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PALGRAVE STUDIES IN IMPACT FINANCE

Contemporary Issues
in Sustainable Finance
Creating an Efficient Market through
Innovative Policies and Instruments
Edited by
Mario La Torre · Helen Chiappini
Palgrave Studies in Impact Finance

Series Editor
Mario La Torre
Sapienza University of Rome
Rome, Italy
ThePalgrave Studies in Impact Finance series provides a valuable scientific
‘hub’ for researchers, professionals and policy makers involved in Impact
finance and related topics. It includes studies in the social, political,
environmental and ethical impact of finance, exploring all aspects of
impact finance and socially responsible investment, including policy issues,
financial instruments, markets and clients, standards, regulations and
financial management, with a particular focus on impact investments and
microfinance.
Titles feature the most recent empirical analysis with a theoretical
approach, including up to date and innovative studies that cover issues
which impact finance and society globally.

More information about this series at

http://www.palgrave.com/gp/series/14621
 Mario La Torre • Helen Chiappini
Editors

Contemporary Issues
in Sustainable Finance
Creating an Efficient Market through Innovative
Policies and Instruments
Editors
Mario La Torre Helen Chiappini
Sapienza University of Rome G. d’Annunzio University
Rome, Italy of Chieti-Pescara
Pescara, Italy

ISSN 2662-5105     ISSN 2662-5113 (electronic)

Palgrave Studies in Impact Finance
ISBN 978-3-030-40247-1    ISBN 978-3-030-40248-8 (eBook)
https://doi.org/10.1007/978-3-030-40248-8

© The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature
Switzerland AG 2020
This work is subject to copyright. All rights are solely and exclusively licensed by the
Publisher, whether the whole or part of the material is concerned, specifically the rights of
translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on
microfilms or in any other physical way, and transmission or information storage and retrieval,
electronic adaptation, computer software, or by similar or dissimilar methodology now
known or hereafter developed.
The use of general descriptive names, registered names, trademarks, service marks, etc. in this
publication does not imply, even in the absence of a specific statement, that such names are
exempt from the relevant protective laws and regulations and therefore free for general use.
The publisher, the authors and the editors are safe to assume that the advice and information
in this book are believed to be true and accurate at the date of publication. Neither the
publisher nor the authors or the editors give a warranty, expressed or implied, with
respect to the material contained herein or for any errors or omissions that may have been
made. The publisher remains neutral with regard to jurisdictional claims in published maps
and institutional affiliations.

Cover illustration: © Hiroshi Watanabe / Getty Images

This Palgrave Macmillan imprint is published by the registered company Springer Nature
Switzerland AG.
The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland
 Foreword: Putting the Impact Imperative
at the Heart of Sustainable Development
Finance

The 2030 Agenda for Sustainable Development aspires at a better future

for all, thereby calling for an innovative and sophisticated financing strat-
egy, with the dual challenge of mobilizing an unprecedented volume of
resources, and leaving no one behind. Public action alone is not sufficient
to address the scale and complexity of today’s global challenges. The Addis
Ababa Action Agenda, agreed by United Nations in 2015, calls on gov-
ernments, businesses, foundations and individuals to act in a more coordi-
nated manner, in the pursuit of a new model for economic growth that
enhances human well-being and preserves the environment.
In response to international commitments, public actors are increas-
ingly turning to the private sector as a potential ally in the pursuit of sus-
tainable development, environment protection and poverty reduction. At
the same time, mainstream investors and asset managers have become
more attentive to the social, environmental and governance consequences
of their operations. Market estimates vary greatly, depending on the defi-
nitions employed, but the trend is clearly upward, as investors progres-
sively incorporate extra-financial considerations and decide to actively
pursue positive impact strategies.
Independently of the labelling applied, public and private investors are
turning to green, blended, social finance as a way to access new growth
markets and respond to public expectations. While blending is driven by
the need to increase the total funding available for the Sustainable
Development Goals, green and impact finance aim to foster better ways to
achieve these goals, through innovative approaches to social and environ-
mental challenges. In practice, individual asset managers may adopt very

v
vi FOREWORD: PUTTING THE IMPACT IMPERATIVE AT THE HEART…

diverse approaches to guide their portfolio allocation, ranging from risk

mitigation (exclusionary screening) to impact creation (active ownership).
As institutional investors engage further and deeper in sustainable devel-
opment, their skill set, risk/returns assessment and incentive structures
will need to evolve accordingly.
While investors agree that financial and sustainable development returns
can go hand in hand, the challenge lies in defining impact. Public and
private organizations continue to measure different elements by different
yardsticks, owing to the absence of common culture and language. The
terms evaluation, monitoring, results and impact measurement are used
interchangeably and without clear definitions.
Complex governance patterns and multiple layers of intermediation
deeply affect our collective capacity to understand the actual contribution
of joint public and private investments to the global agenda. As the deliv-
ery chain grows longer, it becomes more difficult for governments to exer-
cise their steering and oversight function. The use of concessionality
represents commercially sensitive information, which is often advanced as
ground for non-disclosure.
Evidence gathered by the Organisation for Economic Co-operation
and Development (OECD) shows that most impact investors seek market
rate returns, while the capacity to track social outcomes is uneven at best.1
Too often, public initiatives fostering impact investment also do not
explicitly require an independent assessment of results actually achieved.
The accountability lines become even more blurred when funding is
pooled in collective investment vehicles. The 2018 OECD Survey on
Blended Finance Funds and Facilities2 shed new light on their low propen-
sity to track and publicly disseminate the results actually achieved through
their operations. Almost two-thirds of the surveyed vehicles do not sys-
tematically update the social or environmental performance indicators at
the end of the investment and a third of them have no dedicated internal
monitoring and evaluation function. For a non-negligible amount (12%),
an evaluation has never been performed, nor is it planned in the future.
When it is, only one in four of the ensuing reports is made public.
The growing awareness of the need for private sector involvement has
only intensified the urgency to enhance their degree of public account-
ability. But the measurement of investment outcomes should not be con-
fused with, and cannot replace, the ex post evaluation of public policies
supporting those investments. Impact investors are mostly concerned by
the need to estimate or measure outcomes for immediate investment
 FOREWORD: PUTTING THE IMPACT IMPERATIVE AT THE HEART… vii

decision or external reporting requirements, whereas public authorities

need to ensure long-term policy learning based on actual, independently
observed results.
In order to harness the full potential of sustainable development finance,
we cannot shy away from “the impact imperative”: a shared understanding
of how we define and assess the results of our collective efforts towards
sustainable development. In this rapidly moving context, the impact
imperative should embrace all resources deployed in pursuit of sustainable
development, independently of their labelling. In their capacity as policy
makers, market regulators and development finance providers, public
authorities have the ultimate responsibility to counter the danger of
“impact washing”, by establishing and promoting integrity standards.
We are at crossroads in terms of how governments and society as a
whole are responding to the Sustainable Development Goals. Marginal
adjustments will not be sufficient to deliver the billions of financing to the
trillions of people that are in need. This shift in paradigm can only happen,
if we redefine the way financial and economic markets function to pro-
mote a more equitable and sustainable allocation of resources. All sustain-
able development finance actors share the responsibility for delivering the
2030 Agenda, and this implies converging towards a united vision on
what we mean and how we assess progress towards sustainable development.

Irene Basile

Notes
1. Organisation for Economic Co-operation and Development—OECD
(2019), Social Impact Investment 2019: The Impact Imperative for Sustainable
Development, OECD Publishing, Paris, https://doi.org/10.178
7/9789264311299-en.
2. OECD (2018), Making Blended Finance Work for the Sustainable
Development Goals, OECD Publishing, Paris, https://doi.org/10.178
7/9789264288768-en.
 Contents

1 Enhancing Efficiency in Sustainable Markets  1

Mario La Torre and Helen Chiappini

2 Financing Sustainable Goals: Economic and Legal

Implications  5
Raffaele Felicetti and Alessandro Rizzello

3 Rethinking Taxation of Impact Investments 37

Alessandro Mazzullo

4 Profitable Impact Bonds: Introducing Risk-­Sharing

Mechanisms for a More Balanced Version of Social
Impact Bonds 61
Giulia Proietti

5 Social Stock Exchanges: Defining the Research Agenda 79

Karen Wendt

6 A Macro-Level Analysis of the Economic and Social

Impact of Microfinance in Sub-­Saharan Africa131
Roberto Pasca di Magliano and Andrea Vaccaro

ix
x Contents

7 Environmental Impact Investments in Europe:

Where Are We Headed?151
Giuliana Birindelli, Annarita Trotta, Helen Chiappini,
and Alessandro Rizzello

8 The Increasing Importance of Green Bonds as

Instruments of Impact Investing: Towards a New
European Standardisation177
Maria Cristina Quirici

9 Green Banking in Italy: Current and Future Challenges205

Giuseppina Procopio, Annarita Trotta, Eugenia Strano,
and Antonia Patrizia Iannuzzi

10 Opportunities and Challenges of Impact Investing in

Climate-Smart Agriculture in Latin America259
Angélica Rotondaro, Andrea Minardi, and Leonie Dissemond

