Advances in Sustainable Finance in Energy Sectors

1. Introduction

Climate initiatives are not only intensified by politicians and international organizations, but climate policy is also subject to changes resulting from various factors, the sources of which can be seen in socio-economic problems, incorrect investment decisions and the consequences of ESG risk. Climate policies, moving towards sustainability, will need to incentivize not only transformations towards social changes, and ESG risk reduction, but above all changes in the structural economy and approaches to energy sources. Events have demonstrated that, in many cases, political goals can go hand in hand with climate change mitigation and ensure the implementation of SDG goals, as demonstrated by the actions of European Union countries. Contributing to efforts for aligning climate policy with a strong emphasis on changes towards the functioning of energy sectors, broader sustainable development goals, specifically those related to environmental protection, economic transformation towards sustainability, and energy transformation requires active programs and sources of funding. These measures should be aimed at energy efficiency, green energy, financial development, and ‘green’ investment.

The key problems of the modern world include the following: (a) the degradation of the natural environment caused by the use of energy resources, their exploitation, and the resulting waste; (b) changes related to the transition to renewable energy sources and the attitude of society towards them (from protests, to uncertainty, and the lack of clear research on their harmfulness to human health and species of animals); (c) and the process of entering a circular economy using renewable energy sources.

Scientists are continuously looking for new solutions (methods, instruments, efficiency) for how to finance this transformation in such a way as to ensure the implementation of the SDG goals, but also to strengthen sustainability while eliminating risk, including ESG risk. The energy sector needs not only adequate solutions towards transformation, but given the challenges of green (blue) financing and investment in renewable energy projects, it is necessary to provide practical solutions for filling the gap.

The aim of this article is to provide an overview of the latest results of research and good practices in shaping progress in financing changes (whether they are managerial or transformational, involve instruments, or changing the face and actions of a process) in energy sectors which were submitted to the Special Issue “Sustainable Finance in Energy Sectors”.

The articles gathered in the Special Issue are useful for researchers, financial institutions (to change and adapt their business models and products supporting energy transformation), public authorities (to more effectively shape the tools and instruments of change towards sustainability), and students who deal with renewable energy, and their activities support the reduction of greenhouse gasses and the implementation of SDG goals, especially in the areas of energy and green–blue transformation.

The Special Issue “Sustainable Finance in Energy Sectors” is focused on how the concepts, instruments, and tools of sustainable finance have been utilized in various contexts to enable a transition to sustainable energy systems, with an emphasis on the efficiency, adequate financial instruments and tools, and higher efficiency of sustainable energy sectors.

2. Review of New Advances and Challenges

Advances in sustainable finance in energy sectors should be considered as the creative impacts of financial systems (instruments, markets, institutions, but also solutions) on energy transformation and the transition towards more sustainable energy solutions. Research in this area shows the following trends that should be studied further:

• Determining the economic and financial factors that affect the transformation and investment decisions of energy sector entities;
• Changes in the scope of instruments offered to study financial markets, and changes in the attitudes of financial institutions toward being more responsible;
• Problems relating to risk, its mitigation, and attitudes towards non-financial risk;
• The importance and influence of financial factors that increase the functioning efficiency of entities from energy sectors;
• Good practices in the field of sustainable finance, allowing for changes in energy sector entities and in financial systems, allowing for the mitigation of climate change.

The answer to climate change and the accompanying climate risk is energy transformation, which must be based on sustainable finance. Studies show that the degree of advancement of activities in this area varies significantly between countries, which is the result of different factors stemming from the differences between individual countries [1]. In addition to analyzing the implementation of economic efficiency goals, contemporary research requires determining the trends of changes in the use of renewable energy sources in EU countries, but also in regions around the world. Empirical studies conducted by Contributor 1, indicate that Scandinavian countries and the countries of Western Europe were recognized as having the highest stability in terms of their use of renewable energy sources over time. It was also found that an unfavorable situation was observed mainly in the countries of Southern Europe.

Important instruments creating changes in the development of sustainable finance in energy sectors include taxes and the system of environmental taxes. In various countries, especially EU countries, this system is changing shape and adapting to the challenges related to the needs of sustainability, and especially to those of energy sectors. Taxes are considered to be important instruments in the implementation of energy and climate policies, and their effects should be identified. Contributor 2 stated that current research indicates that in the EU Member States, there is a slight downward trend in the share of environmental tax revenue in GDP, and in the share of environmental tax revenue in total tax revenue. It has also been found that the share of energy tax revenue in the total environmental tax revenue shows a slight upward trend. Expected advances should be made and targeted research should be conducted to determine the trends shaping the impact of environmental taxes (their significance) on changes in energy sectors, especially regarding energy transformation. It is also necessary to conduct research and determine answers to the following questions: to what extent are public areas of revenue from individual environmental taxes related to the non-fiscal functions assigned to them, to what extent is the derivative of the limitation of factors with a negative impact on the environment affected by individual countries, and to what extent are these determined by the construction of specific environmental taxes? It would also be particularly important to study the effectiveness of environmental taxes in contributing to the achievement of SDG goals and climate-energy goals.

