This growth has meant good business for financial intermediaries. Banks are now making more money from green bond sales than they are helping fossil fuel companies raise debt ($3.4bn vs $3.3bn) and asset managers have seen their revenues from sustainable funds increase by two-thirds between 2020 and 2021.

It has also come with increased concerns over greenwashing. Earlier this month, Morningstar had to remove the ESG labels on more than 1,200 funds representing a collective $1trn of assetsbecause of false ESG claims. Similarly, some two $2trn of assets were removed from the assets under ESG strategies following the introduction of the EU’s Sustainable Finance Disclosure rules.

Governments are stepping in. The US, which is now the largest market for sustainable funds and is currently looking into climate-related financial disclosure rules, set up an enforcement taskforce to look into ESG-related misconduct last year. The EU Securities and Market Authority, which announced its sustainable finance roadmap last week, will make tackling greenwashing its number one priority.

Overall, there are now more than 750 policies and tools associated with responsible investments. While some like the G7’s support to mandatory climate-related financial disclosures or the EU’s internationally famous Sustainable Finance Action Plan have taken the limelight, the momentum is truly global, and it is rapidly increasing (more policies were announced in 2021 than in 2020, which was already a record year).

These efforts to standardize and improve ESG practices are both welcome and needed. They will also inevitably transform ESG into a compliance exercise – a sign of market maturation but one that should not distract from the real objective, namely mobilizing capital towards the transition.

So far, this has not gone as well as hoped, in part because most of the focus of ESG ratings has been on the impact of sustainability issues on a company’s bottom line (single materiality) rather than also exploring what a company can do to achieve sustainability-related objectives (double materiality). The world remains divided on this issue, with the US and the newly established International Sustainability Standards Board erring on the side of single materiality, while the EU’s corporate disclosure rules favor the double materiality approach.

The surge in net-zero commitments – and the need to deliver those by 2050 at the latest – might help change the focus. It is now clear, for example, that while divesting assets can reduce the carbon content and risk profile of an investors’ portfolio, it does little to change the sustainability profile of a company or of the economy. After all, the reason Engine No1 was able to put three directors on Exxon’s board was not that they divested, but that they mobilized a shareholder campaign.

Investors looking to play their part in the transition will thus need to choose a portfolio decarbonization pathway that affects a change in the real world rather than just shift risk exposure. Part of that will be about supporting the transition effort of carbon intensive companies – and holding them to account when their efforts do not align with the Paris Agreement. But it will also be about helping to scale up the new economic models that can help us achieve a sustainable economy.

How the market fares in the current financial picture remains to be seen. Concerns over inflation and the associated corrections from central banks have sent ESG stocks tumbling at the very same time that oil and gas majors are posting record profits. This is new, uncharted territory for the ESG market. But the long-term picture is a positive one, with clean energy stocks outperforming their fossil counterparts over both a 5- and 10-year-time horizon, according to recent joint analysis by the International Energy Agency and Imperial College. Sustainable finance has shown it can deliver returns. It’s time to make it deliver for the planet.

Sustainable Finance: A Coming of Age for ESG