Why effectiveness and scalability matter for the green transition

The rapid uptake of green finance isn't enough. A new approach taking account of investors' expectations will be vital. Here's how it could work.

The global environmental crisis is continuing apace. Green finance has also grown rapidly in recent years: European volumes of sustainability-linked loans, where the interest rate is linked to the attainment (or not) of sustainability key performance indicators (KPIs), topped €40 billion from zero in just the two years to 2018, while green bond issuance is expected to reach $200 billion in 2019.

SLLs topped €40 billion in 2018, while green bond issuance is expected to reach $200 billion in 2019 – but it is not enough.

It is not enough. Despite the progress, the world has still not been able to settle on the necessary path that will allow it to realise its goals for sustainable growth. According to Bertrand Badré, CEO of Blue Like an Orange Sustainable Capital, and Antoine Sire, Head of Company Engagement at BNP Paribas Group, the financial sector will still play a critical role – but must do so in partnership with governments, regulators, businesses, NGOs and individuals.

How could this work? A new approach must be effective and scalable, while investor expectations must be taken to account.

Two recent developments – transition bonds and blended finance – point in the right direction. Transition bonds can help nudge borrowers into reducing waste and carbon emissions, and improving workplace practices. Sectors such as agriculture, cement, gas, mining an steel, say the authors, are prime candidates for this type of financing. Blended finance, meanwhile, seeks to raise private finance for public goods through de-risking and scaling projects.

Want to know more? Click on the link below to read Bertrand Badré and Antoine Sire’s contributed article to Project Syndicate.