Green Banks, Greening Banks and the Sustainable Financial System

By Andrea Colnes and Stacy Swann – Coalition for Green Capital & Climate Finance Advisors


We are in the second week of the UN Climate Summit in Paris, and while we wait for the negotiators to finish their hard work, private sector and finance continue to show they are ready and prepared to increase their efforts and do their part to address climate change. Just this weekend, major businesses stepped up their pledges to do more to address climate change, including Unilever, L’Oreal, Virgin Atlantic and Harley Davidson, among others. All very good news.

Yesterday, two new climate finance initiatives were launched at COP 21 that have the potential to significantly scale financing for clean, green and resilient investments. But they also have the possibility to do more. In addition to helping to expanding finance through institutions at local, regional and national levels in countries around the world, these also complement – and directly contribute to – larger efforts to transition to a sustainable financial system.

The first was the launch of the Global Green Bank Network, a group of six green banks and two leading non-profit groups established to help meet the urgent need of increasing and accelerating investment in renewable energy and energy efficiency worldwide.

The Global Green Bank Network is a project of the Coalition for Green Capital and the Natural Resources Defense Council (NRDC), in partnership with the OECD and the Green Banks of the United Kingdom, Australia, Japan, Malaysia, New York and Connecticut in the United States. Green Banks are, in essence, public-private partnerships designed to leverage private capital, expand markets, and maximize the impact of public funds in accelerating clean energy deployment and economic development. Many are capitalized with public funding for specific purposes around scaling up climate-smart private investment. By developing financial partnerships that reduce risk and accelerate market expansion, Green Banks support the capacity of mainstream financial institutions to invest in the transition to a low-carbon economy.

The second was the launch of the Principles for Mainstreaming Climate Action within Financial Institutions. The Principles are supported by 26 financial institutions from around the world, with combined balance sheets worth more than $11 trillion. Unlike Green Banks, many of these institutions have investment mandates that span a wide range of sectors and activities. The Principles provide a set of five areas financial institutions must address in order to integrate climate considerations into the “core” of their investment and advisory operations. Thus, the title “mainstreaming”.

The banks that signed on to the Principles included all of the Multilateral Development Banks (MDBs), many large European and developing country Development Finance Institutions (DFIs), as well as several large private sector banks from both developing countries and Europe.  Notably, many developing country financial institutions are supporters of the Principles, including banks from Turkey, South Africa, Malaysia, and Morocco. India has two influential domestic banks—YES Bank and IDBI—supporting the Principles.

These announcements are important for two reasons: First, they will help all their members—whether Green Banks or financial institutions seeking to integrate climate change into the core of operations—share experience and leverage knowledge in key areas. The demand for this kind of knowledge-sharing is high within both initiatives.

Whether through the platform of the Principles or the Global Green Bank Network, what members seem to really want to learn is, in very practical terms, how to better implement and scale up financing. There are emerging practices that exist within institutions around the world, and members of these initiatives are interested in learning from each other. They want to know what tools have worked? How do peers address risks from climate change? How do they track, monitor and count investments and their impacts? This reflects, we believe, the recognition that many institutions now understand significant potential opportunities to support a net-zero economy. But also the recognition of the risks climate change presents to their business, and thus the speed at which they (and the rest of the financial system) need to orient their financing to address a 2°C-warmer world. Having these types of coalitions to share and leverage knowledge will help more banks do more in this area, and do it better.

The other reason these are important initiatives is the impact they could have on “system change” that economists have argued is required to meet the needs of a 2°C-warmer world. The work of the UN Inquiry on the Design of a Sustainable Financial System, the Risky Business report, and efforts by the Bank of England have raised the question about whether the financial system as a whole is adequately addressing not just opportunities to scale up financing, but also risks that climate change might pose to financial markets.

Any system is but a collection of actors. In this case both the Green Banks, and those banks ensuring climate is more progressively “mainstreamed” are providing a platform that has potential to contribute to the necessary system change highlighted by the likes of UN Inquiry, Bank of England and Risky Business. Green Banks already incorporate climate into the “raison d’etre”—or DNA—of their organizations, and the Principles help move climate more progressively into the DNA of existing financial institutions. Initiatives and coalitions such as these announced yesterday in Paris can also collectively help move climate considerations more fully into the DNA of the larger financial system.

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