Comment on “Sustainable Finance: Tools, Effectiveness, and Challenges”

Sustainable finance now plays a pivotal role in every major economic region, though trajectories differ. Since the 2015 Paris Agreement, the industry has expanded rapidly worldwide, with Asia's recent surge reflecting its nascent history compared to Europe and North America. Macro shocks—including the Russia–Ukraine War, elevated inflation, and rising interest rates in 2022—have led to net capital outflows in the United States, while Europe and Asia continue to grow robustly. As regional approaches evolve, it becomes increasingly important to understand the conditions under which sustainable investments generate both positive societal or environmental impacts and acceptable financial returns. Flammer (2026) offers valuable insights into these dynamics by synthesizing recent academic research. Flammer finds that green bonds, when certified by independent third parties, not only produce positive announcement returns but also drive meaningful emissions reductions, thereby attracting long-term, environmentally conscious investors. Biodiversity finance, in contrast, hinges on the use of bundling mechanisms—pairing public goods with private returns—and on blended finance to de-risk projects with broad societal benefits. Impact investments in disadvantaged communities are shown to deliver superior accounting performance alongside measurable social impact, relative to comparable investments elsewhere. Active investor engagement, while resource-intensive, is more effective in steering firms' environmental, social and governance (ESG) practices than passive strategies like divestment. In addition, firms that adopt comprehensive approaches to Diversity, Equity, and Inclusion (DEI) exhibit higher profitability, although demographic diversity alone is insufficient. Finally, robust corporate social responsibility (CSR) practices promote innovation, support employee retention, and improve resilience during economic shocks, enhancing long-term competitiveness. A central contribution of Flammer (2026) is to articulate the conditions that produce “win–win” outcomes—those that yield both financial value and social or environmental impact. For instance, green bonds only achieve their intended effects when certified to prevent greenwashing. In the presence of capital constraints (induced by either taste-based or statistical discrimination with incorrect beliefs), investments in disadvantaged communities produce greater social impact and returns on assets than those in comparable firms elsewhere. In the arena of biodiversity finance, Flammer highlights the need for public support to overcome the externality problem and mobilize private capital. Although active engagement works well, its scalability is constrained by the time and effort required. Meanwhile, DEI and CSR initiatives appear to pay off when stakeholders with strong ethical commitments—consumers, employees, and investors—reward firms with loyalty and patience, allowing time for long-term gains to materialize. Flammer (2026) defines sustainable investing as “the practice of investing in companies, projects, or funds that aim to generate social and environmental outcomes alongside financial returns.” For interdisciplinary discourse, it is worth noting that this definition reflects a particular strand of sustainable investing—namely, one that emphasizes intentionality toward impact. In the finance literature, however, sustainable investing is often conceptualized more broadly. For example, Starks (2023) describes ESG investing as encompassing both nonpecuniary and pecuniary motivations: for some investors, it is a vehicle for expressing ethical values, while for others, it is a strategy for managing financial risk and enhancing returns. A key distinction is that, in the broader finance framing, an investment need not explicitly aim for social or environmental outcomes to fall under the sustainable investing umbrella. This difference in emphasis may reflect disciplinary traditions—management scholars, including Flammer, often focus on intentional impact, whereas finance scholars incorporate a wider spectrum of investor objectives. Clarifying this difference is not a critique but a way to help readers reconcile the apparent gap between the enormous $40 trillion projected by Bloomberg and the limited flows of private capital into high-impact areas like biodiversity and blended finance. Much of that $40 trillion reflects “value”-driven investors who seek risk-adjusted returns and may value societal benefits only to the extent they align with financial performance. In contrast, the evidence reviewed by Flammer primarily reflects the “values”-driven wing of the sustainable investing universe—where impact is pursued for its intrinsic societal benefit. When the return-impact alignment is weak or negative, value-driven investors may refrain from investing unless public or philanthropic capital steps in to adjust the risk–return profile. Blended finance offers one solution by using public funds to make socially beneficial projects more investable for private capital. More work is needed to unpack the heterogeneity of “values”-driven sustainable investors. Do they seek measurable impact, or alignment with values? Experimental studies (e.g., Bonnefon et al. 2025; Heeb et al. 2023) suggest that many Western investors prioritize moral alignment over maximizing impact. It remains unclear whether these patterns hold in Asia, where institutional and cultural contexts may differ. Western traditions rooted in Christianity and individual-oriented ethics tend to emphasize the moral responsibility of individuals to act in response to social challenges. This may encourage values-oriented investing aimed at aligning portfolios with personal moral commitments. In contrast, collectivist ethical frameworks more prevalent in Asia often look to governments to aggregate resources through taxation, redistribution, or public investment to address social and environmental problems (Markus and Kitayama 1991). As a result, there may be less emphasis on private investments as vehicles for individual moral expression. What remains unclear is the degree of demand for private capital to be deployed for impact in Asian contexts. Flammer (2026) offers a timely and nuanced perspective on sustainable finance. The review integrates empirical findings with conceptual frameworks to illuminate both the potential and the limits of market-based solutions. In particular, it draws attention to the structural trade-offs that emerge when financial and social goals are not perfectly aligned. The example of blended finance illustrates this tension clearly: while such arrangements can enable private investment in biodiversity conservation, they often require concessional support to offset the lower financial returns associated with high-impact outcomes. Left solely to market forces, biodiversity and other public goods will likely be underfunded. Flammer's section 8 offers a helpful discussion of Asia's distinct context—highlighting differences in regulatory maturity, energy reliance, and development stages. One fruitful avenue for further research is to investigate (i) regional investor motivations in Asia (value vs. values, impact vs. alignment), (ii) durability and reliability of public concessional support to adjust risk–return profiles of high-impact projects, and (iii) the magnitude of the potential impact outcomes of sustainable finance in Asia, given the interaction of (i) and (ii). Overall, Flammer (2026) offers a timely and valuable synthesis of key tools in sustainable finance. By integrating empirical evidence with conceptual clarity across green bonds, biodiversity finance, impact investing, and shareholder engagement, Flammer (2026) advances our understanding of both the promise and the limitations of private-sector approaches. As the field continues to evolve across disciplines, geographic contexts, and investor types, sustained dialogue—as represented in this special issue—will be essential to bridging perspectives and identifying effective pathways forward.