Policy-makers drive Europe’s continued dominance in green finance

green finance

Almost all of the largest hubs for green finance are concentrated within Western Europe, a biannual index shows, with Amsterdam, Zurich, and London continuing to lead efforts to finance a sustainable future.

Amsterdam came in first for the depth of its green finance, followed by Zurich and Copenhagen, in the sixth Global Green Finance Index (GGFI 6) by London think-tank Z/Yen. 

This was reversed in the ranking of the quality of green finance, in which Zurich emerged as the leader, with Amsterdam in second position, followed by the former frontrunner, London, which slipped down to third position. 

Green finance includes any financial instruments on offer, such as insurance, equity, bonds, commodity and derivatives trading, analytical and risk management tools, that result in long-term positive change for the environment and society.

Oslo, Luxembourg, Paris, Stockholm, Geneva, Copenhagen, and Munich rounded out the top 10 for quality of green finance. San Francisco was the only financial centre outside of Europe to make the top 10 for the depth of green finance, rising to seventh from its previous position in sixteenth.

European financial institutions, central banks, and regulators have been early adopters of sustainable financing practices as the European Union pushes to cut carbon emissions by 55 per cent by 2030. 

There has also been a steady agenda of reforms, including the upcoming EU taxonomy for sustainable finance, which has helped to grow and regulate the market for green finance.

Professor Michael Mainelli, executive chairman of Z/Yen, says that green finance is a “policy-driven sector” that shows a marked “dependence on public policy and regulation”.

Financial institutions surveyed by Z/Yen indicated that the top driver of green finance was policy and regulatory frameworks.

“Places where sustainability is a hallmark of public life and discourse have a marked advantage in green finance,” adds Mainelli. 

There was a close correlation between cities that scored highly in GGFI’s ranking and high-scorers in other measures of sustainability, such as water quality.

Green finance has been “zoomed in on”, according to Mainelli, as economies target a sustainable recovery from the coronavirus crisis, with the deadline for accomplishing the UN Sustainable Development Goals also approaching in 2030.

Z/Yen’s report on the GGFI reads: “As the world starts its slow climb to recovery following the Covid-19 pandemic, policy-makers have been presented with a fork in the road – to rebuild economies to the model which was beginning to fail or to attempt to rebuild sustainably. Within this framework, the financial services sector provides a key tool to deliver a sustainable path to Covid-19 recovery – green finance.” 

Financial centres also have the opportunity to create a “new agenda for change”, says Z/Yen, firstly by working together to frame the questions for policy-makers, regulators, and financial service providers on how to embed sustainability in financial systems, by establishing benchmarks and standards, and by leading international and domestic policy discussions.