BRUSSELS, 6 September 2016 – This week's announced commitment by G20 and EU leaders make bank finance more environmentally friendly is welcomed by WSBI and ESBG members representing savings and retail banks around the world.
On the EU front, European Commission's plan to set up an expert group to achieve this in Europe is also a welcome step. Locally-focused WSBI-ESBG savings and retail banks are ideally placed to help unleash green finance and are committed to promoting it. We invite the Commission to tap into our members' real-economy expertise when convening the expert group to ensure a full look at diverse aspects of financing at local level, in particular SME financing.
WSBI-ESBG thoughts on green and climate financing
The green transformation of economies requires a strong and effective financing. To achieve this, there is need for:
Local banks being integrated in the international negotiations on green finance; a dedicated task force or at least a specific session should be dedicated to them.
Priority given to a low-carbon/green economy through the angle of SMEs which create most of the growth and employment; for this purpose, local banks should be encouraged to contribute to the financing of SMEs. Several tools could be promoted such as: reduction in risk weights linked to SME exposures (known as the SME supporting factor in the European Union); development of banks refinancing in cooperation with regions; refinancing through investment or central banks which cover several jurisdictions.
Incentives given to local banks should be accompanied by the promotion of credit lines linked to energy efficiency for local enterprises.
Regional low-carbon/green market could be complemented at local level by protocols for small investors regarding diffuse emissions.
We plan to share more thoughts in an upcoming ESBG paper schedule for this autumn.
Background on green financing
Climate change brought two important challenges. First, it forces society to take into account the new risks linked to climate change. Second, in order to fight against global warming, it requires society, policymakers and stakeholders to participate fully in the transition to a low-carbon economy agreed in Paris which implies promoting the development of "green finance" and supporting "green economy", keeping in mind that sustainable finance goes much beyond low-carbon emissions.
Behind climate challenges lies economic competition in the energy sector. Since 2009, the game changer leading to a low-carbon/green economy is through driving down profitability of oil-based energy production versus boosting profit margins from sustainable sources. The G20 acknowledged this evolution and made this topic a first priority on its agenda.
The international agreement at the COP-21 Paris climate talks in December 2015 has set the goal, the strategy and the agenda for a transition to a low-carbon economy which has a especially strong financial component. Huge and long-term investments, which, according to Bloomberg new energy finance totalled $320 billion in 2015 and $12,000 billion needed worldwide by 2040 ( i.e. $485 billion per year in a voluntarist scenario) are needed in renewable energy, transport and energy infrastructure, buildings, industrial processes and new technologies. Given the constraints on public finance in many countries in the world, the largest part of these investments will have to be financed by the private sector although the public sector can help through selective fiscal incentives and public guarantees. For instance, in Europe, the EU Juncker Plan will make at least 30% of its commitment in the "green sector". This challenging goal, as stated by Governor Carney in his speech "Breaking the Tragedy of the Horizon - climate change and stability" on 29 September 2015, could be intended to be achieved through the cooperation of the public/private sector under the impetus of the G20. Regulators and supervisors will also have their role to play in order to organise the transition to a green economy, together with the local ecosystem composed of banks, SMEs, municipalities.
>> See the WSBI Intitutional Positions for G20 decision makers (.pdf)