Sustainable Financial Instruments: Their Current State and Prospects

Abstract

Instruments aimed at sustainable economic development have become widespread in financial markets and are firmly embedded in economic transactions and the system of credit and financial regulation. Incorporating ESG principles into economic activity enables companies to be involved in solving environmental, social and managerial challenges as well as to promote these principles by means of instruments designed to attract and allocate resources that advance sustainable development. As stable financial instruments for these purposes are developed and absorbed into both micro and macro management of the economy, the practices that govern their registration, accounting and listing on exchanges are changing in turn. A parallel process of conceptualizing and reaching theoretical understanding of these new instruments for encouraging sustainable economic development is also underway. Systematic concepts applicable to sustainable financial instruments have been developed, and the role of these instruments in financing ESG transition and development of the financial market has been clarified. The article examines the evolution of sustainable financial instruments, identifies their essential features and role in investment decisions, analyzes the most significant ways they impact the economy and financial markets, and assesses how prepared the financial sector is for their development. Three research hypotheses are put forward. First, economic entities are successfully adapting to the new concept of sustainable financing. Second, the increased inherent complexity of the new instruments and effort needed to prepare them is partially offset by their standardization, as well as by a simplified scheme for their circulation, maintenance and supervision. And third, sustainable development instruments such as green bonds, social bonds, sustainable development bonds, sustainability-related bonds and transitional period bonds contribute to a reassessment of market efficiency and the rationality of market participants