The Rise of Green Finance in Europe (eBook)

Preface 6
Acknowledgments 10
Contents 11
Notes on Contributors 13
List of Figures 16
List of Tables 17
Part I: State of the Art 19
Chapter 1: An Overview of Green Finance 20
1.1 Introduction 20
1.2 Ethics and Sustainability in Finance 22
1.3 COP 21 and the Paris Agreement 25
1.3.1 Main Steps Leading to COP 21 25
1.3.2 The Conference and the Paris Agreement 26
1.4 Sustainable Development Goals 27
1.5 Green Finance as a (Still) Emerging Asset Class 30
1.6 Main Types of Green Finance Products and Services 32
1.6.1 Green Bonds (and Climate Bonds) 32
1.6.2 Green Asset-Backed Securities 34
1.6.3 Green Loans 35
1.6.4 Green Funds 36
1.6.5 Green Project Financing Operations 37
1.6.6 Green Indices 38
1.7 Relevant Market Trends in Green Finance 39
1.8 Open Issues and Main Challenges Ahead 42
1.8.1 Better Defining “Green” in Finance 42
1.8.2 Better Understanding Market Incentives to Issue Green Securities 43
1.8.3 Mainstreaming Green Finance for a Real Impact on the Environment 43
1.8.4 Facing Intermittent Political Commitment 44
References 45
Chapter 2: Defining Green Finance: Existing Standards and Main Challenges 47
2.1 Introduction 47
2.2 Possible Definitions of Green Finance and Eligible Sectors and Activities 50
2.3 Definition of Green Bonds 56
2.4 Definition of Green Loans 59
2.5 Compliancy with Industry Standards 63
2.5.1 External Reviews for Green Securities 63
2.5.2 Impact and Sustainability Reporting 63
2.6 The Risk of Greenwashing 66
References 66
Chapter 3: The Development of Green Finance by Sector 68
3.1 The Role of Multilateral Development Banks (MDB) 68
3.1.1 Future Steps for Greening the MDB 70
3.2 Industrial Companies: A Focus on the Growing Importance of Environmental and Sustainability Reporting 71
3.2.1 Evolution of Environmental Reporting in Industrial Organizations 72
3.2.2 Environmental Reporting Initiatives and Guidelines 75
3.2.3 Institutional Pressures and Environmental Reporting 77
3.3 Greening of the Banking and Finance Sector 79
3.3.1 Main Phases in Greening of the Financial Sector 79
3.3.2 Voluntary Codes of Conducts in the Financial Industry 81
3.4 Regulatory Approaches 85
3.5 Conclusions 87
References 88
Chapter 4: Sustainable Finance Management 94
4.1 Introduction 94
4.2 Financial Needs of Firms Subscribing a Sustainable Approach 95
4.2.1 Sustainable Start-Ups 100
4.2.2 Existing Firms in Transition to a Sustainable Approach 101
4.3 Managerial and Organisational Implications for Accessing Green Finance 101
4.4 Preliminary Evidence on the Nexus Between Organisational Structures and ESG Ratings 104
4.5 Conclusions 106
References 107
Chapter 5: Financial Performances of Green Securities 109
5.1 Introduction and Scope 109
5.2 A Literature Review on the ESG Performances Vis-à-Vis Financial Performances 110
5.3 The Green Bond Premium 116
5.4 Primary Market or Secondary Market: Where Is the Benefit for the Issuer of a Green Bond? 122
5.5 Unobserved Reputational Gain 122
5.6 Concluding Remarks 123
References 124
Chapter 6: Institutional Initiatives to Foster Green Finance at EU Level 132
6.1 Introduction 132
6.2 The Pioneering Role of the European Investment Bank in Developing Green and Sustainable Finance 134
6.3 Towards an EU Action Plan for Sustainable Finance: The High-Level Expert Group on Sustainable Finance 137
6.4 The European Commission’s Action Plan for a Greener and Cleaner Economy 140
6.4.1 Reorienting Capital Flows Towards Sustainable Investment in Order to Achieve Sustainable and Inclusive Growth 141
Action 1: Establishing an EU Classification System for Sustainable Activities (Taxonomy) 141
Action 2: Creating Standards and Labels for Green Financial Products 142
Action 3: Fostering Investment in Sustainable Projects 142
Action 4: Incorporating Sustainability When Providing Financial Advice 142
Action 5: Developing Sustainability Benchmarks 143
6.4.2 Managing Financial Risks Stemming from Climate Change, Resource Depletion, Environmental Degradation and Social Issues 143
Action 6: Better Integrating Sustainability in Ratings and Market Research 143
Action 7: Clarifying Institutional Investors’ and Asset Managers’ Duties 144
Action 8: Incorporating Sustainability in Prudential Requirements 144
