What is it that makes green finance green?

Blog
19 October 2017

Last month I was delighted to help TheCityUK inaugurate two things: a new economic research report on green finance, but also a collaboration with Imperial College Business School’s Centre for Climate Finance & Investment, with whom we co-wrote the report.

TheCityUK’s first-ever report that looks holistically at green finance, the research seeks to answer the question of what, exactly green finance is. In addition, it offers an overview of the state of the market and considers the UK’s role as a global green finance leader.

The definitional question is much trickier than might be assumed. A workable definition of green finance needs to be expansive enough to reflect the breadth and diversity of the sector—and also to remain relevant as the sector undergoes rapid growth and evolution. But it must be precise enough to have practical applicability, and to provide a useful metric for regulators and market participants. Our definition builds on existing research and emphasises measurability as well as an explicit link to environmental goals.

Nuanced though the definitional issues may be, they are central to the effort to make green finance as accessible—psychologically as well as legally and financially—as previously specialist areas that are now familiar and mainstream, like “emerging markets”. For green finance specialists, defining things facilitates the creation of benchmarks, which in turn allow investors to create green finance-focused strategies. And for the broader financial services community, clear definitions are vitally important in enhancing awareness and demonstrating the sector’s relevance.

The fact that our definition is not prescriptive about the environmental goals to be met opens the door for further reflection, refinement and evolution of the ideas in our research. For example: will the growth of green equity instruments take the form of an increase in the volume of specialist green equity funds, or an increase in the number of conventional funds that incorporate a “green” element? Can investment in fossil fuel-based energy ever be considered green if, in a given context, it would be more environmentally friendly than the alternatives? Can the financial services sector develop entirely new green products or services, rather than adapting exists products (such as bonds) into green products? We don’t claim to have all the answers to these and myriad other questions posed by a fast-growing new inter-disciplinary sector—but our new research should help advance the debate.

Anjalika Bardalai photo
Anjalika Bardalai Chief Economist and Head of Research

Anjalika manages TheCityUK’s economic research programme. She leads the team that produces the organisation’s in-house economic research, presents research and analysis externally, and writes TheCityUK’s economics blog.

Anjalika spent 12 years with the Economist Intelligence Unit (EIU) in the company’s New York and London offices, holding a number of different roles, including head of the EIU’s flagship Country Reports series. She also worked for the consultancy Eurasia Group, advising financial-markets clients on economic and political risk. She has spoken at conferences in a dozen countries across the Americas, Asia and Europe. In addition, she has appeared as a commentator on leading international broadcast media, and has been quoted in print media in the UK, US, India and elsewhere.

Anjalika has a BA from New York University and an MBA from Imperial College Business School. She is a member of the Economics Advisory Board at the University of Sheffield and the Alumni Advisory Board at Imperial College Business School. She is also Vice Chair of the RSPCA’s London East Branch, a Trustee of the charity All Stars London, and an Ambassador for the charity FairLife.