11 Sustainable Finance: Trends, Opportunities and Risks281

Mario La Torre and Helen Chiappini

Index289
 Notes on Contributors

Giuliana Birindelli is Professor of Financial Markets and Institutions at the

Department of Management and Business Administration, “G. d’Annunzio”
University of Chieti-Pescara, Italy, where she teaches “Financial Markets and
Institutions” and “Banking and Finance”. She obtained her PhD and her
post-doctorate degree from the University of Pisa, Italy. She is a member of
many scientific committees and serves as a member of the editorial board and
referee for many scientific journals. She is also a PhD committee member in
“Business and Behavioral Sciences” at “G. d’Annunzio” University of Chieti-
Pescara, Italy. Her main research interests are social and environmental per-
formance in the banking sector, corporate governance of banks, Basel III,
internal rating systems, operational risk and compliance risk. At present, she
is a member of the Board of Auditors of the Bank of Italy.
Helen Chiappini is an assistant professor at G. d’Annunzio University of
Chieti-Pescara, Italy, where she teaches sustainable finance and corporate
finance. She is the editor of the sub-series, Palgrave Studies in Green
Finance, a member of the Scientific Committee of the Social Impact
Investments International Conference and a member of the Climate Risk
Commission of the Italian Association of Risk Managers. Helen is also a
guest editor of Special Issues and a Topical Collection in the journal,
Sustainability.
Previously, she taught MBA and MSc courses at Link Campus University
and LUISS Guido Carli University in Italy, as well as at Pontificia Lateran
University in the Vatican City. Having been a visiting research fellow in the
Centre of Banking and Finance at Regent’s University, UK, Helen also

xi
xii NOTES ON CONTRIBUTORS

served in consultancy roles for national and international organizations

involved in development finance and was a scientific observer of the Italian
Advisory Board on the G8 Taskforce of Social Impact Investments. Her
areas of research include sustainable finance, impact investment funds,
non-performing loans and financial markets. Her book has been recently
published with Palgrave Macmillan entitled Social Impact Funds:
Definition, Assessment and Performance (2017), and she was co-editor of
Socially Responsible Investments: The Crossroads Between Institutional and
Retail Investors (Palgrave Macmillan, 2019).
Roberto Pasca di Magliano is Distinguished Professor of Growth
Economics, Sapienza University of Rome, and Director of the School of
Financial Cooperation and Development (SFIDE), Unitelma Sapienza
University of Rome, Italy.
Leonie Dissemond is an associate consultant for ESG and blended
finance models at Alimi Impact Ventures and joined in the beginning of
2018 to support the development of the market assessment about impact
investing in climate-smart agriculture. Next to that, she works for KfW
IPEX-Bank in Frankfurt. Leonie holds a master’s degree in Sustainable
Finance at the University of Maastricht. For her thesis, she researched the
value of industry-specific material and non-material ESG performance in
the debt capital market.
Raffaele Felicetti is a PhD candidate at LUISS Guido Carli University of
Rome, where he is working as a corporate law and advanced corporate law
teaching assistant. He is also pursuing an LLM degree at Harvard Law
School (Cambridge, MA). In 2018, he worked in the legal team of the
then President of the European Parliament, and in 2019, he worked at the
European Central Bank. He received his law degree from LUISS Guido
Carli University of Rome and was admitted as a lawyer to the Italian bar
in 2019.
Antonia Patrizia Iannuzzi is Senior Assistant Professor of Financial
Markets and Institutions at the University of Bari “Aldo Moro” (Italy),
where she teaches the courses of “Economics of Financial Intermediaries”
and “Management of Banking and Insurance Institutions” within the
Department of Economics, Management and Business Law. She holds a
PhD in Banking and Finance from the University of Roma “Sapienza”
(Italy), and since 2005, she has carried out research and teaching activities
in banking and financial issues at the University of Bari, Foggia and
 NOTES ON CONTRIBUTORS xiii

Catanzaro (Italy). She is an ordinary member of the Italian Association of

Professors of Economics of Intermediaries, Financial Markets and
Corporate Finance (ADEIMF) and the Interuniversity Research Center
on Guarantee Institutions (CeSAC). She has been a speaker at various
national and international conferences and a reviewer for several interna-
tional journals. Finally, she has authored (or co-authored) over 40 scien-
tific publications; her main research and teaching interests are related to
corporate reputation and reputational risk in the banking sector, corporate
governance, stakeholder engagement and management compensation,
corporate social responsibility and climate change, ethical funds and
mutual guarantee institutions.
Mario La Torre is Professor of Banking and Finance at the Sapienza
University of Rome, Italy. His main research interests include banking,
sustainable finance and financial innovation. He is also an expert in audio-
visual and art financing. Editor of the series Palgrave Studies in Impact
Finance, Mario is a member of the Board of the Italian National Body for
Microcredit. He has also been a member of the G8 Taskforce on Social
Impact Investments, Counsellor for the Minister of Culture, a member of
the Audiovisual Working Party at the European Council and a member of
the Board of Cinecittà Holding. Furthermore, he has been a member of
the consultative group for the definition of the Italian Microcredit Law
and lawmaker of the Italian Tax Credit Law for the audiovisual industry.
Mario is responsible for the Center for Positive Finance, promoter of the
University Alliance for Positive Finance and author of the blog, Good in
Finance. Additionally, he is the author of several international publications
in the field of banking, sustainable finance, microfinance and film financing.
Alessandro Mazzullo worked as official at the Central Department of
the Italian Revenue Agency. He is a PhD student in Private Law of Market
at the Department of Law and Economics of Production Activities,
University of Rome “La Sapienza”. He is a member of the National Third
Sector Council, appointed by the Minister of Labor and Social Policies.
He has been a member of the government commission that drafted the
reform of the Third Sector and social enterprise, in Italy, in 2017. He has
been a consultant for the Italian board of the G8 Task Force on Impact
Investing. His main research topics include legislation on social entrepre-
neurship and impact investing. He has authored numerous publications
(including Social Entrepreneurship Law. From social enterprise to impact
investing, by Giappichelli, 2019, and The new third sector code. Civil and
xiv NOTES ON CONTRIBUTORS

tax profiles, by Giappichelli 2017) and has been a speaker at numerous

conferences.
Andrea Minardi is a senior research fellow professor at the Insper
Institute of Education and Research and a director of the Brazilian
Financial Society. She was the academic dean of the undergraduate pro-
gramme at Insper from 2010 until 2012, member of the executive com-
mittee of BALAS (Business Association of Latin American Studies) and
member of the Fiscal Board of ANGRAD (National Organization of
Undergraduate Programs in Business). She holds a doctoral degree in
Business Administration from EAESP—Fundação Getúlio Vargas, with a
major in Finance, and a bachelor’s degree in Production Engineering from
Escola Politécnica da Universidade de São Paulo. She was a visiting stu-
dent at the PhD program in Business at the University of Texas at Austin.
She teaches Private Equity and Venture Capital and Corporate Finance for
undergraduates, graduates and in executive education. She researches cor-
porate finance, with a focus on private equity and venture capital. She is
the author of the book Teoria de Opções Aplicada a Projetos de Investimentos
and many published articles.
Giuseppina Procopio graduated with honours in Business Administration
and Management at the University Magna Graecia of Catanzaro in
October 2017. She presented a thesis on green finance that analysed the
aspects, approaches and various green financial instruments available on
the market. She is employed in the Finance Department of Gada Group.
Her interests are sustainable investment, green banking and reputational
risk in the banking sector.
Giulia Proietti is a research fellow in Social Impact Bonds and Impact
Investing at the University of Trento, for the project “From the theory of
social finance to a concrete social bond” funded by Fondazione Caritro,
aiming at the possible implementation of social bonds and SIBs in Italy.
She holds a PhD in Business Law and Economics from the University
La Sapienza, a JD in Law with summa cum laude from Nova Southeastern
University in Fort Lauderdale (Florida, USA) and a Laurea Magistrale in
Law from the University of Roma Tre.
She is a Notary in Rome and former US and Italian Attorney at Law.
Her primary research interests are corporate governance, hybrid busi-
nesses (i.e. social enterprises, benefit corporations) and social and respon-
sible investments (SRI, impact investing). She is also founder and President
 NOTES ON CONTRIBUTORS xv