6.4.3 Fostering Transparency and Long-Termism in Financial and Economic Activity 144
Action 9: Strengthening Sustainability Disclosure and Accounting Rule-Making 145
Action 10: Fostering Sustainable Corporate Governance and Attenuating Short-Termism in Capital Markets 145
6.5 Following the Action Plan: Main Ongoing Policy Initiatives to Develop Sustainable Finance in Europe 145
6.5.1 The Establishment of a Shared, Universal Taxonomy 145
6.5.2 Definition of EU Sustainable Labels in the Financial Sector 147
6.5.3 Sustainable Reporting and Climate-Related Financial Disclosure 148
European Commission’s Guidelines on Non-financial Reporting 149
TEG Report on Climate-Related Disclosure 149
6.5.4 The Launch of Financial Support Initiatives 150
The European Fund for Strategic Investments (EFSI) 150
The European Investment Bank Implementing Tools 152
The European Investment Fund (EIF) 153
6.6 EU and International Cooperation on Sustainable and Green Finance 154
6.6.1 Institutional Cooperation with the People’s Republic of China 154
6.6.2 EU Financial Instruments in the International Context 156
European Fund for Sustainable Development (EFSD) 156
Global Energy Efficiency and Renewable Energy (GEEREF) 156
Green for Growth Fund (GGF) 157
Green Climate Fund (GCF) 157
Annex 6.1 EC Workplan of the Initiatives Set Out by the Action Plan 158
References 160
Part II: The (Long) Way Forward and New Opportunities 163
Chapter 7: From Transaction-Based to Mainstream Green Finance 164
7.1 Introduction 164
7.2 Transaction-Based and Mainstream Green Finance 166
7.2.1 Transaction-Based Green Finance 166
7.2.2 Mainstream Green Finance 169
7.3 Fostering a Green Banking Market by Encouraging the Use of Green Loans 175
7.4 Other Possible Facilitators for Mainstreaming Green Finance 179
7.4.1 Development of Green Products and Investment Options 179
7.4.2 A Pipeline of Environmental Projects 180
7.4.3 Green Finance Ratings 182
7.4.4 Academic Research on Green Finance 183
References 183
Chapter 8: The Development of Green Finance in EU Agriculture: Main Obstacles and Possible Ways Forward 186
8.1 Introduction 186
8.2 Literature Review 189
8.2.1 Farming Yields and Impact of Subsidies in the EU Agriculture 190
8.2.2 Features of the SME Financing 193
8.3 Factors Hampering the Development of Green Finance in Agriculture 196
8.4 The Potential Role of Dedicated Financing Structures 201
8.4.1 Securitisation 202
8.4.2 Guarantee Funds 205
8.4.3 Funds of Funds 207
8.5 The Possible Role of the Cooperative Sector 209
8.5.1 Relationship Lending and Other Lending Technologies 210
8.5.2 Cooperative Intermediation 211
8.6 Concluding Remarks 213
References 214
Chapter 9: Fintech, Digitalization and Blockchain: Possible Applications for Green Finance 218
9.1 Introduction 218
9.2 Fintech Applications in Green Finance 221
9.2.1 Green Robo-Advisors 221
9.2.2 Green Crowdfunding 226
9.3 Blockchain Applications in Green Finance 230
9.3.1 Blockchain in a Nutshell 230
9.3.2 Peer-to-Peer Financing and Investment 236
9.3.3 Peer-to-Peer Trading and Exchange Platforms 239
9.3.4 Measurement, Reporting and Verification of Impact Data 242
9.3.5 Overview on Real-World Examples of Blockchain Applications in Green Finance 243
9.4 Conclusions 244
References 245
Chapter 10: Sustainable Finance: A Common Ground for the Future in Europe? 249
10.1 Introduction 249
10.2 The Need for a Value-Added Approach to Sustainable Finance 252
10.3 The Role of Value-Based Finance 255
10.3.1 Financial Actors and Sustainability 256
The Business Dimension 257
The Social and Environmental Dimension 258
The Governance Dimension 258
10.3.2 Sustainable Finance Products 259
10.4 Market Appeal of “Alternative” Forms of Finance 261
10.5 Sustainable Banks in Europe: Which Challenges? 263
10.5.1 Sustainable Profit-Driven European Banks 263
10.5.2 Not-for-Profit and Specialized European Banks 266
Specialized Banks 266
Cooperative Banks 267
10.6 Conclusions and Further Perspectives 269
References 270
Chapter 11: Green Finance Today: Summary and Concluding Remarks 272
11.1 The Role of Finance in Fostering a Sustainable Economy 273
11.2 Market Forces Alone Will Not Be Sufficient to Mainstream Green Finance 275
11.3 The Efforts Needed to Mainstream Green Finance 276
11.4 Green Finance Beyond Finance 278
References 279
Index 281