UNEP: Greening the Banking System 2016

This paper takes stock of G20 experience with green banking, focusing on market practice. It assesses the evolving green banking agenda, focusing on mainstreaming and mobilization, drivers of progress, and key barriers. It concludes with a set of options for consideration by the G20.

This paper has been developed by the G20 Green Finance Study Group (GFSG) Secretariat, on the basis of:

  • A literature review of key developments and current themes in green banking, market-ledinitiatives, and public action;
  • A survey process engaging leading banks from G20 countries, including telephone interviews and a written questionnaire (Appendix A);
  • An interview process with relevant international initiatives and associations.
  • G20 banking sectors are highly differentiated in industry structure and concentration, composition of balance sheets, business models, and size in relationship to the broader economy. In certain countries, banking is the dominant financial sector concentration. This is especially the case in G20 emerging markets, where banks remain the primary funding channel.

    Green banking practices are at different stages of evolution across the G20. Emerging green bankingpractices across G20 countries can be grouped into two categories:

    1. Mainstreaming environmental factors across bank strategy and governance, evolving from an early focus on due diligence at project level to consideration of environmental factors across credit risk functions. Now the focus is shifting to more strategic action, with leading banks exploring environmental stress testing and links between environmental and financial performance.

    2. Mobilizing capital for specific green assets through loan origination, the provision of credit andsavings’ products as well as capital markets activities. Banks are the primary source of funding for renewable energy investments, and critical sources of capital for infrastructure and small and medium enterprises (SMEs). Now, banks are moving from “risk to opportunity” in new sectors, such as energy efficiency, with leading banks working to drive positive impact across all activities.

    A diverse range of sector-specific market and policy factors has motivated the evolution of the green banking agenda. Key catalysts for action include rising public expectations, the recognition of environmental issues as real drivers of financial risk and identification of green loan origination opportunities. Green banking progress in the G20 has largely been the result of market-led action, including individual institutional leadership, the collective efforts of banking associations, and international initiatives. Some governments and regulators across the G20 are taking action to support the greening of the banking system. Public finance can play a catalytic role in making the business case for green banking, through risk sharing and incentive mechanisms to address market failures and leverage private capital.

    Reference: link