The Patagonia Vest Parable
Over the last decade, the relationship between finance and sustainability has gone from oil and water to something more complicated. One is fluent in Excel shortcuts and is devoted to ROI, while the other thinks about long-term impact and circular economy frameworks. Somewhere in between the two sits the modern finance bro: Patagonia-vested and expected to embed purpose into their profits. Whether it’s strategy or genuine concern, firms have begun considering social and environmental factors in the decision-making process. But is there a world where financial return and social impact seamlessly coexist? Or is the vest just for show?
Finance’s 13th Commandment: Maximise Shareholder Value
From discounted cash flow models to shareholder primacy, traditional theory often prioritises quarterly results over long-term externalities. The principle of shareholder primacy holds that the primary objective of a firm is to maximise returns for its shareholders. Metrics such as return on equity, internal rate of return, and earnings per share became the north stars of capital allocation and strategic decision-making.
Sustainability, meanwhile, was long relegated to the CSR department. Climate risk, labour rights, and governance failures were considered immaterial, if not irrelevant, in conventional financial models. Yet, as climate risks, supply chain instability, and shifting consumer expectations become more financially material, these two disciplines are being forced into the same room. Cue the rise of ESG.
The Book of ESG
Simply put, ESG is the set of principles in charge of evaluating and managing a company's impact on society and the environment. ESG frameworks emerged in 2004, officially dubbed by the UN Global Compact, as a way to reconcile profit-seeking behaviours with the pressing challenges of climate risk, social inequality and poor governance. Admittedly, this sounds like a dream – a way to quantify social responsibility and optimise virtue. In reality, this is exactly where things get murky. At its core, ESG’s premise is sound. It’s a clean way to account for non-financial risks that can eventually erode reputation, raise costs and cause crisis. This belief has been echoed by capital flows worldwide, with over $35 trillion USD in assets being managed under ESG principles, forming roughly a third of all professionally managed assets.
The seemingly perfect promise of ESG, however, hasn’t gone unquestioned. When it comes to quantifying ESG scores, the same firm could receive a “C” from MSCI and an “A” from Sustainalytics, varying greatly in methodology. It’s become a structural issue in the industry, making benchmarking inconsistent and not without fears of manipulation. This is where greenwashing comes in, when a company cares more about sustainability optics rather than reducing their emissions. As recently as 2022, several market-leading ESG-labelled funds, run by industry giants like BlackRock and DWS, were exposed for holding positions in fossil fuels, weapons manufacturers and tobacco.
But on a broader level, do ESG benchmarks create meaningful, real-world impact? Brilliant ESG scores can definitely indicate strong risk protocols and disclosure practices, but most certainly doesn’t guarantee entirely ethical labour or lower emissions. As such, some critics aptly maintain ESG has become a reputation management playbook rather than a transformational tool.
The New Testament: Sustainable Finance
Introducing sustainable finance, a more deliberate evolution of ESG and the very mechanics of markets that aim to prioritise ethical practice. While ESG often operates at a surface level, sustainable finance seeks to go deeper — to structure capital, risk and return in a way that rewards long-term sustainability. However, this shift of incentives is not about rewarding sustainability for sustainability’s sake, it’s about building financial frameworks that are simply smarter in the long run. This has led to several developments that have already begun reshaping the world of finance.
Green and Sustainability-Linked Bonds
Amongst the most visible tools in the sector are sustainability-linked bonds and green bonds, debt instruments that ensure capital is tied directly to environmental outcomes. Issuance has grown exponentially over the last decade, exceeding USD 1 billion in 2023, to finance solar energy, wind farms and other initiatives. Sustainability-linked bonds go a step further than green bonds, including financial penalties for issuers who fail to meet predefined KPIs. This aims to enforce accountability in a major way, impacting capital costs for failure to stick to sustainable promises. For instance, an Italian energy firm called Enel issued a $1.5 billion bond in 2019 that linked interest payments to their ongoing expansion of renewable energy capacity. When missed targets meant higher coupons were paid, sustainability became a contractual obligation instead of a convenient externality.
