From Labels to Legitimacy

Green finance has grown very fast as an important tool to mobilize capital in favor of sustainable development, but the issues of trust, credibility, and legitimacy inform a growing budget of concerns on its performance. This chapter focuses on the shift towards the symbolic green label to substantively legitimate green investment practices with emphasis on the role of the taxonomies, governance and verification. By relying on the signaling theory and institutional legitimacy, it describes how trust is developed in terms of steady definitions, disclosures that are openly made and accountability. The chapter with the help of recent case-based insights proves that fragmented standards and ineffective governance destroy the confidence of the investors, whereas the alignment of the frameworks and credible verification reinforce market integrity. The analysis underscores the fact that transitioning away of compliance-based approaches to outcome-based governance is the way forward as far as scaling green capital and guaranteeing material environmental and social impact.

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