of Equoevento, an NGO fighting food waste at social events and gather-

ings to distribute it to those in need.
Maria Cristina Quirici is a full-time professor at the Department of
Economics and Management of the University of Pisa (Italy), where she
has spent more than 30 years of her career as university teacher. Here, she
graduated cum laude in Economics in 1984, received her PhD in Business
Economics in 1989, became in 1993 Assistant Researcher in Banking and
Stock Markets and then, from 2017 until today, Associate Professor in
Financial Intermediaries and Markets. She is also a teacher in various mas-
ter’s degrees of the University of Pisa, and she has been also an Erasmus
teacher at the University of Valladolid (Spain) in 2009.
She has written several books and numerous articles on different topics,
regarding both banking and the operations within the stock markets, with
a particular attention to their structural evolution. Recently, her research
projects have focused on the Sustainable and Responsible Investments
topics, becoming also member of the Jean Monnet Project Development
and Harmonisation of Socially Responsible Investment in the European
Union (Call for Proposals EAC/A04/15, Coordinator Prof. Spataro,
Department of Economics and Management, University of Pisa). Within
the SRI topics, she has a particular interest in the new strategy of impact
investing and its financial instruments, considering also all the institutions’
activities to enhance a sustainable finance in Europe and all over the world.
She has participated in several national and international conferences
regarding SRI or other themes on financial markets and intermediary
activities, organizing many of them too.
Alessandro Rizzello received his PhD from the University “Magna
Graecia” of Catanzaro with a dissertation that focused on social impact
investing and social impact bonds in the healthcare sector. He teaches
“Social & Sustainable Finance” at the University “Magna Graecia” of
Catanzaro. His research interests are social impact investing, social impact
bond, sustainable finance and crowdfunding of social ventures. His
­working experience includes the position of head of the Budgetary and
Financial Office in the Italian public administration. He received his
degree in Economics from LUISS Guido Carli University, Rome.
Angélica Rotondaro is a founding partner and advisor at Alimi Impact
Ventures, co-founder of the Climate-Smart Brazil Institute, a member of
the Advisory Board of Insper-Metricis and associate researcher at CORS/
University of Sao Paulo. From 2009 to 2016, she was the managing direc-
xvi NOTES ON CONTRIBUTORS

tor of the St. Gallen Institute of Management Latin America (Switzerland)

in São Paulo. Before that, she was a senior consultant for branding,
responsible for Latin America and Spain in an international Swiss com-
pany. In parallel, she was the co-founder and vice-­president of the private
foundation for investments in the third sector and coordinated projects
related to grassroots development. In the environmental field, she imple-
mented a brand positioning project of alternative energy business in Asia
and Latin America. She holds a PhD in Organizational Studies from the
University of St Gallen with a research related to Fair Trade.
Eugenia Strano graduated with honours in Business Administration and
Management at the University “Magna Graecia” of Catanzaro in October
2017 with a dissertation that focused on green finance, analysing environ-
mental disclosure among Italian listed banks. She is a PhD student in
Theory of Law and European Legal and Economic System, curriculum
Companies, institutions and markets in the European Union at the
University “Magna Graecia” of Catanzaro. Her research interests are sus-
tainable finance, innovation business models for sustainability and social
impact in the banking sector and the financial industry.
Annarita Trotta PhD, is Professor of Banking and Finance at the
University “Magna Graecia” (UMG) of Catanzaro (Italy), where she
teaches “Economics of Financial Markets and Intermediaries” (a.y.:
2019/2020). She holds a PhD in Business Administration from the
University of Naples “Federico II” (Italy), where she was Assistant
Professor of Banking (from 1995 to 2001). In 2001, she moved from the
University “Federico II” to the University “Magna Graecia” of Catanzaro.
She has taught several courses over the years at both the undergraduate
and graduate levels, including banking, financial markets, corporate
finance and advanced corporate finance. She is a PhD committee member
in “European Legal and Economic Systems” at UMG. At present, she is a
member of the Evaluation Unit of the LUM Jean Monnet University
(Italy). She serves as member of the editorial board and referee for many
scientific journals. Over her 25-year academic career, she has authored (or
co-authored) more than 60 original scientific publications and 4 books.
Her primary areas of research are social and sustainable finance; impact
investing; alternative finance and sustainability; reputational risk and repu-
tational crisis in the banking sector; corporate social responsibility in the
banking industry; local banking and information asymmetries; small busi-
ness, venture capital and informal venture capital. She is a research unit
 NOTES ON CONTRIBUTORS xvii

coordinator (2017–2020) of the Project “An Italian platform for impact

finance: financial models for social inclusion and sustainable welfare”
(funded by Italian Ministry of Education, Universities and Research), in
collaboration with Sapienza, University of Rome (Project Leader).
Andrea Vaccaro is a doctoral student at the Department of Social
Sciences and Economics, Sapienza University of Rome, Italy.
Karen Wendt is the editor of the Sustainable Finance Series with Springer
Science and Business Media, a series dealing with new concepts in econ-
omy, leadership, investment, finance, strategy, management, exponential
tech and behaviour. Karen is also a serial entrepreneur. Her mission is to
merge economy and business with purpose and passion to implement the
Sustainable Development Goals (#SDGs) using Choice Architecture and
applying Theories of Change. She combines investment, strategy, ideation
and mediation knowledge with investment and finance as well as network
and movement-building skills. She pioneered in the creation of the
Equator Principles, the Gold Standard in investment banking for achiev-
ing human rights assessments and respect in business, de-risking assets
from extra-financial risks and crafting a more integral approach towards
decision-making, opportunity recognition and positive impact creation.
The Equator Principles Institutions won the Financial Times
Sustainability Award. Karen’s research interest is on impact investing and
impact entrepreneurship, as well as leadership evolution, theories of
change and social stock exchanges. She is keynote speaker, advisor, facilita-
tor, mediator and leadership coach.
 List of Figures

Fig. 2.1 The interplay of profit and purpose along entrepreneurship

logics. (Source: Authors’ elaboration)22
Fig. 2.2 The interplay of profit and purpose along corporate legal
frameworks. (Source: Authors’ elaboration)22
Fig. 2.3 The interplay of profit and purpose along sustainable capitals
and investors. (Source: Authors’ elaboration)23
Fig. 2.4 Combination of entrepreneurship, corporate legal frameworks
and capitals in the simultaneous maximization of profit and
purpose segments. (Source: Authors’ elaboration) A: Mission
unrelated (impact) entrepreneurship/Sustainable
entrepreneurship (market driven) For-profit corporate models +
Hybrid Corporate Model (Benefit Corporations) Traditional
finance + Finance-First Impact investors B: Environmental
entrepreneurship Hybrid Corporate Models (Benefit
Corporations) + Hybrid Models (CICs, L3Cs) Finance-First
Impact Investors, Balanced Impact Investors C: Social
entrepreneurship Hybrid Models + (CICs, L3Cs), Low-Profit
Social Enterprises Impact-first impact investors 24
Fig. 3.1 Social rating system 51
Fig. 3.2 Veronamercato Spa 53
Fig. 5.1 The impact investment journey. (Source: Authors’ elaboration
adjusted from Brandstetter and Lehner (2015)) 86
Fig. 5.2 Impact investing. (Source: Wendt 2018) 86
Fig. 5.3 The landscape of social entrepreneurship and finance. (Adjusted
from Glänzel et al. 2014) 97

xix
xx List of Figures

Fig. 7.1 The ongoing regulatory process of sustainable finance in

Europe. (Source: Authors’ elaboration) 160
Fig. 7.2 Sustainable investments in the European Commission’s
proposal. (Source: Authors’ elaboration based on European
Commission (2018b)) 161
Fig. 7.3 The positioning of the European case studies. (Source: Authors’
elaboration)169
Fig. 8.1 Regional distribution of Green Bond Issuances 2018. (Source:
Adapted from SEB 2018) 196
Fig. 8.2 Regional distribution of Green Bond issuances 2018
YTD. (Source: Adapted from SEB 2018) 197
 List of Tables

Table 6.1 List of the sample of countries included in regression models 139
Table 6.2 The effect of microfinance on economic development in
sub-Saharan Africa, from 2000 to 2014 141
Table 6.3 The effect of microfinance on social development in sub-
Saharan Africa, from 2001 to 2014 143
Table 7.1 European environmental impact investment cases 166
Table 8.1 Characteristics of different Green Bond identification and
certification schemes 188
Table 8.2 Comparison between GBPs and EU Green Bond Standard 192
Table 9.1 Main definitions of green banking 211
Table 9.2 Green banking regulations: main milestones 223
Table 10.1 The different investment options developed by Ejido Verde 269

xxi
 List of Boxes

Box 7.1 Traditional Financial Models for Environmental Impact

Investments157
Box 7.2 Innovative Financial Models for Environmental Impact
Investments158
Box 9.1 UNEP-FI 215
Box 9.2 Montréal Carbon Pledge 216
Box 9.3 Portfolio Decarbonization Coalition 217
Box 9.4 ISP’s Main Sustainability Awards 229
Box 9.5 A Focus on Selected Number of Green Products and Services 235
Box 9.6 Focusing on “Natural Capital” 239
Box 9.7 A Focus on a Selected Number of Green Products and Services 246
Box 10.1 Sustainable Fish Production Aligned with CSA: Scale to
Reach Profitability, Social and Environmental Impact—Axial
Holding’s Tilabras 262
Box 10.2 The Brazilian Ecosystem for Aggrotech 265
Box 10.3 Milpa, a Case for the Benefits of Combining Different Crops 266
Box 10.4 Assessed Financial Risk 267
Box 10.5 Managing Long Investment Horizons—Ejido Verde’s
Regenerative Investing in Michoacán, Mexico 269
Box 10.6 Blended Finance for Subordinated Credit Quotas 270
Box 10.7 Main Risks Assigned to Political, Legal, and
Governance Cluster 271
Box 10.8 Main Risks Associated with the “H Factor” 273
Box 10.9 Credit Lines Linked to a Training Center for Family Farming
in the Brazilian Savanna 274
Box 10.10 Three Gorges in Brazil 276

xxiii
 CHAPTER 1

Enhancing Efficiency in Sustainable Markets

Mario La Torre and Helen Chiappini

1.1   The Path Toward Sustainable Finance

Sustainable investments—although still working outside a clearly defined
framework—include investments aiming at achieving a positive impact on
environment and society. Several different investments strategies (e.g.,
negative screening, positive screening, best in class) and many dominant
purposes are inspiring sustainable investing.
Addressing the funding gap connected to the financing of sustainable
development goals (SGDs) included in the United Nations Agenda 2030
(United Nations 2015) represents one of the priorities for sustainable
investors over recent years. The Agenda 2030 includes 17 SDGs—includ-
ing no poverty, zero hunger, quality education, reduced inequalities, and
climate actions—and 230 precise targets that need to be financed by pub-
lic and private investors. Similarly, the Climate Agreement signed by 195

