This is the sixth edition of the OECD Business and Finance Outlook, an annual publication that presents unique data and analysis on the trends, both positive and negative, that are shaping tomorrow’s world of business, finance and investment.

The funds flowing into sustainable investment have grown steadily in recent years, with over USD 30 trillion of assets worldwide incorporating some level environmental, social and governance (ESG) consideration. This growth has been spurred by shifts in demand from across the finance ecosystem, driven both by the pursuit of traditional financial value, and by the pursuit for non-financial, values-driven outcomes.

This edition of the OECD Business and Finance Outlook analyses current tools and practices with an emphasis on private finance and investment towards long-term value creation. It highlights the progress made to better incorporate ESG considerations in investment decisions, as well as challenges to effective implementation of ESG-based investment and finance strategies. It puts forward priorities and actions for market participants and policymakers to address such shortcomings, particularly around the urgent need for consistent, comparable, and verifiable ESG data.

ESG investing is attracting growing attention from investors and policy makers over its promise of utilising a range of non‑financial information to better align finance with long-term value and societal values. ESG practices, however, remain at an early stage of development, with challenges around consistency, comparability, and financial materiality. This chapter assesses current market developments, as well as the financial ecosystem and the key stakeholders shaping ESG practices related to disclosure, consistency of metrics, comparability of rating methodologies, and alignment with financial materiality. It scrutinises the performance of ESG approaches by exploring different ESG investment strategies of portfolios and investment funds, and their returns relative to traditional market benchmarks. The chapter concludes with a set of global recommendations to improve market confidence and integrity, so that sustainable finance can more effectively support resilient and inclusive economic growth.

Growing demand for environmental, social and governance (ESG) investing has been driven in part by investors seeking to enhance long‑term value, and align with environmental resilience. To this end, environmental (E) pillar scores and indices produced by rating providers and investment funds strive to integrate metrics aligned with environmental performance, climate risk mitigation, and strategies towards renewable energy. This chapter assesses the landscape of criteria and measurement within the E pillar of ESG investing, to understand if it is fit for purpose in its current form.

At the very heart of a sustainable and resilient economy is a dynamic business sector that is willing and able to assume risk. To finance and manage risk taking is therefore as old as the corporate form itself. As new types of risks emerge or become more salient, the company, its shareholders and society at large all have an interest that these risks are properly managed and disclosed so that scarce resources can be allocated in the most efficient manner. In recent years, this has brought increased attention to environmental, social and governance risks that may influence corporate and economy wide resilience. This chapter address the outlook with respect to evolving tools and corporate practices for managing ESG risks and the challenges that remain with respect to establishing a commonly accepted high quality framework for disclosure of comparable, consistent and verifiable data.

This chapter reviews the different approaches institutional investors have taken towards environmental, social and governance (ESG) investments, and describes the main methods and tools institutional investors use when integrating ESG factors into their investment decisions. It focuses on the challenges and opportunities specific to pension funds and insurance companies, in light of their fiduciary duty and the long-term prospect of their investments. It also discusses the impact institutional investors’ reliance on external ESG data and service providers has on how they approach their ESG investments, outlining issues pension funds and insurance companies need to address if this is the case. Finally, the chapter lists the main information and data points that institutional investors indicate as lacking or missing in order to conduct or rely on a robust ESG analysis. These insights can be of practical assistance to institutional investors looking to develop appropriate ESG governance structures and methods.

This chapter explains why strengthening ESG integration in corporate lending practices should be a key objective of sustainable finance initiatives and provides an overview of drivers for ESG in the commercial lending activities of banks. It examines the current practices of banks in integrating sustainability considerations into their corporate lending activities, the challenges they face in doing so and how policy makers can facilitate scaling up responsible lending practices.

State-owned enterprises (SOEs) account for a growing share of the global corporate landscape, and the trend is likely to continue. SOEs’ commitment to sustainable development matters because of their sheer size, because they tend to be located in high-impact sectors and because SOEs enable the state to set the “tone at the top” in the business sector. This chapter analyses national approaches to environmental, social and governance concerns in the state-owned sector. Overall, SOEs’ commitment to sustainability is higher than among other firms but the trend is far from uniform, with some sectors and geographic regions clearly lagging behind. The chapter further highlights some challenges arising from increasing state ownership, including a large state involvement in sectors that continue to rely on fossil fuels, and a generally higher risk of corruption and other irregular practices in SOEs than in other firms.

The quality and design of infrastructure play a key role in shaping how we live, what we do, and how we interact in almost every aspect of life. It determines economic structures and outcomes, social systems, personal well-being, and environmental impact, as well as development pathways. Policy makers are increasingly aware of the contribution environmental, social and governance (ESG) and broader sustainability factors make in ensuring quality infrastructure investment. As institutional investors gain exposure to infrastructure through their portfolio investments, there is increasing recognition that ESG factors are relevant for their infrastructure investments. However, there are challenges in implementation, due in part to the particularities of infrastructure markets. This chapter analyses the growing use of ESG criteria in institutional investment in infrastructure, including investor motivations and objectives, as well as ESG frameworks and tools and related implementation issues. It concludes by offering options for the way forward.