To develop energy sectors towards sustainability, the suitability of the proposal and the development of the market of instruments that allow for the financing of the transformation are important. Therefore, the discussion of sustainability-linked bonds (SLBs), as a new type of general corporate purpose bond in which payments are tied to an issuer’s sustainability key performance indicators (KPIs) with respect to the environmental, social, and governance (ESG) criteria, is very important [2]. Contributor 3 stated that, for advances in sustainable finance in energy sectors, it is important that is the determination made by the yield differential between comparable SLBs and non-ESG bonds of the same issuer is less than 0, which may contribute to reducing borrowing costs in comparison to standard debt. Moreover, an important finding indicates that an instance of coupon step-up does not transform the yield difference from negative into positive, which is crucial to pursuit of material changes in carbon footprints.

The effectiveness of the green bonds arranged in emerging economies for financing renewable energy assets and how the underlying risks are managed constitutes an important area to be explored. The work of Contribution 4 presented the evolving green financial system sponsored by both public and private institutions for managing risks within emerging economies (including those in energy sectors). They found that financial stakeholders’ risk in emerging sustainable investment is moderated by these participating institutions and structured “upsides” from carbon trading that are aligned with the framework of green finance and the standards for green bond development. Moreover, research results reveal the potential of scaling-up the development of renewable energy by adequately managing and sharing key risks, while allocating substantial funding into renewable energy projects under such a green financial system. This research should inspire other researchers to test the relationships demonstrated by Contribution 4 in selected countries or regions.

The area of risk is currently taking on a new meaning (as indicated above), especially regarding non-financial risk. Non-financial risk is of particular importance for climate change in the area of energy. The research detailed in Contributor 5, has the potential to contribute to the debate on climate risk and financial stability. This study establishes a new research direction and allows future studies to define advances in understanding by whether and how transition risks are reflected in credit-risk measures, which is as a matter of considerable importance to companies (especially in energy sectors), banks (as institutions financing energy transformations), investors (as entities directly involved in energy sectors), and regulators.

In addition to the development of the market for instruments and the offer of green and blue financing for entities in the energy sector, the responsible involvement of commercial banks in financing the energy sector is important. Contributor 6 stated that it is necessary to determine whether an increase in financing green investments with bank loans in the energy market in different countries and on different continents strengthens the synergy of the responsible financing of the sustainable development of the economy. Therefore, research results indicate that commercial banks are increasing their commitment to sustainable financing, which is observed in the sectorally progressing process of “greening” the credit offer. The changes taking place imply that banks’ approaches to social responsibility are changing, especially in the context of the energy market, where the financing of traditional, ecologically harmful projects is still dominant. Future research is also required to determine whether the “greening” of loan portfolios in the native banking sector is adequate for a responsible lending policy based on various complex business decisions toward sustainability.

For the functioning and implementation of the goals for ensuring climate neutrality, in line with the idea of sustainability in energy sector enterprises, it is necessary to identify firm, industry- and country-specific determinants of working capital management (WCM) in the energy industry. Studies conducted by Contributor 7 consider the following findings to be important: (1) the growth of the GDP and the strength of legal rights had a negative influence on all measures of WCM; (2) unemployment positively affected LIQ and WC and negatively affected CCC; and (3) an increase in the share of renewable energy sources caused a decrease in all WCM measures, while, (4) with an increase in energy consumption, CCC and WC increased. Advances are expected in determining factors influencing the quality of working capital management due to the growing risk of the loss of liquidity and the ability to finance the cash conversion cycle. Research on this relationship conducted in many companies in different countries may contribute to new findings that are important for sustainable finance in the energy sector.

Currently, after a period of focus on the role of the energy supply, and after the initial interest in the problems of monitoring [3], energy efficiency [4] and compliance with standards [5], scientists’ attention is focused on the importance of the energy supply to housing. This trend constantly increased significantly, as confirmed by Contributor 8. The study of advances in the field of the expanding role of managing the growing needs of the population and the economy with the necessary energy resources based on the development of modern energy complexes and alternative energy sources within the framework of the risk management function is particularly noteworthy. In different countries and parts of the world, this problem requires not only preliminary research, but also the determination of factors specific to a certain region or country, limitations, and transformational actions. It is necessary to consider the sustainable energy supply in the country based on the analysis and assessment of energy consumption volumes and the impact of the countries’ regional and sectoral policies on their use. It is expected that research focusing on countries in Europe and Central Asia will be supplemented in order to optimize, on the one hand, global demand and, on the other hand, to focus on the implementation of energy SDG goals and energy transformation at the level of the energy supply to the current stock of housing in those areas. An important finding and contribution to the development of this discussion resulted from the study by Contributor 8, on the impact of sustainable energy on society and environmental quality, which showed that there is a close relationship between the indicators of economic development and those of the volumes of energy resources, which indicates a significant role of the energy industry in the development of the economy and the improvement of the welfare of a country.