M. La Torre
Sapienza University of Rome, Rome, Italy
e-mail: [email protected]
H. Chiappini (*)
G. d’Annunzio University of Chieti-Pescara, Pescara, Italy
e-mail: [email protected]

© The Author(s) 2020 1

M. La Torre, H. Chiappini (eds.), Contemporary Issues in
Sustainable Finance, Palgrave Studies in Impact Finance,
https://doi.org/10.1007/978-3-030-40248-8_1
2 M. LA TORRE AND H. CHIAPPINI

countries pushed funding needs connected to climate issues to the top of

the agenda for the public (and private) sector.
Sustainable investments represent a growing, worldwide phenomenon:
recent data from Global Sustainable Investment Alliance (GSIA 2019)
estimates the market in USD 30.7 trillion, with a growth of 34% since 2016.
Public investments, however, are still insufficient to cover the funding
needs of sustainable sectors. In such a panorama, public partnerships
(PPP) are an alternative strategy to support the transition toward a more
sustainable and inclusive economy. Similarly, public commitment—
expressed through policy incentives—is particularly desirable. In this per-
spective, it is good to know that young generations are aiming at a positive
impact with their investments: recent research by Schroders (2018) high-
lighted that 52% of younger people invest in sustainability compared to
28% of older generations.
Despite the interest that sustainable investments are gaining with gov-
ernors, investors, and practitioners from many sectors and geographical
areas, several related issues remain to be addressed.
This book aims at shedding light on some current issues featuring sus-
tainable finance through an in-depth discussion of the relevant debates
related to the financing of social and environmental initiatives.
The first part of this book focuses on improving the effectiveness of
sustainable investments through efficient capital allocation and impact
measurement, while managing the primary challenges to green finance is
the focus of the second part of the book.
On efficient capital allocation and impact measurement:
Chapter 2 Financing Sustainable Development Goals: Economic and
Legal Implication for Sustainable Entrepreneurship by Raffaele Felicetti
and Alessandro Rizzello explores the theme of how social entrepreneur-
ship may be financed in the current legal framework and contributes to the
debate on how social and economic value may be maximized through
both entrepreneurial and financial solutions.
Chapter 3 Rethinking Taxation of Impact Investments by Alessandro
Mazzullo suggests a tax incentive model for social impact investments,
discussing potential pros and cons of such a scheme.
Chapter 4 Profitable Impact Bonds: Introducing Risk-Sharing
Mechanisms for a More Balanced Version of Social Impact Bonds by Giulia
Proietti proposes an alternative financial scheme of social impact bonds
(SIBs), analyzing how risks may be shared by a plurality of subjects and
how to distribute more equally the benefits of SIB contracts.
 1 ENHANCING EFFICIENCY IN SUSTAINABLE MARKETS 3

Chapter 5 Social Stock Exchanges—Defining the Research Agenda by

Karen Wend discusses the need of a social stock exchange to help impact
investors find efficient investments and closing the gap between potential
investors and investments currently available in the market.
Chapter 6 A Macro-level Analysis of the Economic and Social Impact of
Microfinance in Sub-Saharan Africa provides an example on how micro-
credit activity can contribute to meeting social aims in Sub-Saharan Africa.
Specifically, the chapter by Roberto Pasca di Magliano, Andrea Vaccaro,
and Giuliana Ferrara estimates the economic and social impact of a sample
of microfinance activities in Sub-Saharan Africa.
How some of the relevant challenges in green finance may be managed:
Chapter 7 Environmental Impact Investments in Europe: Where Are We
Going Ahead? by Giuliana Birindelli, Annarita Trotta, Helen Chiappini,
and Alessandro Rizzello discusses the environmental European impact
investing landscape, considering the new regulatory framework and the
overall impact investing practices.
Chapter 8 The Increase Importance of Green Bonds as Instruments of
Impact Investing: Towards A New European Standardization by Maria
Cristina Quirici discusses the role of green bonds in financing environ-
mental projects, with specific emphasis on the state of the art of green labels.
Chapter 9 Green Banking in Italy: Where We Are and Where We Are
Going by Giuseppina Procopio, Annarita Trotta, Eugenia Strano, and
Antonia Patrizia Iannuzzi contributes to the international debate on green
banking, analyzing two case studies of Italian banks.
Chapter 10 Opportunities and challenges in impact investing in Climate-­
Smart Agriculture in Latin America by Angélica Rotondaro, Andrea
Minardi, and Leonie Dissemond focuses on the strengths and weaknesses
of investing in agriculture projects, paying great attention to climate
change and the overall issue of sustainability.
Chapter 11 by Mario La Torre and Helen Chiappini concludes the
book discussing the trends, opportunities, and risks of sustainable finance.

References
GSIA. (2019). 2018 Global Sustainable Investment Review. http://www.gsi-alli-
ance.org/wp-content/uploads/2019/03/GSIR_Review2018.3.28.pdf
Schroders. (2018). Global Investors Study 2018. https://www.schroders.com/en/
insights/global-investor-study/2018-findings/sustainability/
United Nation (2015). Transforming our world: the 2030 Agenda for Sustainable
Development. Resolution adopted by the General Assembly on 25
September 2015.
 CHAPTER 2

Financing Sustainable Goals: Economic

and Legal Implications

Raffaele Felicetti and Alessandro Rizzello

2.1   Introduction
The 2030 Agenda on Sustainable Development Goals (SDGs) leaves
open the question of how best to consider alternative forms of econ-
omy, social relations and governance (Bowen et al. 2017). In this con-
text, policy makers, development practitioners and scholars are
increasingly focusing their attention on the potential roles that the myr-
iad types of investors and enterprises that make up the social and

Sections 4 and 4.1 have been written by Raffaele Felicetti, while Sects. 3 and 5
by Alessandro Rizzello. The Introduction, Sects. 2 and 6 and the Conclusions
have been written by the authors jointly.

R. Felicetti
Department of Law, LUISS Guido Carli University, Rome, Italy
Harvard Law School, Cambridge, MA, USA
e-mail: [email protected]
A. Rizzello (*)
Department of Law, Economics and Sociology, University “Magna Græcia” of
Cantanzaro, Catanzaro, Italy
e-mail: [email protected]

© The Author(s) 2020 5

M. La Torre, H. Chiappini (eds.), Contemporary Issues in
Sustainable Finance, Palgrave Studies in Impact Finance,
https://doi.org/10.1007/978-3-030-40248-8_2
6 R. FELICETTI AND A. RIZZELLO

solidarity economy (SSE) can play in addressing future development

goals as well as any other complex social and ecological challenges.
In the delivery of social impact, the commitment of private actors has
generally been limited to the nonprofit hemisphere, broadly speaking
(NGOs, philanthropy, charities). Thus, there has always been a clear dis-
tinction, a trade-off, between social concerns and profit (Zingales 2000).
Nonetheless, to confront future social and environmental challenges effec-
tively and efficiently, economic resources are needed (Mawdsley 2018).
Currently, the welfare state seems to be experiencing a major crisis, and
nonprofit entities lack adequate resources (Karanikolos et al. 2013).
Therefore, the idea that for-profit companies should contribute to solving
major social problems—which they are often assumed to have caused—has
gained widespread consensus (see, among others, Stout 2012; Elhauge
2005). Sustainable entrepreneurship that is involved in the generation of
social and environmental impacts has repeatedly pointed to the critical
need for impact investments. However, despite the growing attention to
and interest of organizations and institutional investors in channelling pri-
vate capital into sustainable ventures and products, there remain signifi-
cant barriers and disincentives between mainstream financial actors and
sustainable entrepreneurs (Hoogendoorn et al. 2019; McDermott et al.
2018). In this context, finance and economics on one side and corporate
law on the other must be indissolubly linked to a greater extent than is
customary: the former provides the resources and the latter the legal tools
to manage them (Cumming et al. 2017).
Academic discourses around sustainability issues in entrepreneurship,
corporate legal models and finance remain fragmented, and each specific
discipline analyses this topic from its narrow perspective (Wallis and
Valentinov 2017).
Innovative sustainable finance instruments, by pursuing social and
financial returns, can serve as effective institutional mechanisms to help
finance the SDGs. However, until a few years ago, there was no legal tool
to optimize these capitals and allow companies to commit to social prob-
lems: conventional, purely profit-driven companies seem insufficiently
equipped. Admittedly, the well-known shareholder primacy model, despite
being slightly mitigated over time, prevents them—or, at least, discour-
ages them—from also pursuing a “social mission”, at least without their
directors risking a breach of their fiduciary duties (McDonnell 2014).
Starting from this perspective, this research adopts a multidisciplinary
approach with the aim of proposing a conceptual framework that assumes
 2 FINANCING SUSTAINABLE GOALS: ECONOMIC AND LEGAL IMPLICATIONS 7

