G20 Green Finance Synthesis Report

The G20 Green Finance Study Group (GFSG)’s work supports the G20’s strategic goal of strong, sustainable and balanced growth. The challenge is to scale up green financing, which, based on a number of studies, will require the deployment of tens of trillions of dollars over the coming decade.

The proposal to launch the Green Finance Study Group under China’s Presidency of the G20 in 2016 was adopted by the G20 Finance and Central Bank Deputies meeting on 15 December 2015 in Sanya, China. The Study Group is co-chaired by China and the United Kingdom, with support from United Nations Environment Programme (UNEP) as secretariat.

The full G20 Green Finance Synthesis Report and input papers are available on UNEP Inquiry repository.

Summary

The G20 Green Finance Study Group (GFSG)’s work supports the G20’s strategic goal of strong, sustainable and balanced growth. The challenge is to scale up green financing, which, based on a number of studies, will require the deployment of tens of trillions of dollars over the coming decade. The GFSG was established to explore options for addressing this challenge.

“Green finance” can be understood as financing of investments that provide environmental benefits in the broader context of environmentally sustainable development. These environmental benefits include, for example, reductions in air, water and land pollution, reductions in greenhouse gas (GHG) emissions, improved energy efficiency while utilizing existing natural resources, as well as mitigation of and adaptation to climate change and their co-benefits. Green finance involves efforts to internalize environmental externalities and adjust risk perceptions in order to boost environmental friendly investments and reduce environmentally harmful ones. Green finance covers a wide range of financial institutions and asset classes, and includes both public and private finance. Green finance involves the effective management of environmental risks across the financial system.

Green finance faces a range of challenges. While some progress has been made in green finance, only a small fraction of bank lending is explicitly classified as green according to national definitions. Less than 1% of global bonds are labeled green and less than 1% of the holdings by global institutional investors are green infrastructure assets. The potential for scaling up green finance is substantial. However, the development of green finance still faces many challenges. Some are largely unique to green projects, such as difficulties in internalizing environmental externalities, information asymmetry (e.g., between investors and recipients), inadequate analytical capacity and lack of clarity in green definitions. Others are more generic to most long-term projects in some markets, such as maturity mismatch.

Options to address these challenges are emerging. Many countries have adopted measures such as taxes, subsidies and regulations to deal with environmental challenges. These actions make significant contributions to enhancing green investment, but overall the mobilization of private capital remains insufficient. Over the past decade, various complementary financial sector options have emerged in many G20 countries, from both private and public actors, to support the development of green finance. These include, among others, voluntary principles for sustainable lending and investment, enhanced environmental disclosure and governance requirements, and financial products such as green loans, green bonds, green infrastructure investment trusts,1 and green index products. International collaboration among central banks, finance ministries, regulators and market participants is also growing, focused in large part on knowledge sharing of country experiences and capacity building.

The GFSG has been launched under China’s Presidency of the G20. Its mandate is to “identify institutional and market barriers to green finance, and based on country experiences, develop options on how to enhance the ability of the financial system to mobilize private capital for green investment.” An initial program of five topics has covered three sectoral issues namely banking, the bond market, and institutional investors, as well as two cross-cutting topics, i.e., risk analysis and measuring progress. The GFSG recognizes, due to differences in local conditions, some options that are considered as good practices in one country may not be suitable for another country. It therefore has focused on stocktaking, knowledge sharing, and developing voluntary options for countries to choose from and for bilateral/multilateral collaboration. The GFSG has reviewed various country experiences and market practices, engaged with market participants, benefited from active participation from international organizations, and drawn contributions from research institutions. It has also worked closely with other international initiatives and G20 work streams, notably the Financial Stability Board (FSB) Task Force on Climate-related Financial Disclosures and the G20 Climate Finance Study Group (CFSG). 

Download report here: http://climateobserver.org/reports/g20-green-finance-synthesis-report/