In 1992,
Richard L. Sandor proposed a new course outlining emission markets at the
University of Chicago Booth School of Business, that would later be known as the course,
Environmental Finance. Sandor anticipated a social shift in perspectives on the effects of
global warming and wanted to be on the frontier of new research. Prior to this in 1990, Sandor had been involved with the passing of the
Clean Air Act Amendment for the Chicago Board of Trade, which aimed to reduce high
sulfur dioxide levels following WW2. Inspired by the theory of
social cost, Sandor focused on
cap-and-trade strategies such as
emission trading schemes and more flexible mechanisms including taxes and subsidies to manage
environmental crisis. The implementation of cap-and-trade mechanisms was a contributing factor to the success of the Clean Air Act Amendment. Following the Clean Air Act in 1990, the
United Nations Conference on Trade and Development approached the Chicago Board of Trade in 1991, to enquire about how the market-based instruments used to combat high atmospheric sulfur dioxide concentrations could be applied to the increasing levels of atmospheric carbon dioxide. Sandor created a framework consisting of four characteristics which could be used to describe the carbon market: • Standardisation • Unit Trading • Price Basis • Delivery In 1997 the
Kyoto Protocol was enacted and later enforced in 2005 by the
United Nations Framework Convention on Climate Change. Included nations agreed to focus on reducing global
greenhouse gas emissions through the market-based mechanism of emissions trading. Reductions averaged approximately 5% by 2012 which equates to almost 30% in reduction of total emissions. Some nations made significant progress under the Kyoto protocol, however as it only became law in 2005, nations such as the
United States and
China reported increased emissions, substantially offsetting progress made by other regions. In 1999, the
Dow Jones Sustainability Index was introduced to evaluate the ecological and social impact of stocks so shareholders could invest more sustainably. The index acts as an incentive for firms to improve their environmental footprint to attract more shareholders. Later in 2000, the United Nations introduced the
Millennium Development Goal scheme which sought to promote a sustainable framework for large multinational corporations and countries to follow to improve the environmental impact of financial investments. This framework facilitated the development of the United Nations Sustainable Development Goal scheme in 2015, which aimed to increase funding environmentally responsible investments in developing nations. Funding was targeted to improve areas such as primary education, gender equality, maternal health, and nutrition, with the overall goal of creating beneficial national relationships to decrease the
ecological footprint of
developing economies. Implementation of these frameworks has promoted greater participation and accountability of corporate
environmental sustainability, with over 230 of the largest global firms reporting their sustainability metrics to the
United Nations. Most recently, the UNEP has recommended
OECD nations to align investment strategies alongside the objectives of the
Paris Agreement, to improve long-term investments with significant ecological effects. Specifically, by 2050 it seeks to reduce carbon emissions by 80% compared to levels in 1980. The Act seeks to achieve this goal by reviewing carbon budgeting schemes such emission trading credits, every 5 years to continually reassess and recalibrate relevant policies. The cost of reaching the 2050 goal has been estimated at approximately 1.5% of
GDP, although the positive environmental impact of reducing carbon footprint and increased in investment into the
renewable energy sector will offset this cost. A further implicated cost in the pursuit of the Act is a predicted £100 increase in annual household energy costs, however this price increase is set to be outweighed by an improved energy efficiency which will decrease fuel costs. The 2010 cap and trade scheme introduced in the metropolitan regions of
Tokyo was mandatory for businesses heavily dependent on fuel and electricity, who accounted for almost 20% of total carbon emissions in the area. The scheme aimed to reduce emissions by 17% by the end of 2019. In 2011 the
Clean Energy Act was enacted by the
Australian Government. The act introduced the
Carbon Tax which aimed to reduce greenhouse gas emission by charging large firms for their carbon tonnage. The Clean Energy Act facilitated the transition to an
emissions trading scheme in 2014
. The scheme also aims to fulfill the Australian Government's obligations in respect to the Kyoto Protocol and the Climate Change Convention. Additionally, the Act seeks to reduce emissions in a manner that will foster economic growth through increased market competition and investment into renewable energy sources. The Republic of Korea's 2015
emission trading scheme aims to reduce carbon emissions by 37% by 2030. It strives to achieve this through allocating a quota of carbon emission to the largest carbon emitting businesses, resetting at the beginning of the schemes 3 separate phases. In 2017 the National Mitigation Plan was passed by the
Irish Government which aimed to regress climate change by decreasing emission levels through revised investment strategies and frameworks for power generation, agriculture, and transport The plan involves 106 separate guidelines for short and long term
climate change mitigation. The
European Union Emission Trading Scheme concluding at the end of 2020 is the longest single global carbon pricing scheme, which has been improved over its three 5-year phases. Current improvements include a centralised emission credit trading system, auctioning of credits, addressing a broader range of green house gasses and the introduction of a European-wide credit cap instead of national caps. The terminology of
sustainable finance has evolved over time alongside policy frameworks and market practices. A review study in 2026 demonstrated that early research primarily used fragmented concepts such as ethical finance, socially responsible investment, and
environmental finance, before the gradual consolidation of the field around ESG-based sustainable finance. Their periodization clarifies the differences and similarities between the rival terms (carbon finance, climate finance, environmental finance, green finance and sustainable finance). The authors distinguish three main periods: The first period spans from the 1970s to 2010. During this time, the theoretical foundations were established, and following the publication of the Brundtland Report, the first green financial instruments and the first targeted research emerged. The establishment of the Green Climate Fund (2010) was followed by the eras of carbon, environmental, and climate finance. Collectively, this constitutes the era of early sustainable finance research, which lasted until 2021, the year of COP26. This is followed by the era of mature research, characterized by green and sustainable finance. == Strategies ==