Sustainable investing takes social, environmental and corporate governance (ESG)  into account in investment decisions. And it was high on the agenda at this year’s United Nations’ Financing for Development  Forum (FfD).

There is considerable interest in how sustainable financing can be harnessed in support of the Sustainable Development Goals (SDGs) as well as undeniable momentum. Yet the UN’s Inter-Agency Task Force  on Financing for Development (IATF), which has just released its annual report is clear: interest is growing, but the transition is not happening fast enough.

The latest data show that sustainable investing is gaining strong traction in some countries. The UN reports that 84 percent of asset owners say they are pursuing or actively considering pursuing sustainable investments. Although difficult to quantify, there appears to be growing interest especially by millennials, in how their savings affect the world.

It is increasingly recognized that sustainable investment is good for business and that investors do not necessarily have to choose between returns and positive impact. ­­Indeed, there are many compelling reasons why companies with more sustainable and ethical business practices may outperform those without. Sustainability information can be used to better manage long-term risks and potentially enhance returns; for example by reducing exposure to natural hazards or anticipating regulatory changes. ­The latter is particularly relevant to climate, where it appears that potential policy measures to limit carbon emissions are being priced into some markets. There are now more than 2,100 signatories to the UN’s Principles for Responsible Investing (PRI), which commits asset owners and investment managers to more responsible investment practices. That represents US$81 trillion of assets.

Other strategies, for example investing only in best-in-class, sustainability-themed funds and financial instruments, and impact investing are more limited in size. Although they are the initiatives with possibly the strongest impact on sustainable development. The Global Impact Investing Network (GIIN) estimates the impact investment market a around US$228 billion or more, and it continues to grow. According to the Climate Bonds initiative, US$168.5 billion in green bonds were issued in 2018, and that’s expected to rise to more than US$250 billion this year.

Yet the impact of this growing interest is unclear, in part due to confusion regarding what sustainable investment really means, and a lack of consensus on how to measure it.

ESG integration can help investors better pick stocks and reduce portfolio risks, but there are questions about its impact on achieving sustainable development. Does it create  incentives for investee companies to change their business practices? How much weight is given compared to other factors? Some climate change-related risks may also take several years to materialize, so decision-making also depends on investors’ time horizons.

Questions remain as to whether asset managers are simply tagging existing activities or creating new streams of funds for financing sustainable development needs. Bundling these strategies together under “sustainable investment” could be misleading, and create the impression that capital markets are solving development issues on their own. And while growing, these investors remain a small fraction of global capital markets.

It does not seem that bond market investors are yet willing to pay a premium for a more sustainable products—green bonds do not appear to be priced differently from conventional bonds. Pricing reflects issuer credit risk, even though the proceeds are meant to be for more sustainable activities. The green bond market, while growing quickly, is less than one per cent of the total bond market.

There are other dynamics. A more uncertain world begets more short-term behaviour. Private businesses, many of whom already face a range of short-term incentives, often hesitate to commit funds to long-term investments. Key challenges remain in channeling investments to those countries that need it most. Achieving the SDGs is critically dependent on investments in least-developed countries and other vulnerable countries where capital markets are less developed and investment riskier.

The UN’s Financing for Sustainable Development report sees an opportunity to revisit national and international sustainable finance. And already there is a lot underway. At last week’s UN FfD Forum, the UN Secretary-General launched the Global Investors for Sustainable Development Alliance, a network of Chief Executives and asset managers focused on strategies to encourage long-term private investment in sustainable development. The International Finance Corporation (IFC) has launched new operating principles for impact management designed to establish a common discipline and market consensus on impact investment management. UNDP has set up SDG Impact which aims to develop standards for impact measurement across all asset classes, with a seal to authenticate standards adherence. This is combined with market intelligence to give investors the information to reach new markets. UNDP is also developing new financial products targeting those investors who have divested from tobacco and now seek positive re-investment opportunities, for example through our tobacco control social impact bond.

The IATF report points to important opportunities for policymakers to capitalize on the growing interest in sustainable investing. Governments can help create incentives for greater sustainable investing, including by pricing externalities and requiring corporations to have more meaningful disclosure on social and environmental issues. Continued international support to spur investment is also needed, for instance through carefully structured risk-sharing instruments, including through using Official Development Assistance and through a greater role for national development banks.

The direction is positive, yet much more impetus is needed.