Introducing the Global Green Finance Index
On 14 March 2018, Finance Watch and Z/Yen will launch the Global Green Finance Index (GGFI) aiming at creating a race-to-the-top among financial centres to become greener. This post introduces the GGFI and looks at some of the ways that civil society actors could benefit from it.
What is the GGFI?
The GGFI is a ranking of international financial centres – such as Paris, New York, Shanghai etc. – based on the perceived quality and depth of the green financing activities in each location. The index’s purpose is to encourage the ‘greening’ of financing markets to support a more sustainable economy.
The index is built in two steps. First, finance practitioners and green finance experts all around the world are asked to assess the financial centres they know using a sliding scale for green finance depth and quality. Then their assessments are combined with more than 100 data series in a statistical process (using a factor assessment model) that produces two league tables of green financial centres, one for quality and one for depth. The data series include such things as the Financial Centre Sustainability Disclosure, Green Bond issuance, Sustainable Cities Index, Air Quality Data, Global Innovation Index, Financial system green alignment, and many others. For more on the methodology, click here.
Survey respondents are also asked, as additional optional questions, which areas of green finance they think will have the most impact on sustainability and what is driving the uptake of green finance, providing additional feedback that policymakers may find useful.
The index will be published every six months and the survey will run continuously. In between editions, we will organise workshops and events using the GGFI and its findings to engage stakeholders and contribute to building communities of green finance activists – pioneering practitioners in business and finance, policymakers, civil society, academia and other experts.
The first edition will launch on 14 March 2018 at an event in Brussels. If you would like to attend, please click here for more information.
How will it lead to change?
Our approach to making financial centres greener is ‘outside-in’: exerting competitive pressure by allowing centres to compare their performance with their peers, and helping local green finance activists to influence policy around green finance.
The pressure for change begins with the question of how to assess the ‘greenness’ of a financial centre. Though green finance receives a lot of attention it may still be a niche and needs to grow. There is both a lack of definition and a lack of data on green finance. Assessments and indicators need to be developed, including at financial centre level.
How much of a financial centre’s overall activity is green finance? How can green finance become a larger portion of a centre’s financial activity? When there is a large “Green Financial Centre” in a city, how does it compare with the volume of fossil fuel finance that goes on in that same city?
By provoking debate around these questions, the index encourages an ambitious idea of ‘greenness’, based on substance not marketing slogans. As the GGFI continues, we hope more civil society representatives will join this debate.
The second lever for change is in the competition between financial centres. Because our index rates perceptions of the quality of the green offering, it complements rankings that look only at volumes. Weak green (self-) labelling standards may lead to large volumes of green finance but will, hopefully, reflect in lower quality ratings. In this sense the GGFI promotes a qualitative race to the top.
The third lever is to share best practices. Financial centres have started discussing ways to build common standards and measurements, build skills and engage policymakers to promote green finance. The index will support this network by creating new occasions for financial centres to share best practices, through the reports and events that accompany future editions of the GGFI.
How can civil society benefit from the GGFI?
The financial industry likes to portray green finance as an exciting niche, profitable but largely based on adding new green finance to an unchanged financial system - still predominantly focused on fossil fuel financing. In contrast to this ‘silo’ approach, the GGFI discussion around what makes a financial centre green allows for a more ambitious narrative in which mainstream finance itself becomes sustainable.
GGFI workshops can help civil society organizations to use this narrative and the green finance data that will be published alongside the index to support their advocacy. For example, environmental campaigners will be able to dig into ‘green intensity’ data published as part of the GGFI to find numbers on brown financing, or use GGFI data to show how little of today’s mainstream finance is sustainable.
Civil society could also push for better definitions of green finance and more public disclosure of data, as those two areas require substantial improvements. The GGFI will reveal gaps in the data that civil society can ask policymakers to plug, such as the gaps between national and global reporting for different types of energy lending.
By deepening their expertise in green finance, civil society groups will get better at spotting greenwashing, for example learning to spot if green bonds are not additive, or do not follow good labelling standards.
We expect the GGFI to shine a light on the green finance achievements of smaller financial centres such as Hamburg or San Francisco, which are often overshadowed by bigger financial centres. Apart from diversifying the policy discussion, this could help organisations working to promote local green finance communities.
The GGFI is part of a broader strategic effort from Finance Watch to convene and build civil society’s ability to campaign for financial reform, and we hope that more benefits for civil society campaigners will emerge as we go. The links between fundamental financial reform and the financing needs of a just and sustainable economy can only become stronger.