Western Europe leads the rankings and China outlines its plans to improve on its 'climate-friendly' finance
by Bethan Rees
London-based commercial think tank Z/Yen has published its sixth Global Green Finance Index (GGFI), which ranks the quality and depth of responsible finance activity in financial centres. Western Europe has taken the lead, according to a Mondo Visione article.
It says that western Europe financial centres take nine out of ten of the top places for depth and all top ten spots for quality. "This reflects the continuing work being undertaken by European financial institutions, central banks, regulators, and the European Union to embed sustainability in their regulatory work, including their economic support in response to the Covid-19 pandemic."
In this year's index, Zurich and Amsterdam take the lead in the depth and quality categories, overtaking London's 2019 lead in the latter. San Francisco is the leading centre outside western Europe for quality, ranking seventh for depth and tenth for quality. This year also sees a new entrant, Helsinki, which is ranked nineteenth for depth and twelfth for quality.
Speaking on the connection between Covid-19 and responsible finance reform, Professor Michael Mainelli Chartered FCSI(Hon), executive chair of Z/Yen, is quoted in the article. "As in many other areas seeking reform, the Covid-19 pandemic has ‘zoomed in on’ sustainability and finance. Green finance is moving fast, driven too by governments and regulators across the world. Innovation is increasing, not least in policy performance bonds, and now policy performance derivatives. Global financial support for sustainability is essential if we are to achieve the UN Sustainable Development Goals."
Mondo Visione article
Policymakers driving Europe's lead in GGFI
Europe's lead in the sixth GGFI may be due to the early adoption of sustainable financing practices by European financial institutions, central banks and regulators, writes Madeleine Taylor for Institutional Asset Manager. One of the motivators behind such sustainable financing practices is the EU's push to cut carbon emissions by 55% by 2030.
There's been a steady agenda for reforms in Europe, Taylor writes, including the EU taxonomy for sustainable finance. Financial institutions measured by Z/Yen reveal that policy and regulatory frameworks are key drivers of responsible finance. "Places where sustainability is a hallmark of public life and discourse have a marked advantage in green finance," Mainelli is quoted.
The Z/Yen report, according to Taylor, explains that Covid-19 has been a "fork in the road" for policymakers, whereby institutions have to rebuild economies "to the model which was beginning to fail or to attempt to rebuild sustainably". But, the report states, responsible finance is a key tool to help deliver a sustainable path through the recovery period.
Institutional Asset Manager article
China's ambitious plans
Shanghai comes nineteenth in the GGFI quality index and doesn’t appear on the depth index, which indicates that there is more work to be done by Shanghai, and China in general, to improve upon its responsible finance credentials.
In an article for Regulation Asia, Manesh Samtani outlines a plan backed by five Chinese government agencies to promote "climate investment and finance" in China, including the “introduction of a carbon market and two-way cross-border participation” in responsible finance.
The guidelines say the five government agencies will work to improve financial regulation to support financial institutions in developing responsible finance products, and that the institutions are encouraged to provide support for commercially viable climate-friendly projects, reports Samtani. The guidelines detail how the agencies are committing to the development of a climate information disclosure standard and a centrally managed climate investment and finance statistics and monitoring platform. "A third-party verification system will be established to ensure designated projects, as well as financial products and services, are actually climate-friendly," he writes.
Credit rating agencies are urged to include environmental, social and governance factors in their methodologies too, to help direct capital flows towards sustainable companies and projects.
The two-way cross-border participation relates to Chinese financial institutions engaging in climate finance business overseas, including "the establishment of yuan-denominated green investment funds and green loan funds", Samtani says. Under the guidelines, foreign financial institutions are "encouraged to issue green bonds ... and to increase investments [in] domestic green assets" in China.
China's president Xi Jinping has committed China to become carbon neutral by 2060, Samtani adds.
Regulation Asia article