Outcome-Based Financing and Social Bonds
Beyond environmental outcomes, sustainable finance is also a social endeavour. Like green bonds, social bonds fund projects that address the world’s most pressing social needs. From accessible education to affordable housing, social bond issuance surpassed $400 billion USD in 2022. This model is a greater representation of public benefit becoming investable, where social change is no longer limited to philanthropy but becomes a results-driven financial strategy. Furthermore, outcome-based financing has bloomed with Social Impact Bonds. Most commonly, governments and non-profit organisations will partner with private investors who provide capital upfront for social interventions like early childhood education improvement. Once again, private capital is aligned with public benefit through performance-driven targets. Together, outcome-based financing and social bonds demonstrate the capacity for change beyond climate issues, addressing deeply rooted social issues through market mechanisms.
Impact Investing
Finally, impact investing offers the most active approach through targeted investment into businesses that generate both financial return and positive societal outcomes. Whilst ESG investing often filters companies through the lens of aforementioned scoring frameworks, impact investing directs capital proactively toward tangible solutions. The industry is predominantly led by funds that invest in a plethora of areas like education access, equitable healthcare and food security. Contrary to the belief that sacrificing returns is a major drawback to impact investing, financial returns have become increasingly competitive, even superior. In 2025, Oxford University’s Saïd Business School conducted a study on impact investments in listed equities and found that impact portfolios could achieve annualised alphas exceeding 9%. Hence, the right high-impact investments have markedly shown the ability to outperform traditional benchmarks. The Global Impact Investing Network (GIIN) echoed this sentiment, finding that 75% of impact investors actually achieved returns that met or exceeded their expectations, once again demonstrating that impact and financial performance are not mutually exclusive.
Our Parable
It should be clear by now that a single Patagonia vest won’t save the world. Building a sustainable future in finance must be structural, strategic and, at times, uncomfortable. Social inequality creates market instability and governance failures move markets. The concept of societal benefit being a trade-off with financial performance is becoming outdated. Sustainable finance isn’t a trend; it’s a transformation in progress. Whether it succeeds depends largely on how we reevaluate our views on the interplay between capital and conscience. So, by all means, wear the vest but make sure what’s underneath it holds up.
Over the last decade, the relationship between finance and sustainability has gone from oil and water to something more complicated. One is fluent in Excel shortcuts and is devoted to ROI, while the other thinks about long-term impact and circular economy frameworks. Somewhere in between the two sits the modern finance bro: Patagonia-vested and expected to embed purpose into their profits. Whether it’s strategy or genuine concern, firms have begun considering social and environmental factors in the decision-making process. But is there a world where financial return and social impact seamlessly coexist? Or is the vest just for show?
Finance’s 13th Commandment: Maximise Shareholder Value
From discounted cash flow models to shareholder primacy, traditional theory often prioritises quarterly results over long-term externalities. The principle of shareholder primacy holds that the primary objective of a firm is to maximise returns for its shareholders. Metrics such as return on equity, internal rate of return, and earnings per share became the north stars of capital allocation and strategic decision-making.
Sustainability, meanwhile, was long relegated to the CSR department. Climate risk, labour rights, and governance failures were considered immaterial, if not irrelevant, in conventional financial models. Yet, as climate risks, supply chain instability, and shifting consumer expectations become more financially material, these two disciplines are being forced into the same room. Cue the rise of ESG.
The Book of ESG
Simply put, ESG is the set of principles in charge of evaluating and managing a company's impact on society and the environment. ESG frameworks emerged in 2004, officially dubbed by the UN Global Compact, as a way to reconcile profit-seeking behaviours with the pressing challenges of climate risk, social inequality and poor governance. Admittedly, this sounds like a dream – a way to quantify social responsibility and optimise virtue. In reality, this is exactly where things get murky. At its core, ESG’s premise is sound. It’s a clean way to account for non-financial risks that can eventually erode reputation, raise costs and cause crisis. This belief has been echoed by capital flows worldwide, with over $35 trillion USD in assets being managed under ESG principles, forming roughly a third of all professionally managed assets.
