Once a fringe investment, green and sustainable finance is fast gaining interest among investors worldwide. So what exactly are these types of investment, and why do we need them?

Green finance is one of a number of terms used to describe activities related to the two-way interaction between the environment and finance and investment. It has become a familiar expression over the last decade, partly due to the creation of many national green investment banks and a rapidly growing green bond market. But green finance is closely associated with related concepts, such as climate finance and sustainable finance. A good description of what each refers to is given by the United Nations Environment Programme:

• Sustainable finance includes environmental, social, governance and economic aspects.
• Green finance includes climate finance but excludes social and economic aspects.
• Climate finance is a subset of environmental (green) finance.

Sustainable finance is therefore the broadest term, covering all financing activities that contribute to sustainable development.