the multidisciplinary nature of sustainability. The proposed conceptual

framework aims to develop an improved understanding of the conditions
most conducive to the successful application of sustainable financing to sus-
tainable entrepreneurship. This framework should be useful in investigating
how sustainability issues may be aligned across entrepreneurship segments,
corporate legal models and sustainable financial approaches. This research,
therefore, contributes to the international debate on these topics by provid-
ing a multidisciplinary insight into the academic discourse around simulta-
neous economic and social value maximization within entrepreneurial
solutions and financial opportunities in the sustainability arena.
To achieve these objectives, this chapter is organized as follows: in Sect.
2, the research design is described and key sustainability concepts are con-
ceptualized. Section 3 provides an overview about the concept of sustain-
able entrepreneurship. In Sect. 4, the chapter highlights—from a legal
perspective—how corporate models embracing profit, as well as social and
environmental concerns, have evolved. Section 5 provides a conceptual
map of the interplay of profit and social/environmental returns in finance.
In Sect. 6, the chapter provides a conceptual framework useful to under-
standing how sustainability issues may be aligned across the spectrum of
legal models of entrepreneurship and financial approaches. Finally, some
conclusions are drawn by highlighting suggestions for further research
and implications for entrepreneurs and policy makers.

2.2   Research Design

This study employs an exploratory and qualitative approach to investigate
the concept of sustainable entrepreneurship, the associated corporate legal
environments and the forms of sustainable finance adaptable to the
described phenomenon. This approach aims to clarify the possible inter-
play of such dimensions in relation to their ability to promote sustainable
development objectives, such as SDGs. The use of a qualitative approach
is not uncommon in academic work that seeks to shed light on the defin-
ing features of a multidimensional phenomenon (Eisenhardt 1989; Patton
2002). In particular, the research design aims to integrate literature on the
concepts of sustainable entrepreneurship with those on corporate legal
models and sustainable finance and to formulate a conceptual framework
based on the resultant new understanding. A conceptual framework is a
structure that the researcher believes can best explain the natural progres-
sion of the phenomenon to be studied (Camp 2001). Such a framework is
8 R. FELICETTI AND A. RIZZELLO

linked to the concepts and important theories used to promote and sys-
tematize the knowledge acquired by the researcher (Peshkin 1993). The
conceptual framework presents an integrated way of looking at a problem
under study (Liehr and Smith 1999). This integration is achieved by
addressing three objectives: (i) undertaking a critical review of the litera-
ture on sustainable entrepreneurship, corporate legal models and sustain-
able finance and (ii) defining a set of variables to be investigated in order
to (iii) construct a conceptual framework of the interface between these
disciplines explored from this perspective. This conceptual framework will
help organize existing and new insights and help in formulating new
research questions regarding sustainable entrepreneurship and its funding.

2.2.1  Setting the Scene: Entrepreneurial and Financial Issues

in the Sustainability Arena
In the aftermath of the 2008 financial crisis, concerns relating to market
and state failures received increased attention and revealed opportunities
to rethink “development”. Compared to conventional crisis responses,
alternative pathways attracted more attention within mainstream knowl-
edge and policy circles. With the term social and solidarity economy (SSE),
academia tried to provide an umbrella term to refer to forms of economic
activity that prioritize social and environmental objectives and involve pro-
ducers, workers, public entities and citizens acting collectively and in soli-
darity. As perfectly summarized by Utting (2015), “Under the umbrella of
‘social and solidarity economy’ can be found different world views and
understandings of ‘development’. Accepting the reality of the capitalist
system and its core institutions or ‘rules of the game’, social economy is
primarily about expanding the economic space where people-centred
organisations and enterprises can operate” (p. 1). Such a concept funda-
mentally includes a wide range of practices that span economic, social,
environmental, political, communitarian or holistic dimensions. It empha-
sizes a strong integration between traditional economic structures and the
more holistic and alternative approaches of the practices and communities
of the solidarity economy. Within this arena, for the purpose of this chap-
ter, we focused on economic and financial issues that conceive of the social
and solidarity economy as an ethical and value-based approach to eco-
nomic development that prioritizes the welfare of people and planet over
profit and blind growth.
 2 FINANCING SUSTAINABLE GOALS: ECONOMIC AND LEGAL IMPLICATIONS 9

