Inside this Topic Guide
There is strong international political and regulatory will and desire to develop climate smart, environmentally friendly financing. This is driven in part by the commitment in the Paris Agreement to hold global average temperature increases well below 2 degrees celsius above pre-industrial levels and by the need for highly significant investment to support a low carbon future economy, e.g. the EU estimates a funding gap of EUR 177 billion to deliver its decarbonisation goals. The United Nations Sustainable Development Goals adopted in September 2015, also provide an international framework and we increasingly see financial products being aligned to these SDGs.
There are consequently a large number of global and national initiatives and developments in this area for example see Major Initiatives below.
Key issues identified by many of the green and sustainable finance initiatives are the need to develop both standard definitions and taxonomy of what constitutes 'green' and consistent and comparable metrics and methodology for measuring the climate impacts of green projects.
Green bonds are the most developed form of green finance, issued first by multi-lateral investment institutions in 2007, followed by corporates in 2013 and the first sovereign green bond in 2016. The green bond market has grown quickly and exceeded USD 100 billion for the first time in 2017.
The Green Bond Principles (GBP) designed by GBP members (being green bonds issuers, underwriters and investors) are a voluntary, relatively non-prescriptive, set of principles designed to encourage the growth of the market without imposing unduly high barriers to entry. They were first published in April 2014 and are updated yearly following consultation with members and observers (most recently in June 2018). Although there are other green bonds "standards", such as those published by the Climate Bond Initiative, these are less frequently used than the GBP.
In 2017 the GBP launched its Social Bond Principles (SBP). The SBP replicate the framework and technology of the GBP but with application to social projects. Social projects are defined as projects which "directly aim to help address or mitigate a specific social issue and/or seek to achieve positive social outcomes especially, but not exclusively, for target populations", for example clean drinking water and affordable housing. The GBP also published its Sustainability Bond Guidelines (SBG) in 2017 to be followed where the use of proceeds will be applied to both green and social projects. These were both updated in June 2018.
In March 2018 the Loan Market Association (LMA) and the Asia Pacific Loan Market Association (APLMA) published their Green Lending Principles which follow the same structure as the GBP. The LMA published in March 2019 the Sustainability Loan Principles.
For an overview of green and sustainable finance, please see our publication Greening the Financial System. This is a collection of articles looking at different green financing initiatives including green loans and green securitisation. Please see also our Thought Leadership page on climate change, green finance and renewables.
Delphine Siino-Courtin (Paris)
Patrick Jackson (São Paulo)
Leng-Fong Lai (Tokyo)
Clare Burgess (London) | Michael Coxall (London) | Caroline Dawson (London) | David Dunnigan (London) | Emma Folds (London) | Eric Green (London) | Nigel Howorth (London) | Julia Machin (London) | Poppy Mitchell (London) | Puja Patel (London) | James Pay (London) | Peter Pears (London) | Gerard Crowley Saviola (London) | James Shepherd (London) | Jessica Walker (London) | Deborah Zandstra (London)