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Galvanizing Green Finance: A Bottom-up Approach

Investments that provide environmental benefits are known as green finance. They are vital in the effort to transition to a sustainable global economy, and a key part of IFC’s climate business.

IFC works closely with the financial institutions, international initiatives, standard setters, and regulatory bodies engaged in green finance with the broader goal of promoting clean and sustainable development around the world.

However, measuring green finance faces several challenges, namely, a lack of cohesiveness across approaches, definitions, data availability, and the inconsistent use of quantifiable indicators. Without an integrated approach, it remains difficult to track green finance’s impact.

IFC’s publication “Green Finance: A Bottom-up Approach to Track Existing Flows,” published in April 2017 in partnership with Germany’s Gesellschaft für Internationale Zussamenarbeit (GIZ), seeks to provide methodologies for tracking flows that are aligned with much needed concrete definitions proposed at the project-level. This analysis lends support to the activities proposed under the recent “Roadmap for a Sustainable Financial System” launched by UN Environment and the World Bank Group, which intends to design an action plan for moving towards a sustainable financial system and a basis for measuring progress.

The report finds that 82 percent of all syndicated loans in 2014 financed projects in sectors with some green activities. Of all lending to projects with some green share, 41 percent of loans were for green real estate and 24 percent for infrastructure and transport.

By estimating the current s­­­upply of green finance provided by the financial sector, IFC enables broad analysis and supports the ability of policymakers to mobilize additional green finance as they develop clear action points to close any gaps with demand at a national level.

This report presents analytical results for the banking sector, green bonds, and institutional investors, concluding that while development and tracking of green finance activities is gaining momentum, current data availability limits analytical rigor of existing flows.

Additional findings show that the green bond market represents the most advanced use of definitions and tracking in the field of green finance and could serve as an example for other areas. Tracking green finance will become become much easier and more accurate when bank lending and project purposes can be clearly labeled as green based on consistent classifications. The report finally outlines key action points for market players both in the short and medium term, with the goal of enhancing cooperation and building a foundational roadmap for a stronger, more integrated green finance sector.­

Full Report (PDF)

Executive Summary (English)