Following the Paris Agreement, 147 countries around the world submitted their Intended Nationally Determined Contributions (INDCs) with pledges to reduce greenhouse gas (GHG) emissions under the United Nations Framework Convention on Climate Change. To achieve these climate targets, many countries have created policy packages to green their economies. Green financing needs however remain unmet, indicating a significant untapped potential for banks to grow their green financing products and services. The green financing gaps will only be bridged if commercial banks adopt strategies and targets to develop green finance products and services to support the real economy in the green transition.
The Alliance for Green Commercial Banks is a new global initiative that brings together financial institutions, banking industry associations, research institutions, and innovative technology providers to work together to develop a community of green commercial banks across emerging markets and finance the infrastructure and business solutions needed to urgently address climate change. Starting in Asia, in partnership with the Hong Kong Monetary Authority (HKMA), IFC will work to support financial institutions on their journey to become leading green banks.
The Alliance will connect ambitious institutions that are committed to urgency and excellence in green finance to address the world’s most pressing challenges by:
- Promoting the development of Green Commercial Banks in the global financial market;
- Serving as a peer-to-peer learning platform for commercial banks to acquire knowledge, tools, and business information to develop their green finance roadmaps and transform their institutions into credible green banks;
- Helping members of the Alliance to collaborate and take advantage of an estimated $29 trillion in green and climate- related investment opportunities identified by IFC across emerging markets;
- Facilitating dialogue and provide thought leadership to advance the green finance agenda globally.
WHY GREEN BANKING?
To achieve global climate targets and respond to the policy packages needed to green national economies, tremendous financing is required that cannot be met by the public sector alone. Private sector financing is crucial to a green transition. The financial sector, and commercial banks in particular, therefore have an important role to play, especially in emerging markets where government budgets are limited. This need also offers tremendous investment opportunity. IFC research estimates more than $29 trillion in climate investment opportunities in cities in emerging markets over the next decade. Sectors include green buildings, public transportation, electric vehicles, waste, water, and renewable energy.
Meanwhile, adopting green practices offers banks, especially small and medium banks in emerging markets a powerful means to differentiate themselves and grow by attracting international capital and customers seeking sustainable finance options. By reducing risk and unlocking new lending opportunities, green banking can help these financial institutions outperform and reposition themselves against other market competitors, gain market share, and increase profitability.
HOW IT WILL WORK
Responding to growing demand from financial institution clients and international partners for a more standardized approach to ensure the credibility of green banking, IFC developed a framework for Green Commercial Banks based on IFC’s extensive global experience and local market knowledge in climate finance and sustainability risk management and support for:
- Growing banks’ green loan portfolios
- Designing new products and services for green projects and businesses
- Improving bank employees’ capacity on green finance
- Reducing and off-setting banks’ carbon footprints
- Screening banks’ portfolios against a 2-degree transition pathway and exposure to climate risk
- Adherence to international good practice in managing environmental and social risk and performance in lending and investments.
IFC has been piloting successful green finance models in China, Ukraine, and some parts of Latin America. We aim to inspire more banks globally to explore differentiated and distinctive green development paths that meet a robust and credible standard. If successful, this will reshape the green finance market globally and mobilize more resources in climate- related industries to reduce GHG emissions.
Edmond Lau, Senior Executive Director of the HKMA (left), and Vivek Pathak, IFC Regional Director for East Asia and the Pacific (right) sign the cooperation agreement to establish the Alliance for Green Commercial Banks.
To join the alliance, please email Jia Wu at firstname.lastname@example.org with questions.