G20 Green Finance
CICA Summary
The G20 Green Finance Study Group (GFSG)’s work supports the G20’s strategic goal of strong, sustainable and balanced growth.
“Green finance” can be understood as financing of investments that provide environmental benefits. Green finance involves efforts to internalize environmental externalities and adjust risk perceptions. Green finance involves the effective management of environmental risks across the financial system.
Green finance faces a range of challenges. Only a small fraction of bank lending is explicitly classified as green. Less than 1% of global bonds are labeled green and less that 1% of the holdings by global institutions investors are green infrastructures assets. Some of those challenges are largely unique to green projects such as:
- difficulties in internalizing environmental externalities
- information asymmetry
- inadequate analytical capacity
- lack of clarity in green definitions.
Many countries have adopted measures such as taxes, subsidies and regulations to deal with environmental challenges. The mobilization of private capital remains insufficient.
The GFSG (Green Finance Study Group) has been launched under China’s Presidency of the G20. Its mandate is to “identify institutional and market barriers to green finance; and develop options on how to enhance the ability of the financial system to mobilize private capital for green investment’’.
Various indicators have been developed to measure green financial activities at three levels:
- financial flows and stocks
- mainstreaming of green finance
- impacts of green finance
More clarity about green finance definitions is demanded. Some internationally comparable indicators are also useful in facilitating cross-border and cross-market green investment. Emerging from the GFSG’s initial work are a number of steps that can be taken:
- establish a basis for the measurement of green finance activities and associated definitions
- assess impacts of green finance.
There are a number of options for consideration for voluntary adoption, to enhance the ability of the financial system to mobilize private capital for green investment:
- provide strategic policy signals and frameworks
- promote voluntary principals for green finance
- expand learning networks for capacity building
- support the development of local green bond markets
- promote international collaboration to facilitate cross-border investment in green bonds
- encourage and facilitate knowledge sharing on environmental and financial risk
- improve the measurement of green finance activities and their impact