Moral sentiments and sustainable finance: A proposal for new market segmentation

This article revisits Smith's account of self-interest to critically explore challenges and debates surrounding sustainable finance in contemporary organizational and institutional settings. Adam Smith derives his notion of ‘self-interest’ as concerned with both ‘self-love’ (care for oneself) and ‘sympathy’ (care for others); elements that are increasingly siloed in contemporary business settings. Drawing inspiration from An Inquiry into the Nature and Causes of the Wealth of Nations (WoN) and the insightful wisdom of The Theory of Moral Sentiments (TMS), this article aims to underscore how Smith's pivotal concepts, including sympathy, the impartial spectator, and justice, provide a strategic compass for characterizing demand within retail finance markets. More specifically, it argues for the potential for both demand and supply side considerations in sustainable finance to contemplate a more plural concept of self-interest. At the same time, it recognizes that currently available ESG (environmental, social, and governance) products are largely driven by ‘self-love,’ and as such, the ‘sympathy’ of investors is ignored, manipulated, or misplaced. To move beyond this socio-financial dilemma, we propose to segment sustainable finance into the ESG market and the SSI (social and sustainable investment) market, with the latter specifically addressing the demands for ‘sympathy.’ In this context, future work could explore and highlight the role of regulators in ensuring a Smithian self-interest in sustainable finance.