- Firm
- Provisional
- Coming soon
- Revised
- Firm
- Provisional
- Coming soon
- Revised
How well are we doing?
Editor's note: We have recently refreshed and updated our data for all countries on the platform, as we revised the 21 policies we cover.
Banks and the financial sector have a key role to play in shaping green economies – both directly through their own investment decisions, and indirectly by influencing policies and regulations. A Green finance plan is essential for supporting private sector sustainability, by setting the right regulatory climate, incentivising green investment and encouraging firms to consider sustainability while making decisions.
Policy ambition on green finance planning is distinctly average across the 41 surveyed countries, with almost all now discussing how to integrate greener finance into their economies but only Canada as the outstanding leader taking decisive action. European countries like the United Kingdom and France - with larger financial sectors - have taken progressive positions around climate-related financial risk, supported (or led) by their central banks. Green investment framework regulation has also been developed at the EU level - supporting similarly progressive policy packages being pursued by Portugal and Sweden.
Other countries with powerful financial centres such as South Korea, the United Arab Emirates and Japan, have emphasised their commitment to sustainable finance for over half a decade and are actively seeking to position themselves as global market leaders. But so far government reforms have been relatively soft, taking shape as voluntary and enhanced disclosure and supervisory mechanisms with little in the way of incentives or regulation.
Amongst countries with large fossil fuel sectors, there is a notable division between those prioritising green finance in order to diversify and decarbonise their domestic economies, such as Indonesia, Australia, Mongolia, and those where entrenched oil & gas sectors are blocking ambition on green finance, such as Saudi Arabia and Trinidad and Tobago. Whether nascent commitments to greening investment will make a difference for high-carbon economies will depend on enthusiasm and social pressure for decarbonisation spreading to financing of extraction and export of hydrocarbons.
The majority of remaining countries, including major economies such as the USA, China and India, are still in the early planning stages – with most having established advisory boards and published guidance on green finance but with reform proposals still under development. Notable among them are Botswana's plans for biodiversity-related financial reform and Rwanda's transition roadmap to becoming a leading African hub for sustainable finance - demonstrating that even economies with limited budgets can show leadership on developing green investment frameworks.
Like virtually everything else in the response to climate change, the development of a more sustainable financial system is not moving fast enough for the world to reach net zero.
About this policy
Banks and the financial sector have a key role to play in shaping green economies – both directly through their own investment decisions, and indirectly by influencing policies and regulations. Green finance & banking can encompass a range of policies, and it is often up to central banks and regulatory authorities to take the lead by analysing environmental risks to markets, such as climate change, biodiversity collapse, or stranded assets. This can help to catalyse prudent, longer term investing that keeps market forces aligned with delivering a greener economy. Strengthening capital market and credit guidelines, and ensuring sustainability safeguards are included in investment criteria, can be especially important.
Reforming financial markets is complex and highly dependent on context. Most countries do not have powerful financial centres such as New York, London, Hong Kong or Tokyo, and so have less ability to influence international capital. Therefore, it is especially important that the governments of these centres show the most ambition: their decisions shape the playing field for everybody else.
Banking resilience has become a global priority since the 2008 financial crisis, when many bank’s weak balance sheets and risky investments left the entire system dangerously exposed. Climate change and environmental risks are relevant here, because investments in fossil fuels have the potential to be just as risky as sub-prime mortgages were in 2008. Some assets which are currently valuable – such as coal mines or shale fields – may find themselves rendered worthless by stronger green policies, thus becoming “stranded” and in need of writing off. Banks that are exposed to this “carbon bubble” are a risk to the wider economy, and governments need to take preventative action.
Countries that are setting the highest standards have pro-active and engaged central banks who are working domestically and internationally on environmental financial risk, and are even exploring ways to penalise unsustainable investment. However, even financially peripheral economies can plan for more supportive frameworks for green investment. 'Stress testing’, where regulators assess how vulnerable banks might be to a hypothetical financial crisis – such as a deep recession or market crunch – is increasingly common to check for systemic risk in the banking system. More ambitious approaches expand on mere financial criteria to test banks for exposure to environmental risks – such as climate disasters – as well as assets that might be stranded by new environmental laws. The most comprehensive approaches will look even further into social stress testing, and check compliance with human rights and transparency requirements.
Case Study: France
Combining strong political commitment to green finance, and implementation of EU-level initiatives, France has developed a comprehensive approach to green finance. A strategic partnership with Sweden has brought stronger disclosure obligations for investors, climate stress testing for banks, and new green bonds. Planning has to some extent been devolved to supervisory authorities in the finance sector, with recommendations from the Task Force on Climate-related Financial Disclosures (TCFD) and central banking Network for Greening the Financial System (NGFS) taking the lead. Despite growing support for green investments, France – like other green finance leaders – still lacks a structured framework for disincentivising unsustainable investments.
France Country Profile
Case Study: Trinidad & Tobago
As part of annual financial stability reporting, the Central Bank of Trinidad and Tobago incorporated stress testing of the “impacts of a climate change related environmental event on the financial system” into its 2017 FSR report. This considered the effects of an environmental shock on both the local economy – through a local natural disaster, loss of life, property damage, and reduced economic activity – alongside implementation of stronger climate-related policies, and repricing of carbon intensive and environmentally unsustainable assets.
Trinidad & Tobago Country Profile