2.3   Embracing Sustainability Issues

in Entrepreneurship: An Overview

The concept of sustainable entrepreneurship is relatively recent in aca-

demia, and common consensus on its definition is still lacking. Early defi-
nitions stressed the discovery of market opportunity, which detracts from
sustainability (Cohen and Winn 2007; Dean and McMullen 2007). In
particular, sustainable entrepreneurship is seen as a process of discovering
opportunities that are present in market failures derived from sustainabil-
ity and considers how they can be exploited in future goods and services
that initiate the transformation of a sector towards an environmentally and
socially more sustainable state. In this vein, sustainable entrepreneurs are
increasingly acknowledged for addressing current social and environmen-
tal problems (Hall et al. 2010; York and Venkataraman 2010; Tur-Porcar
et al. 2018). Sustainable entrepreneurs are motivated to have a positive
impact on complex social and ecological problems, such as climate change,
unequal access to healthcare and the financial system, and education and
poverty.
Sustainable entrepreneurship is closely related to the fields of social and
environmental entrepreneurship. The relationship between entrepreneur-
ship and sustainable development concerns has been addressed by two
main streams of research defined “ecopreneurship” and “social entrepre-
neurship”. Regarding the former perspective, earlier authors addressing
sustainability issues and entrepreneurship have dealt exclusively with envi-
ronmentally orientated entrepreneurship (among others, Shrivastava
1995; Isaak 2002). In this type of business model, profit remains the end
goal of the business, but environmental goals are considered an integrated
part of the economic logic of the business. Other authors have focused
instead on social entrepreneurship (among others, Mair and Martı 2006;
Nicholls 2008; Bull 2008). The social entrepreneurship concept in aca-
demic literature is concerned with achieving societal goals and securing
funding (or, in other terms, achieving societal goals in a financially sustain-
able manner). Common to these perspectives is the motivation of entre-
preneurs to create value for others by identifying opportunities arising
from market failures, in other words, from problems in society that have
been neglected or unsuccessfully addressed by public or private organiza-
tions (Wagner 2017; Hoogendoorn et al. 2019). In contrast to “regular”
entrepreneurs, the aim of social entrepreneurs is not primarily focused on
the pursuit of value creation for private gain; rather, it seeks to improve
Another random document with
no related content on Scribd:
central portion, where Peter and the Señora Kelley had built a stately
home, was practically as it had been when the Yankee seaman first
ranged over it and realized the riches of his bride. Now both sailor
and señora were dead, and their only son, Tiburtio Kelley, preferred
a life in Paris on the large fortune accumulated by his thrifty father, to
the dolce far niente of empty, golden days in the Santa Clara Valley.
This central strip of the tract, which ran from the valley up into the
first spurs of the hills, was still a virgin wilderness. Huge live-oaks,
silvered with a hoar of lichen, stretched their boughs in fantastic
frenzies. Gray fringes of moss hung from them, and tangled screens
of clematis and wild grape caught the sunlight in their flickering
meshes or lay over mounds of foliage like a torn green veil. The
silence of an undesecrated nature dreamed over all. Woodland life
seldom stirred the dry undergrowth, the rustle of nesting birds was
rare in the secret leafy depths of the oaks. Here and there the
murmurous dome of the stone pine soared aloft, the clouded dusk of
its foliage almost black against the sky.
For nearly two miles the carriage drive wound upward through this
sylvan solitude. As it approached the house a background of
emerald lawns shone through the interlacing of branches, and
brilliant bits of flower beds were set like pieces of mosaic between
gray trunks. The drive took a sweep around a circular parterre
planted in geraniums—a billowing bank of color under a tent of oak
boughs—and ended in a wide, graveled space at the balcony steps.
The house was a spreading, two-story building of wood, each floor
surrounded by a deep balcony upon which lines of French windows
opened. Flowering vines overhung, climbed and clung about the
balcony pillars and balustrades. Roses drooped in heavy-headed
cascades from second-story railings; the wide purple flowers of the
clematis climbed aloft. On one wall a heliotrope broke in lavender
foam and the creamy froth of the bankshur rose dabbled railings and
pillars and dripped over on to the ground. It was a big, cool, friendly
looking house with a front door that in summer was always open,
giving the approaching visitor a hospitable glimpse of an airy,
unencumbered hall.
The move completed, June and Rosamund began to taste the charm
of the Californian’s summer life. There were no hotels near them. No
country club had yet risen to bring the atmosphere of the city into the
suave silence of the hills. It was a purely rural existence: driving and
riding in the morning, reading in the hammock under the trees,
receiving callers on the balcony in the warm, scented end of the
afternoon, going out to dinner through the dry, dewless twilight and
coming home under the light of large, pale stars in a night which
looked as transparently dark as the heart of a black diamond.
They were sometimes alone, but, as a rule, the house contained
guests. The Colonel at first came down constantly, always from
Saturday to Monday and now and then for a week-day evening. But
in May the sudden leap of Crown Point to one hundred and eighty
upset the tranquillity of even cooler natures than Jim Parrish’s, and
the stock exchange became the center of men’s lives. The long
expected bonanza had been struck. The San Franciscans, once
more restored to confidence in the great lode, were seized with their
old zest of speculation, and all the world bought Crown Point. Allen
saw himself on the road to a second fortune, and threw his money
about in Virginia with an additional gusto, as it had been the scene of
some of his poorest days.
Even the Colonel was attacked by the fever and invested. His
financial condition had given him grounds for uneasiness lately, and
here was the chance to repair it. A mine in Shasta, in which he had
been a large owner, shut down. He owned property in South Park,
and the real estate agents were beginning to shake their heads at
the mention of South Park property. It surprised him to realize that
for the first time in years he was short of ready money. He sold two
buildings far out among the sand dunes on upper Market Street, and
with the rest of his kind bought Virginia mining stock with Crown
Point and Belcher at the head.
Under the live-oaks back of San Mateo the girls only faintly heard the
rising rush of the excitement. The current circled away from their
peaceful corner, lapped now and then by a belated ripple. The
country life they both loved filled them with contentment and health.
Rosamund took to gardening again. Her face shaded by a large
Mexican hat, she might be seen of a morning in confab with the Irish
gardener, astonishing him by her practical knowledge. In the evening
she surreptitiously “hosed” the borders, wishing that her visitors
would go back to town and leave her to the peaceful pursuit of the
work she delighted in and understood.
June was not so energetic. She did not garden or do much of
anything, save now and then go for a walk in the wild parts of the
grounds.
As might be expected, Mrs. Barclay always moved down to San
Mateo in April. She was not rich enough to own a large country
place, but she did the best that was in her and rented a pretty
cottage outside the village. Here Jerry came from town every
Saturday and stayed till Monday morning, and to her surprise not
infrequently appeared unannounced on week-day afternoons, saying
that business was dull, and there was no necessity waiting about in
town. The year before she had complained greatly that her son’s
visits to San Mateo were rare. This summer she had no such
grievance. He kept a horse in her small stable, and as soon as he
arrived had it saddled and went out for a ride. Sometimes on Sunday
he rode over and called on the Allens, but there were other people to
visit in the neighborhood and he did not go to the Allens’—so he told
his mother—as often as he would have liked.
The direction he took on the week-day afternoons was always the
same. No rain falls during the California summer, there are no dark
hours of thunder and cloud; it is a long procession of blue and gold
days, steeped in ardent sunshine, cooled by vagrant airs, drowsy
with aromatic scents—a summer made for lovers’ trysts.
Half-way up the winding drive to the De Soto house Jerry had
learned there was a path through the underbrush which led to an
opening, deep in the sylvan wilderness, under the thick-leaved roof
of an oak. It had been a favorite spot of the late Señora Kelley’s, and
all the poison oak had been uprooted. With the canopy of the tree
above—a ceiling of green mosaic in which the twisted limbs were
imbedded—and the screen of lightly hung, flickering leafage
encircling it, it was like a woodland room, the bower of some belated
dryad.
Sometimes Jerry had to wait for her, and lying prone on the ground,
his horse tethered to a tree trunk near by, lay looking up, his senses
on the alert to catch her step. Sometimes she was there first, and as
he brushed through the covert, he saw her dress gleaming between
the leaves in a spattering of white. His heart was beginning to beat
hard at the sound of her advancing footfall. While he waited for her
he thought of nothing, his whole being held in a hush of expectancy.
When she came he found it difficult for the first moment to speak
easily.
On an afternoon early in June he sat thus waiting. All the morning
the thought of this meeting had filled his mind, coming between him
and his business. On the train coming down the anticipation of it held
him in a trance-like quietude. He talked little to his mother at lunch.
He kept seeing June as she came into sight between the small,
delicately leaved branches, dots of sun dancing along her dress, her
eyes, shy and full of delight, peeping through the leaves for him. He
answered his mother’s questions at random and ate but little. The
picture of the white-clad girl grew in intensity, striking him into
motionless reverie, so that, his eyes fixed, he seemed scarcely to
breathe.
It was very warm. Lying on his back on the dried grass, his hands
clasped under his head, he gazed straight before him at the long
fringes of moss that hung from a gnarled bough. His senses were
focused in an effort to disentangle her footstep from the drowsy
noises of the afternoon. All scruples, apprehensions of danger, were
swept away by the hunger for her presence. His mind had room for
no other thought. Every nerve was taut, every sense quiveringly
alert, as he lay, still as a statue, waiting for her.
Suddenly he rose on his elbow staring sidewise in the concentration
of his attention. The subdued, regular brush of her dress against the
leaves came softly through the murmurous quietness. He sprang to
his feet, strangely grave, his glance on the path she came by. In a
moment her figure speckled the green with white, and she came into
view, hurrying, sending sharp, exploring looks before her. She saw
him, instantly fell to a slower pace, and tried to suppress the
gladness of her expression. But he saw it all, and the quick breath
that lifted her breast. Her hand hardly touched his, and moving a little
away from him, she sank down on the ground, her white skirts
billowing round her. She pressed them into folds with arranging pats,
avoiding his eyes, and repeating some commonplaces of greeting.
Jerry returned to his reclining posture, lying on his side, his elbow in
the grass, his hand supporting his head. He, at first, made no
pretense of moving his eyes from her, and answered her remarks
shortly and absently.
Against the background of variegated greens she presented a
harmony of clear, thin tints like a water color. Her dress of sheer,
white muslin was cut away from the throat in a point, and smoothly