The seemingly perfect promise of ESG, however, hasn’t gone unquestioned. When it comes to quantifying ESG scores, the same firm could receive a “C” from MSCI and an “A” from Sustainalytics, varying greatly in methodology. It’s become a structural issue in the industry, making benchmarking inconsistent and not without fears of manipulation. This is where greenwashing comes in, when a company cares more about sustainability optics rather than reducing their emissions. As recently as 2022, several market-leading ESG-labelled funds, run by industry giants like BlackRock and DWS, were exposed for holding positions in fossil fuels, weapons manufacturers and tobacco.
But on a broader level, do ESG benchmarks create meaningful, real-world impact? Brilliant ESG scores can definitely indicate strong risk protocols and disclosure practices, but most certainly doesn’t guarantee entirely ethical labour or lower emissions. As such, some critics aptly maintain ESG has become a reputation management playbook rather than a transformational tool.
The New Testament: Sustainable Finance
Introducing sustainable finance, a more deliberate evolution of ESG and the very mechanics of markets that aim to prioritise ethical practice. While ESG often operates at a surface level, sustainable finance seeks to go deeper — to structure capital, risk and return in a way that rewards long-term sustainability. However, this shift of incentives is not about rewarding sustainability for sustainability’s sake, it’s about building financial frameworks that are simply smarter in the long run. This has led to several developments that have already begun reshaping the world of finance.
Green and Sustainability-Linked Bonds
Amongst the most visible tools in the sector are sustainability-linked bonds and green bonds, debt instruments that ensure capital is tied directly to environmental outcomes. Issuance has grown exponentially over the last decade, exceeding USD 1 billion in 2023, to finance solar energy, wind farms and other initiatives. Sustainability-linked bonds go a step further than green bonds, including financial penalties for issuers who fail to meet predefined KPIs. This aims to enforce accountability in a major way, impacting capital costs for failure to stick to sustainable promises. For instance, an Italian energy firm called Enel issued a $1.5 billion bond in 2019 that linked interest payments to their ongoing expansion of renewable energy capacity. When missed targets meant higher coupons were paid, sustainability became a contractual obligation instead of a convenient externality.
Outcome-Based Financing and Social Bonds
Beyond environmental outcomes, sustainable finance is also a social endeavour. Like green bonds, social bonds fund projects that address the world’s most pressing social needs. From accessible education to affordable housing, social bond issuance surpassed $400 billion USD in 2022. This model is a greater representation of public benefit becoming investable, where social change is no longer limited to philanthropy but becomes a results-driven financial strategy. Furthermore, outcome-based financing has bloomed with Social Impact Bonds. Most commonly, governments and non-profit organisations will partner with private investors who provide capital upfront for social interventions like early childhood education improvement. Once again, private capital is aligned with public benefit through performance-driven targets. Together, outcome-based financing and social bonds demonstrate the capacity for change beyond climate issues, addressing deeply rooted social issues through market mechanisms.
Impact Investing
Finally, impact investing offers the most active approach through targeted investment into businesses that generate both financial return and positive societal outcomes. Whilst ESG investing often filters companies through the lens of aforementioned scoring frameworks, impact investing directs capital proactively toward tangible solutions. The industry is predominantly led by funds that invest in a plethora of areas like education access, equitable healthcare and food security. Contrary to the belief that sacrificing returns is a major drawback to impact investing, financial returns have become increasingly competitive, even superior. In 2025, Oxford University’s Saïd Business School conducted a study on impact investments in listed equities and found that impact portfolios could achieve annualised alphas exceeding 9%. Hence, the right high-impact investments have markedly shown the ability to outperform traditional benchmarks. The Global Impact Investing Network (GIIN) echoed this sentiment, finding that 75% of impact investors actually achieved returns that met or exceeded their expectations, once again demonstrating that impact and financial performance are not mutually exclusive.
Our Parable
It should be clear by now that a single Patagonia vest won’t save the world. Building a sustainable future in finance must be structural, strategic and, at times, uncomfortable. Social inequality creates market instability and governance failures move markets. The concept of societal benefit being a trade-off with financial performance is becoming outdated. Sustainable finance isn’t a trend; it’s a transformation in progress. Whether it succeeds depends largely on how we reevaluate our views on the interplay between capital and conscience. So, by all means, wear the vest but make sure what’s underneath it holds up.
