabian

When it comes to engaging on policy, the truth is, we are losing”

Nathan Fabian, PRI’s chief sustainable systems officer

His remarks were made as part of a panel discussion about whether the current theory of change for sustainable investors is working during the Oxford Sustainable Finance Summit.

On stewardship, Fabian said investors needed to ask themselves “how good is good enough […] if the change you’re seeking is a sustainable economy.”

“I’d say that a lot of our stewardship activity isn’t contemplated with that outcome in mind, and we need to reevaluate that.”

Also speaking on the panel was Yulanda Chung, head of sustainability at Asian bank DBS, which is a member of the banking alliance convened by the Glasgow Financial Alliance for Net Zero (GFANZ).

She said that while GFANZ was important in helping the financial sector to achieve its net zero goals, the claims it made at its 2021 launch about its ability to redirect capital flows “could probably be seen as greenwashing”.

Fabian added: “We didn’t say what we meant when GFANZ started, and too often we don’t say what we mean.

“The idea that a manager with a corporate ownership, who serves millions of different individual clients, can set its own 2050 target and faithfully implement that – supposedly on somebody’s behalf – was frankly never going to work. But that doesn’t mean that managers aren’t absolutely essential to the transition.”

He suggested that GFANZ could focus on getting its asset-manager members to calculate and disclose the proportion of their assets that are invested in alignment with net zero goals.

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