Clement Ong

1. Introduction: A Holistic View of the Financial Ecosystem

Sustainable Finance for Returns and Impact (2026) by Matthew Dearth and James Cheo offers a comprehensive analysis of the transition toward a more sustainable global financial system. The authors contend that addressing sustainability challenges requires a holistic perspective, beginning with an understanding of the incentives and motivations of three primary stakeholders: companies, investors, and governments. The central thesis posits that finance and investing are the main drivers of systems change, shifting the focus from individual actions to structural capital reallocation. Dearth and Cheo present sustainable finance as analogous to a liberal arts education in finance, prioritising critical thinking over complex mathematical modelling to examine how behaviour must evolve across the corporate and investment landscape.

2. Theoretical Lineage and the Role of John Elkington

The book recognises John Elkington’s foundational contribution to the field, particularly his introduction of the Triple Bottom Line (TBL) in the 1990s, which challenged prevailing business practices. By establishing the pillars of people, planet, and profits, Elkington created a framework that holds companies accountable for their broader societal and environmental impacts. Building on this foundation, the authors examine the tension between traditional Shareholder Value Maximisation (SVM), as articulated by Milton Friedman, and emerging models such as Shareholder Welfare Maximisation (SWM). While Friedman maintained that a company’s sole purpose is profit maximisation, Dearth and Cheo argue that prosocial investors are increasingly leveraging their voting rights to advance the common good alongside financial returns.

3. The Pillars of Risk: Environmental, Social, and Governance

The book’s first section outlines the systemic challenges confronting the modern world across the three ESG (Environmental, Social, and Governance) dimensions. The authors employ the Planetary Boundaries framework to underscore environmental urgency, highlighting that by 2023, two-thirds of safe limits for human impact on natural processes had been exceeded. Social issues are characterised as both challenges and opportunities for for-profit enterprises to address deficiencies in social infrastructure, rather than as acts of charity. Governance is discussed in terms of accountability and transparency, emphasising the necessity of effective Board oversight to balance the interests of diverse stakeholders. The authors stress that while these challenges are longstanding, they have acquired heightened significance in what is described as the Age of Sustainability.

4. Corporate Sustainability and the Measurement Gap

Dearth and Cheo assert that measurement forms the informational foundation of all sustainable finance activities. They trace the development of sustainability measurement to environmental disasters such as the Exxon Valdez spill, which prompted the establishment of the Global Reporting Initiative (GRI) in 1997. The section emphasises the shift from voluntary reporting to standardised disclosure. The authors analyse the role of the International Sustainability Standards Board (ISSB) in consolidating previous standards, including SASB, CDSB, and TCFD. This consolidation is intended to reduce information asymmetry and to ensure that sustainability data attains the same financial relevance and objective verifiability as traditional financial accounting.

5. Detailed Analysis of EU Disclosure Regulation: CSRD and CSDDD

The book offers an in-depth analysis of the European Union’s proactive regulatory initiatives, described as the most ambitious coordinated efforts worldwide. The authors review the Corporate Sustainability Reporting Directive (CSRD), which supersedes the Non-Financial Reporting Directive (NFRD). Whereas the NFRD applied to approximately 11,000 companies, the CSRD extends its reach to about 50,000 companies, mandating the disclosure of specific sustainability performance data in accordance with the European Sustainability Reporting Standards (ESRS). A key feature of the CSRD is the double materiality assessment, which obliges companies to report on both their financial risks and their external impacts on society and the environment.

The Corporate Sustainability Due Diligence Directive (CSDDD) complements these reporting requirements. In contrast to the CSRD’s focus on disclosure, the CSDDD establishes specific conduct obligations for large firms with more than 1,000 employees and net turnover exceeding €450 million. It requires companies to undertake due diligence to identify, prevent, and mitigate adverse human rights and environmental impacts throughout their value chains. The authors also address the Omnibus 2025 package, which constitutes a significant regulatory response aimed at reducing administrative burdens. Proposed amendments include relaxing CSRD thresholds to match CSDDD criteria, potentially removing up to 80 per cent of companies from the directive’s scope, and restricting CSDDD due diligence primarily to direct (Tier 1) relationships.

6. Sustainable and Impact Investing Strategies

The book’s shift to the investor perspective examines how ESG data serves as the foundation for investment decision-making. The authors differentiate among various investment strategies, such as ESG integration, negative screening, and thematic investing. A dedicated chapter addresses Impact Investing, defined by its emphasis on additionality, meaning that the positive social or environmental impact would not have occurred without the investor’s involvement. The authors observe that, whereas traditional sustainable investing integrates ESG considerations into financial analysis, impact investing frequently prioritises social or environmental transformation as the primary investment objective.

7. Conclusion: The Pathway to Integrated Reporting