The new Global Green Finance Index (GGFI), which was launched by Finance Watch and commercial think tank Z/Yen today in Brussels, ranks the world’s financial centers according to “perceptions of the quality” and depth of their green finance offerings. And, in its inaugural edition – GGFI 1 – western European financial centers outperformed those in other regions.
The overall picture finds that London, Paris and Amsterdam are well placed, and ranked among the top five financial centers for “Green Finance” globally in terms of both penetration and quality.
Brussels and Hamburg make it into the top five under the criteria for quality, while Copenhagen and Luxembourg were ranked among the top five in regards to penetration.
As a non-profit initiative produced by Finance Watch, an independent body with a stated mission of “making finance serve society,” and Z/Yen with support from Swiss-based philanthropic foundation MAVA Fondation pour la Nature focused on biodiversity conservation, the GGFI will be updated every six months based on a survey and run continuously going forward.
In the ranking’s first iteration, the leading green financial centers in each region are London, San Francisco, Shanghai and Shenzhen, Johannesburg and Cape Town, Mexico City and Moscow.
While the index is based on a worldwide survey of finance professionals’ views on the quality and depth of green finance offerings across 108 international financial centers, the 47 centers listed in this first edition are those which received a minimum of ten assessments from survey respondents.
As to the centers most cited as likely to become more significant over the next two to three years, the findings point to Paris, Frankfurt and New York.
Michael Mainelli, executive chairman of Z/Yen, commenting in the wake of the launch at Hotel Leopold in the Belgian capital, said, “The core of the GGFI is a perception survey, which observes and promotes change where it matters most – in people’s minds. The more we can get people talking about a sustainable transition, the quicker it will happen. The high level of interest in GGFI 1 is a step in that direction.”
As Professor Mainelli has pointed out in an academic paper, “Environmental Sustainability is a tough equation,” so the more data the project has to work with the better, it was posited.
Top Five Centers for Green Finance – Penetration
Top Five Centers for Green Finance – Quality
Evidencing the green credentials of London as a financial center, the London Stock Exchange Group (LSEG), which is a partner exchange of the United Nations Sustainable Stock Exchanges initiative, an Observer to the ICMA’s Green Bond Principles and a partner of the Climate Bonds Initiative, had a total of 59 green bonds listed on its markets as of November 2017, with the equivalent of $20.2 billion having been raised.
Overall a 57% growth in green bonds listed was witnessed on the LSEG in one year to that point – from 14 to 22 new bonds listed, and there was a 58% increase in the amount raised ($9 billion raised in 2017 year to date versus $5.7 billion in 2016).
In the case of the LSEG, its activity in green financing is focussed on two key areas: (1) Fixed-income products and (2) Information services/indices. And, through a range of new initiatives, the bourse intends to broaden its offering and support London in becoming the preferred listing venue for debt and equity Low Carbon Economy financial instruments.
Ratings & Indexes
Dr. Simon Zadek, co-director, UN Environment Inquiry into the Design of a Sustainable Financial System and a Visiting Professor and DSM Senior Fellow for Partnerships and Sustainability, Singapore Management University, said: “Ratings and indexes are important instruments to enable effective communication of relative and absolute progress, as well as encouraging a race to the top, and a healthy debate of what constitutes success and how it can best be measured.”
As such and in this spirit, Dr. Zadek contended that Finance Watch and Z/Yen have “taken us all to the next level in providing us with the first globally applicable index of developments in greening the world’s financial centers.”
According to Benoît Lallemand, secretary general of Finance Watch, the GGFI also aims to contribute to the definition of green finance and identify best practices and areas for improvement. “We hope it will promote bold policy initiatives and high-quality financing that can cut through greenwash. It is urgent that sustainable finance becomes mainstream in all financial centers.”
On that score and helping to push the envelope, Finance Watch has 46 member organizations and 30 individual expert members from 14 different countries in Europe.
Among other key findings in the report, financial centers that have shown leadership in green finance policy are expected to gain in significance, with Paris at the top of this list.
In some countries, smaller financial centres with a strong green focus such as Hamburg and San Francisco outperformed bigger centets such as Frankfurt and New York.
It was further pointed that the rankings are “liable to change” going forward in future editions, given that they are based on tightly clustered scores in the range of 322 to 437 points out of 1,000.
Nevertheless, the level of scores has suggested that “green finance can grow substantially in size and quality,” the authors behind the analysis stated. And, supportive policy measures and investor demand are seen as the main drivers of green finance.
Renewable Energy Investment, Green Bonds and Sustainable Infrastructure Finance were rated as “areas of high impact on sustainability and of high interest to respondents.” And, disinvestment from fossil fuels was rated as high impact on sustainability, but low interest to respondents, which suggested that there was “room for policy change.”
André Hoffman, President of MAVA Fondation pour la Nature, who are supporting the GGFI and efforts to contribute to the creation of “a more sustainable” global economic system, noted: “More specialized centers, such as Hamburg and San Francisco, and financial centers with strong policy frameworks around green finance, such as Paris, Luxembourg and the Chinese centers, have performed well in this first index. We hope more centers will follow where they are leading.”
Scope & Methodology
A total 1,790 ratings from 337 individual respondents were received from December 15, 2017 to February 5, 2018 in this first survey, from respondents that included banking and investment professionals in the green financing sector as well as NGOs.
Assessments of respondents’ home centers were excluded from the data in order to avoid home center bias and assessments were combined with 113 Instrumental factors to provide an overall rating for each center.
Such factors are quantitative measures provided by third parties including Corporate Knights, the Carbon Bonds Initiative, the World Health Organization, the United Nations Environment Programme Finance Initiative and the World Bank among others.
The authors of this report, Greg Ford, Mireille Martini, Simon Mills and Mike Wardle, received contributions with research modelling and ideas from Shevangee Gupta, Bikash Kharel, Nina Lazic, Benoît Lallemand, Michael Mainelli, Mark Yeandle and the rest of the Z/Yen and Finance Watch teams.
The full report, which runs to 56 pages and can be downloaded via this link, was authored by Greg Ford, Mireille Martini, Simon Mills and Mike Wardle. Contributions were received on research modelling and ides from Shevangee Gupta, Bikash Kharel, Nina Lazic, Benoît Lallemand, Michael Mainelli, Mark Yeandle and the rest of the Z/Yen and Finance Watch teams.