9.1 Definitions of Sustainability and Sustainable Finance

The modern understanding of sustainable development was established in 1987 by the Brundtland Report "Our Common Future" of the World Commission on Environment and Development of the United Nations (WCED). In this report, sustainable development is defined as "development that ensures that the needs of the present generation are met without compromising the ability of future generations to meet their own needs"¹. This definition is based on two core concepts. Firstly, it stresses the importance of meeting the basic needs of current and future generations, including food, clean drinking water, and healthcare. Secondly, it underscores the existence of planetary, social, and technical limits within which these needs can be met without unduly straining the environment or jeopardizing social justice.

The United Nations 2030 Agenda for Sustainable Development was developed to facilitate the transition to a sustainable economy. The 17 United Nations Sustainable Development Goals (SDGs) are political goals aimed at promoting comprehensive sustainable development at an economic, social and environmental level.² They include goals such as ending poverty worldwide (SDG 1), reducing inequality within and between countries (SDG 10) and taking immediate action to combat climate change and its effects (SDG 13). In addition to the Sustainable Development Goals, the Paris Agreement of 2015 was the first legally binding international treaty to counteract climate change and promote the gradual reduction of greenhouse gas emissions.³

The financial industry can play a leading role in promoting sustainable development. According to a projection by the Swiss Bankers Association from 2021, the annual investment requirement (in Switzerland) is around CHF 13 billion in order to achieve the net zero target by 2050.⁴ Terms such as "sustainable finance" (SF) or "ESG" have become important concepts at the interface between finance and the implementation of sustainability goals. Although there is no completely uniform definition of SF and the distinction from other terms is often unclear, there are the following aspects that can characterise the concept. The area of Sustainable Finance (SF) or Sustainable Finance and Investments (SFI) deals firstly with the interaction between investments and lending in the context of economic, social or environmental issues.⁵ Secondly, SF addresses long-term orientated financial decisions in the context of sustainable development.⁶ Thirdly, Cunha et al. define SFI as "the management of financial resources and investments with the aim of promoting long-term, positive and measurable social and environmental impacts"⁷ . Fourthly, the European Commission's definition of SF integrates environmental, social and governance (ESG) considerations, which are taken into account in investment decisions in the financial sector.⁸ This study is based on the following definition of sustainable finance:⁹