New Climate Finance report: The invisible hand of the free market does not have green fingers

Amsterdam and London have topped the latest global rankings of green financial centres, according to the latest edition of the Global Green Finance Index released last week (27 September). Copenhagen and Paris came second. But overall scores reflect that the share of financial markets that can be considered sustainable remains very low.

The report, which is updated and published twice a year, is based on a worldwide survey of finance professionals’ views on the quality and depth of green finance offerings across 110 international financial centres. It seeks to chart the progress of financial centres towards a financial system that delivers sustainable development, and values people and the planet as much as profit.

Rankings

Amsterdam and Copenhagen came first and second for depth, pushing London into third place. In the quality rankings, Paris moved up three places to second, with London retaining its top spot. In North America, Montreal came first for depth and San Francisco first for quality. Shanghai, Casablanca, São Paulo and Prague topped the rankings for both depth and quality in their regions.

There were 12 new entrants added to the index: British Virgin Islands, Calgary, Casablanca, Cayman Islands, Istanbul, Malta, Mauritius, Montréal, Prague, São Paulo, Vancouver, and Warsaw. This demonstrates the growth in interest in green finance worldwide, however, the overall ratings are still low and there is significant room for growth in the range and quality of green finance products on offer. The ratings for quality given to centres range between 315 and 481 out of 1,000.

Policy frameworks and investor demand

The ratings for depth of green finance in a centre’s overall financial offering range between 307 and 435 out of 1,000, equivalent to between three and four out of ten on a ten point scale. This underlines that perceptions of green finance are ahead of market reality as well as the scale of transition needed, but also the attention it is receiving and that respondents expect green finance to be growing rapidly in significance. 

The report also recognises the importance of policy frameworks and investor demand in fueling the growth of green finance markets. Respondents to the report commented that the uptake of green finance is most strongly influenced by policy and regulation, closely followed by investor demand and climate change itself. The clear message to policymakers is not to be afraid to use policy and regulatory interventions to promote green finance.

Perceptions of green finance ahead of market reality

Renewable energy investment, sustainable infrastructure finance, and green bonds remained the areas of most interest, and there was increasing interest in fossil fuel disinvestment, carbon disclosure and green insurance.

The data suggest that leadership on quality of life issues may be an enabling factor for the growth of green finance.

Developed jointly by Z/Yen and Finance Watch, the new report underlines that while there is significant room for growth in the range and quality of green finance products on offer, respondents expect green finance to be growing rapidly in significance. Additionally, it highlights that perceptions of green finance are ahead of market reality.

“As this report demonstrates, the share of financial markets that can be considered sustainable remains very low. Progress is being made, with more financial centres entering the index this year and, with the support of the MAVA Foundation, improvements to the methodology are promising. Yet the pace of the deployment of innovation and the mobilisation of finance remain a long way off, both in terms of urgency and of scale,” says Kirsten Dunlop, CEO, EIT Climate-KIC in the foreword of the report. 

A systemic approach

“At EIT Climate-KIC, our work increasingly focuses on connecting ecosystems of innovative partners and activities to accelerate complex, systems-level solutions. New business models, ways of investing, accounting and reporting are fundamental to action on climate change. But they can only fulfil their potential if they are matched with efforts across agriculture, buildings, energy, industrial and transport sectors,” Dunlop adds.

This systemic approach – innovation for sustainable finance – will be the focus of this year’s Climate Innovation Summit 2018 taking place in Dublin from 6-8 November.

As part of the summit programme, the Chairman of Z/Yen Michael Mainelli will be introducing and hosting our ‘Great Debate’ – an Oxford-style debate, asking the question ‘Can Self-Reporting Ever Be Effective?’ to the group of panellists:

• Manuel Coeslier, MIROVA
• Hanna Waltsgott, Responsible Investment
• Andreas Hoepner, University College Dublin
• Isabella Laurent, EBRD
• Stan Dupre, 2dii

Read more and register for the Climate Innovation Summit 2018 here.

Z/Yen is a commercial think-tank, consultancy and venture firm headquartered in the City of London. It works in the financial services, technology and voluntary sectors on a range of projects from research to performance review and strategic management. One of its specialisms is the development and publication of research combining factor analysis and perception surveys.

Finance Watch is a European non-governmental organisation that conducts research and advocacy on financial regulation. Based in Brussels, the organisation works for a financial system that allocates capital to productive use through fair and open markets, in a transparent and sustainable manner without exploiting or endangering society at large.