Sustainable finance initiatives and their impact on financial stability

The article discusses the potential impact of sustainable finance initiatives on financial stability. A careful literature review on the subject of sustainable development and stability of the financial sector is performed in order to identify potential gaps in policies and regulations. Existing considerations around the impact of sustainable development efforts focus exclusively on the consequences of climate change for the portfolio of assets held by the financial sector, whereas the author examines the growing market for sustainable financial instruments as a potential threat. The results indicate that sustainability features of new financial instruments are not methodically evaluated in the context of their credibility and may therefore suffer from sudden loss of value that is not accounted for under the existing supervisory mechanisms. Inconsistent definitions and no single perception of sustainability further enhance the risk for investors and issuers and that risk needs to be accounted for under the mechanisms safeguarding financial stability