covering her arms and neck, let them be seen beneath its crisp
transparency, warmly white under the cold white of the material. The
heat of the afternoon and the excitement of the meeting had called
up a faint pink to her cheeks. In her belt she had thrust a branch of
wistaria and the trail of blossoms hung down along her skirt. She
wore a wide leghorn hat, and in this she had fastened another
bunch, the flowers lying scattered across the broad rim, and one
spray hanging over its edge and mingling with the curls that touched
her neck.
Jerry had never seen her look as she did this afternoon. Love, that
she felt assured was returned, had lent her the fleeting beauty of an
hour. She did not seek to penetrate the future. The happiness of the
present sufficed her. She said little, plucking at a tuft of small wild
flowers that grew beside her, conscious to her inmost fiber of her
lover’s eyes.
“Why don’t you take off your hat?” he said. “There’s no sun here.”
She obediently took it off and threw it on the ground. The black
velvet she wore around her head had become disarranged and she
raised her hands to draw it into place and tuck a loosened curl under
its restraint. He watched her fixedly.
“Now,” he said, reaching out to draw the hat to him and taking one of
the wistaria blossoms from it, “put this in.”
“I have no glass,” she demurred, stretching a hand for the flower.
“That doesn’t matter. I’ll be your glass. I’ll tell you if it isn’t all right.”
She tucked the stem of the blossom into the velvet band, so that its
trail of delicate lavender bells fell downward behind her ear.
“How is that?” she said, facing him, her eyes downcast. Her
coquetries of manner had deserted her. With the flush on her face a
glowing pink and her lashes on her cheeks, she was a picture of
uneasy embarrassment.
“Perfect,” he answered. He continued to stare at her for a moment
and then said suddenly in a low voice,
“Good heavens, how you’ve changed! It’s a little over a year now
that I’ve known you and you’re an entirely different person from the
girl with the short hair I met up at Foleys. What have you done to
yourself? What is it that has changed you?”
“I think it’s because I’m happy,” she said, beginning again to pick the
wild flowers.
“Why are you happy?”
“I don’t know. It’s hard to say. I—” she paused and began to arrange
her flowers in a careful bunch.
He suddenly dropped his eyes to the ground and there was a
silence. The sleepy murmur of insects rose upon it. The sun, in an
effort to penetrate the inclosure, scattered itself in intermittent
flickerings of brilliant light that shifted in golden spots along the tree
trunks or came diluted through the webbing of twigs and vine
tendrils. It was still very hot and the balsamic odors of bay-tree and
pine seemed to grow more intense with the passing of the hour.
“You were such a quiet little thing up there,” Jerry went on, “working
like a man in that garden of yours and never wanting to go
anywhere. Things down here may have made you happy, but I
sometimes wonder if they haven’t made you frivolous, too.”
When Jerry ceased staring at her and began to talk in this familiar,
half-bantering strain, she felt more at ease, less uncomfortable and
conscious. She seized the opening with eagerness and said, smiling
down at her little bouquet:
“But you know I am frivolous. I love parties and pretty clothes and
lots of money to spend, and all the good times going. I was that way
at Foleys, only I didn’t have any of those things. I can be serious,
too, if it’s necessary. When I haven’t got the things to be frivolous
with, I can do without.”
He stretched out his hand and plucked a long stalk of feather-
headed grass.
“Can you?” he said indolently. “Are you sure you’re not telling a little
story?”
“No, no, quite sure. I have two sides to my character, a frivolous one
and a serious one. You ought to know that by now.”
“Which have you shown to me oftenest?” He was peeling the stalk of
its shielding blade of grass.
“I don’t know. That’s for you to say. Perhaps it’s been an even
division.”
He looked up. She was smiling slightly, her dimple faintly in
evidence.
“And I suppose the dimple,” he said, “belongs to the frivolous side.”
“Yes. Even my face has two sides; the frivolous one with the dimple
and the serious one without.”
“Let me see them,” he said. “Let me judge which of the two is the
more attractive.”
He leaned forward and with the tip of the long spear of grass,
touched her lightly on the cheek.
“Turn,” he commanded, “turn, till I get a good profile view.”
She turned, presenting her face in profile, pure as a cameo against
the leafy background.
With the Tip of the Long Spear of Grass, He Touched
Her Lightly on the Cheek
“That’s the serious side,” she said, raising her chin slightly, so that
her curls slipped back, disclosing her ear.
“And now for the frivolous,” he answered. “I don’t seem to know the
serious side so well.”
She turned her head in the other direction, her eyes down-drooped.
He drew himself nearer to her over the ground, the grass spear in his
hand.
“And so this is the frivolous. Shouldn’t the dimple be here?”
He touched her cheek again with the tip of the grass, and as he did
so the dimple trembled into being. She looked at him slantwise,
laughing, with something breathless in the laughter.
As she met his glance her laughter died away. His face had changed
to something unfamiliar and hard. He was pale, his eyes fierce and
unloving. For a moment she looked at him, some phrase of inquiry
dying on her lips, then she made an attempt to rise, but he drew
close to her and caught her hands. She turned her head away,
suddenly white and frightened.
“June,” he whispered, “do you know how much I love you?”
It was a whisper unlike anything she had ever heard before. A
whisper within herself responded to it. She sat still, trembling and
dizzy, and felt his arms close about her, and her consciousness grow
blurred as his lips were pressed on hers.
The instant after he had loosed her and they had shrunk from each
other in guilty terror, the girl quivering with a rush of half
comprehended alarm, the man struggling with contending passions.
His face seemed to her full of anger, almost of hatred, as he cried to
her,
“Go home. I’m sorry. I shouldn’t have touched you. We can’t come
here again this way. I’m not free to love you. Go home.”
He made an imperious gesture for her to go, almost as though
driving her from his presence. White as death and dazed by the
terrifying strangeness of it all, she scrambled to her feet, and turning
from him, set out at a run. She brushed through the bushes, her
eyes staring before her, her breast straining with dry sobs. In one
hand she still held her little bunch of wild flowers, and with the other
she made futile snatches at her skirt, which she had trodden upon
and torn.
Gaining the end of the wood, she came into the open garden, glaring
with sun, deserted and brilliant. Back of it stood the house, shuttered
to the afternoon heat and drowsing among its vines. She was about
to continue her course over the grass to the open front door, when a
footstep behind her, rapid as her own, fell on her ear. For an instant
of alert, lightly poised terror, she paused listening, then shot forward
across the grass and on to the drive. But her pursuer was fleeter
than she. Close at her shoulder she heard him, his voice full of
commanding urgency.
“Stop, I must speak to you.”
She obeyed as she must always obey that voice, and wheeled
around on him, pallid and panting.
“June, dearest, forgive me. I forgot myself and I’ve frightened you.
But we mustn’t meet—that way—any more.”
She looked at him without answering. He was as pale as she. The
lower part of his face seemed to tremble. He had difficulty in
controlling it and speaking quietly.
“It’s true what I said,” he went on. “I love you. I’ve done so for
months. I was to blame, horribly to blame. You’re so young—such a
child. I was the one to blame for it all.”
“For what?” she said. “What’s there to blame anybody for? What has
happened all of a sudden?”
He came closer to her and looked her steadily in the eye.
“I am not free,” he said in the lowest audible voice. “I can’t marry
you. I am not free.”
She repeated with trembling lips,
“Not free! Why not?”
“No. If I were—oh, June, if I were!” He turned away as if to go, then
turned back, and said,
“Oh, June, if I were, we would be so happy! If I could undo the past
and take you—!”
His voice broke and he looked down, biting his underlip. She
understood everything now, and for the moment speech was
impossible. There was a slight pause, and then he said,
“I wouldn’t let myself see the way it was going. I lied to myself. I
loved you better every day, and I persuaded myself I didn’t, and that
it was nothing but a friendship to both of us. We mustn’t meet this
way any more. But we will see each other sometimes at people’s
houses? We’re not to be strangers.”
She turned dazedly away from him to go to the house. For a step or
two he let her go. Then he followed her, caught her hand with its
bunch of limp flowers, and said with urgent desperation:
“I’ll see you sometimes. I can’t give you up entirely. Perhaps—
perhaps—later, when time has passed, we can be friends. June, I
can’t give it all up like this.”
She turned on him a face whose expression pierced through his
egotism.
“Let me go into the house,” she whispered. “I can’t say anything now.
Let me go into the house.”
He dropped her hand, and turning, walked rapidly toward the
driveway. June ran to the house.
It was wrapped in complete silence. Not a sound or movement came
from it. She had but one idea, to mount the stairs unseen, gain her
room and then lock the door. Noiseless and fleet-footed she sped up
the veranda steps, flew through the open door, and then cowered
against the wall. Rosamund was on the stairs coming down.
“June,” she said sharply, “where did Jerry Barclay come from, and
what was he saying to you out there? I’ve been watching you from
the window.”
Then she saw her sister’s face. Her own changed in a flash. Its
severity vanished, and concern, alarm, love, took its place. She ran
downward to the figure at the stair-foot, pressed against the wall.
“What’s happened? June, what’s the matter?”
Her startled whisper broke the sunny stillness with a note of the
deadly realism of life amid the sweet unconcern of nature. She tried
to clasp June, who made an effort to squeeze past her, crushed
against the wall, her head down, like one who fears recognition.
When, finding it impossible to escape, she suddenly collapsed at
Rosamund’s feet, curled up like a person in physical anguish, and
cried with smothered violence,
“He’s not free, Rosamund. It’s all over; everything’s over. It’s all true,
and we’ve got to end it all. He’s not free.”
Rosamund realized vaguely what had happened. She was a loving
woman, but she was a practical one, too. There were people in the
house who must not see June just at this crisis. She was much the
larger and stronger of the two girls, and she bent down and
attempted to raise the prostrate figure.
“June, listen. We were going out driving at five. Mary Moore may be
down at any moment. Come quick; she mustn’t see you. She’s the
worst gossip in San Francisco. Come, I’ll help you.”
She dragged the girl up with an arm around her, hurried her to the
top of the stairs, along the hall, and into her room. There she let her
fall into an arm-chair, and, stepping back, locked the door.
In the sweet-scented, airy room, with its thin muslin curtains
softening the hot brilliancy of the landscape, June sat in the arm-
chair, silent and motionless, her face pinched. Rosamund, who had
never seen her sister like this, did not know what to do, and in
despair, resorted to the remedies she had been accustomed to using
when her mother had been ill. She softly rubbed June’s temples with
cologne and fanned her. Finally she knelt down by her side and said
tenderly,
“What is it, Junie, dear? Tell it to me.”
“I have told it to you,” said June. “He’s not free; that’s all. You all said
it, but I wouldn’t believe it. Now he’s said it and I’ve got to believe it.”
She spoke in a high, hard voice, and Rosamund, kneeling on the
floor, put her arms round her, and said with ingenuous consolation,
“But now you know it, the worst’s over.”
“Everything’s over,” said June dully.
Her eyes fell to her lap, and there, in one hand, she saw the wilted
remains of the little bunch of wild flowers. A sudden realization of
