Get to know the market with 33.7% of global total AUM: Green Finance

(Picture Credit: SIEW 2020)

“Have you heard of Green Finance or related terminology?” I have asked this question to several Professionals in the HK financial sector, including Fund Managers, Financial Planners and Analysts in ibank. All of them admitted that they do not know much about Green Finance, some of them can vividly mention the term “ESG report”, none of them can tell me figures or policies related to Green Finance. In this blog, I will briefly introduce Green Finance by explaining its concept, clarifying misunderstanding, and citing certain data.

What is Green Finance?

Same as the term “Finance”, there is no generally acknowledged definition of “Green Finance”. Personally, I think that Green Finance can be understood as the combination of 2 terms: “Greening Finance” and “Financing Green”.

“Greening Finance” means by disclosing and identifying climate-related risks in the financial sector (including but not limited to physical risks, transition risks and liability risks).

“Financing Green” means by increasing investment and channels of investment to measures that addressing the climate change or related sustainability issues (including measures of both climate change adaptation and climate change mitigation).

Is it just a vanity project in the business world?

No, absolutely no. I am glad that the public is playing carefully in the financial market after 2008. However, treating Green Finance as a vanity project is a huge misunderstanding.

In fact, governmental bodies among the globe have treated Green Finance as an important element for humanity to achieve sustainability. For instance, developing Green Finance is one of the three main goals targeted by the Paris Agreement. It is stated in Article 2.1c — “Making finance flows consistent with a pathway towards low greenhouse gas emissions (GHG) and climate-resilient development” (Source: UNFCCC).

Some companies, however, may use “Green” or equivalent terms to describe their products or portfolios while their contribution to the “Green field” are subtle or not as much as they mentioned. The above behavior is “Green Washing” but not “Green Finance”.

How significant is Green Finance to the Financial sector?

To answer this question, citing data is the best and only way. Here are some of the related data:

  1. Sustainable Assets reached the value of USD $31 trillion global Assets Under Management (AUM) in 2018, which is 33.7% of global total AUM (Source: Bloomberg). It shows that money is flowing into Green Finance market. Also, Sustainable and Green Funds has been dominating a huge proportion of assets in the Assets Management Market.
  2. Annual tracked climate finance in 2017/2018 reached USD $579 billion, which is a 58.6% increase since 2013/2014 (Source: Climate Policy Initiative). It obviously shows that the market size and investors’ interest of Green Finance are growing rapidly.
  3. The first Green Bond was issued at 2008. At 2018, there were 2894 issued Green Bonds around the world (Source: Statista). It shows that instruments related to Green Finance had been experiencing rapid growth in the last decade.
  4. BlackRock, the world’s largest asset manager, launched a range of ETFs that invest based on ESG criteria in October 2018. It shows that the top players of the financial sector have noticed the huge potential growth of Green Finance. Hence, they are reacting fast to dominate the market share of it. It is crystal clear that Green Finance has a growing significance to the entire financial sector.

Any thoughts?

This is my brief introduction about Green Finance. For my opinion, it is definitely the next BIG ISSUE for the financial sector. Any thoughts about Green Finance? Any questions related to Green Finance? Feel free to leave a comment below!

Green and Sustainable Finance Professional™ (GSFP) | Certificated Member of Chartered Banker Institute (CCBI)