Changes in the energy sectors require, in addition to management efficiency, achieving appropriate results from operating activities. The competitiveness of energy sector companies requires examining the factors that determine the profitability of non-listed energy firms, because listed companies are under greater monitoring. These factors may vary between countries and regions. The research conducted by Contribution 9, supports the inversed relationship of debt in total and long-term debt, which is consistent with the assumptions of the pecking order theory. Additionally, for short-term debt, the findings of the trade-off theory of capital structure were confirmed and a direct relationship was demonstrated. An important direction of research seems to be to confirm whether the demonstrated relationships also occur in other countries. Undoubtedly, the findings contribute to the existing debate on the interplay between financial leverage and profitability by providing evidence for a large panel of non-listed firms from a single sector-oriented perspective, in this case, the energy sector.

In-depth research on identifying the main determinants of the capital structure of energy industry companies in the European Union was conducted in Contribution 10. They presented strong evidence for a positive relationship between corporate debt, tangibility, and size, and a negative relationship for profitability and liquidity. Moreover, they demonstrated the negative relationship between GDP growth, the level of stakeholder rights protection, the degree of capital market development, and indebtedness of the companies of the energy sector.

Considering the fact that renewable energy development is a growing trend worldwide and a response to climate change [1], important factors that need to be investigated are the policies regarding feed-in tariffs and subsidies. An important direction of research in the energy sectors is the relationship between the development of feed-in tariffs, subsidies, and equity internal rate of return (IRR). Studies conducted in Taiwan, conducted by Contributor 11, show that the projected subsidy scheme favors investment in small-sized PV systems. Unless the investment costs of medium-sized PV systems fall or subsidies rise over the next decade, investing in medium-sized PV systems will be less attractive. These findings are important for energy transformation worldwide and should be continued in other countries and regions.

The implementation of the SDG climate goals requires a reduction in CO₂ emissions. Studies have shown that there is huge evidence for a relationship between economic growth and environmental degradation [6,7]. Changes in the approach to sustainable finance in energy sectors are expected to establish the relationship between CO₂ emissions and measures of wealth in different countries and regions. Since the scientists [5] indicate that the results of their research are not conclusive and there is no one model that best describes the relationship between CO₂ emissions and economic growth, it is necessary to continue searching for an answer, but taking technological changes and an increase in human awareness of global sustainability into account is required. However, it is clear from the studies presented by Contributor 12 that the key factors affecting CO₂ emissions are energy consumption per capita, which leads to an increase in CO₂ emissions, and renewable energy consumption, which reduces CO₂ emissions.

Research on electromobility is an important aspect of the response to climate change and the strategy for reducing CO₂. The discussion of changes in technology for land transport is an important element of the concept of sustainable economic development. Contribution 13 showed that for the development of the industry and the economy, it is important to understand the economic factors influencing the future purchasing decisions of vehicles powered by hydrogen fuel cells.

3. Conclusions

The articles contributing to the Special Issue “Sustainable Finance in Energy Sectors” demonstrate the progress in using various financial instruments for transforming energy sectors. Changes in these financing instruments imply changes in the relationships between financial markets, financial institutions (such as banks), and energy sector entities. The research confirms the formation of positive relationships, but it is necessary to conduct in-depth studies in order to strengthen the trends identified in empirical research thus far and to build strong strategies and business models in practice. The Special Issue initiates research that should be conducted in further depth and developed to ensure not only the development of the energy sector based on adequate sources of financing and properly mitigated risks, but also its sustainability with acceptable financial results.

It is important (as confirmed by the findings of the research presented in the SI) to analyze the impact of financial factors (e.g., capital structure, profitability, debt) on the transformation and investment decisions of energy sector entities. This is an essential trend in shaping empirical research in terms of the countries and regions of the world.

Readers of the Special Issue “Sustainable Finance in Energy Sectors” can find a description of various phenomena of the economic transformation of energy sectors, and each of the articles also contains indications that allow for solving economic problems and shaping the energy sector to be more sustainable and responsible. The collected articles contribute to a better understanding of some phenomena and the interpretation of the data and the presented cases will be an inspiration for creating economic and financial solutions for further transformations of energy sectors.

The valuable and substantive content of the articles confirms the belief in how important sustainable finances are in the transformation of energy sectors. Thanks to financial solutions, the act of monitoring financial effects, and sustainable investments, we can discuss and measure effective changes in energy sectors, and build adequate strategies for the future. The presented results and findings can complement the knowledge and practical information already available to readers, and inspire further research.