what her feelings had been when she picked them, how joyous, how
shyly happy, how full of an elated pleasure of life, and what they
were now, fell upon her with desolating force. She gave a cry, and,
turning from her sister, pressed her face against the back of the chair
and burst into a storm of tears.
 CHAPTER VI
READJUSTMENT
June and July passed, and the life in the De Soto house was very
uneventful. As soon as the group of guests left June requested her
sister to ask no more visitors for a time, and the mid-summer days
filed by, unoccupied in their opulent, sun-bathed splendor.
The blow at first crushed her. Despite the warnings she had
received, it had come upon her with the stunning force of the entirely
unexpected. The very fact that Jerry had been attacked by scandal
had lent an exalted fervor to her belief in him. Even now, had there
been a possibility of her continuing in this belief, she would have
persisted. Weak, loving women have an extraordinary talent for self-
deception, and June combined with weakness and love an
irrepressible optimism. She tried to plead for him with herself, argued
his case as before a stern judge, attempted in her ignorance to find
extenuating circumstances for him, and then came face to face with
the damning, incontrovertible fact that he himself had admitted.
It was a blasting experience. Had she known him less well, had their
acquaintance been of shorter duration, the blow would probably
have killed her love. But the period of acquaintance had been long,
the growth of affection gradual. By the time the truth was forced
upon her, her passion had struck its roots deep into her heart, and
she was not strong enough to tear it out.
In the long summer days, wandering about the deserted, glowing
gardens, she began the work of reconstructing her ideal. She told
herself that she would always love him, but now it was with no
confidence, no proud joy in a noble and uplifting thing. With
agonizing throes of rebirth, her feeling for him passed from the soft,
self-surrendering worship of a girl to the protective and forgiving
passion of a woman. As it changed she changed with it. The
suggestion of the child that had lingered in her vanished. The
freshness of her youth went for ever. The evanescent beauty that
happiness had given her, which on the day of Barclay’s declaration
had reached its climax, shriveled like a flower in the heat of a fire.
She looked pale, pinched, and thin. Eying her image in the glass,
she marveled that any man could find her attractive.
In the first period of her wretchedness she was numbed. Then, the
house swept of its guests and she and Rosamund once more alone,
her silence broke and she poured out her sorrows to her sister.
Rosamund heard the story from the first day at Foleys to its fateful
termination in the Señora Kelley’s woodland bower.
She listened with unfailing sympathy, interrupted by moments of
intense surprise. The revelations of the constant meetings with
Barclay, which had been so skilfully kept secret, amazed and
disconcerted her. She tried to conceal her astonishment, but now
and then it broke out in startled queries. It was so hard to connect
the unconscious and apparently candid June of the winter with this
disclosure of a June who had been so far from candid. It was nearly
impossible to include them in the same perspective. The culprit,
engrossed in the recital of her griefs, was oblivious of her sister’s
growing state of shocked amaze, which sometimes took the form of
silence, and occasionally expressed itself in gently probing
questions.
“But, June,” she could not help saying in protest, “didn’t you realize
something wasn’t all right when you saw he’d rather meet you
outside than see you at home?”
June turned on her an eye of cold disapproval.
“No. And I don’t see now that that’s got anything to do with it.”
Rosamund subsided meekly, unable to follow the intricacies of her
sister’s mental processes.
She did not argue with June—it was hopeless in the sufferer’s
present state of mind—and she made few comments on Barclay’s
behavior. But she had her opinion of him, and it was that he was one
of the darkest of villains. As to her opinion of June’s part in the story,
she was a loyal soul and had none. All she felt was a flood of
sympathy for the shocked and wounded girl, and a worried sense of
responsibility in a position with which she felt herself unable to cope.
It was with great relief that, toward the end of July, she received a
letter from the Colonel, who had been six weeks in Virginia City,
telling her he would be with them on the following Sunday.
She drove down to the train to meet him with the intention of
preparing him for the change in his favorite. She had written to him
that June was not well. Driving back from the station she had ample
time to expatiate on this theme and warn him not to exclaim unduly
on her changed appearance. The Colonel began to be apprehensive
and ask penetrative questions, to which she had no answer. He
leaped out of the carriage at the veranda steps and ran up to the top,
where June stood.
The change in her, flushed with welcome, was not strikingly apparent
at the first glance. It was later that he began to realize it, to be
startled and then alarmed. She sat quiet through dinner, nibbling
musingly at her food, once or twice not answering him. The empty
silence of the house struck chill on him, and when he had
commented on the absence of visitors, she had said with sudden
gusty irritation,
“There’s been nobody here for over a month. I don’t want anybody to
come. I’ll go away if anybody’s asked. I like being alone this way.”
He looked at Rosamund with an almost terrified inquiry. She
surreptitiously raised her brows and gave her head a warning shake.
It was late in the evening before he had a chance to speak to
Rosamund alone. Then, June having gone to her room, and he and
Rosamund being left alone in the sitting-room, he laid his hand on
the young girl’s shoulder, and said in a voice of command,
“Now, Rosamund, I’ve got to hear all about this. What the devil’s
been going on down here?”
She told him the whole story, greatly relieved to have a listener who
could advise her.
The Colonel was staggered by it. He said little, but Rosamund was
not half-way through when he began pacing up and down, his hands
in his pockets, every now and then a low ejaculation breaking from
him. He, too, was astounded by the account of June’s underhand
behavior. He had thought the two girls as simple as children. That his
own particular darling could have consented to, and then so
dexterously carried out, a plan of procedure so far from what he had
imagined a young girl would do, was painful and shocking to him.
But as June’s love could not be killed by one sort of disagreeable
revelation, so his could suffer no abatement from another kind.
Manlike, he immediately began to make excuses for her.
“She was too young to be allowed to go round that way alone,” he
burst out angrily. “There was nobody to take care of her. What good
are two old Silurians like me and your father to look after girls? I told
him six months ago he ought to get some kind of an old woman in
the house who’d knit in corners and hang round after you.”
Rosamund continued her story and he went on with his walk. Now
and then, as she alluded to Barclay’s part in the affair, suppressed
phrases that were of a profane character broke from him. When she
had concluded he stood for a moment by the window looking out.
“Well, the mischief’s been done. He’s made the poor little soul just
about as miserable as she can be. I’d like to blow the top of his head
off with one of my derringers, but as I can’t have that satisfaction
there’s no good thinking of it. All we can do is to try and brace her up
some way or other.”
Rosamund made no answer and after a moment of silence, he
continued,
“And I suppose it lets poor Rion out?”
“Oh, yes,” breathed Rosamund with a melancholy sigh.
The Colonel walked to the other window muttering in his wrath.
“He was coming down here, Rosie, to ask her. They’ve made a pile
of money up there, in this Crown Point business, and they’re buying
up all the claims that might have clouded the title of the Cresta Plata.
They believe there’s a bonanza there, and the Gracey boys don’t
often make mistakes. They’ll be millionaires before they’re done. But
that doesn’t count. What does is that Rion Gracey’s the finest man in
California, bar none. The woman that he married would be loved and
taken care of, the way—the way a woman ought to be. Good Lord,
what fools we are and how we tear our lives to pieces for nothing!”
“Don’t blame her, Uncle Jim. She’s just got so fond of that man she
hasn’t any sense left.”
“Blame her! Have I ever blamed her? Why, Rosie, I’d die for her. I’ll
have to go up to Virginia and put Rion off. What can I say to him?”
“Tell him she doesn’t care for him,” said the truthful Rosamund.
The Colonel paused by the table, looking down and jingling the loose
silver in his pockets.
“No,” he said, “I’m not going to tell him that. That would be harder on
Rion than on most men. Women, you know, change. June’s very
young. She’s still a child in many things.”
“She isn’t the same sort of child she was two months ago,” said
Rosamund sadly.
“No, but she’s young in years—only twenty-one. Dear girl, that’s a
baby. Your mother was older than that when I knew her, and—and—
she changed.”
“How changed?” Rosamund asked with some curiosity.
“Her heart changed. She—other men cared for her before your
father came along. She once cared for one of them.”
The Colonel paused and cleared his throat.
“Mother was engaged to some one else before father. She told me
so once, but she didn’t say who.”
“Well, there was no doubt of her second love being deep. In fact, it
was the deeper of the two.”
“I wish June would care for Rion Gracey. But if you’d hear her
talk!”—with hopeless recollection of June’s sentimental transports. “It
sounds as if she didn’t know there was a man in the world but that
miserable Barclay. She’s just bewitched. What’s the matter with
women that they’re always falling in love with the wrong man?”
There was another pause.
“I’ll do my best,” said the Colonel at length, “to keep Rion from
coming down and trying his luck. He mustn’t see her now. She’d
refuse him in such a way that he’d never dare to come near her
again. And you, Rosie, try and cheer her up and keep her from
thinking of Barclay.”
On Monday morning the Colonel left for San Francisco, and a few
days later was again en route for Virginia City.
The rest of the summer slowly passed, idle and eventless. June
brightened a little with the passage of the weeks, but was far from
her old self. Now and then she saw Barclay at the station, in the
house of friends, or met him in the village. At first he merely bowed
and passed on. But before the summer was over he had spoken to
her; in the beginning with the short and colorless politeness of early
acquaintanceship, but later with something of his natural bonhomie.
Once at an afternoon garden fête she suddenly came out on a
balcony and found him there alone. For a moment they stood dumb,
eye full on eye, then began speaking of indifferent things, their
hearts beating hard, their faces pale. It was the first conversation of
any length they had had since the meeting in the wood. They parted,
feeling for the moment poignantly disturbed and yet eased of the
ache of separation. From that on they spoke at greater length,
talking with an assumption of naturalness, till finally their fragmentary
intercourse assumed a tone of simple friendliness, from which all
sentiment was banished. This surface calm was all that each saw of
the other’s heart, but each knew what the calm concealed.
In October the Allens returned to town. The Colonel had managed to
keep Rion Gracey from going to San Francisco “to try his luck” until
this late date. It would have been impossible had not Fate been with
him. In the growing excitement of the reawakened mining town Rion
was continuously occupied, and he was a man to whom work was a
paramount duty.
But in October he slipped his leash for a week and ran down to San
Francisco. In four days he returned, as quiet as ever, and inclined to
be harder with his men. The Colonel knew what had happened, and
Black Dan guessed. Outside these two, no one understood why Rion
Gracey had become a more silent and less lenient man after a four
days’ visit to the coast.