Making Waves

Policy Lever: Harnessing Public Balance Sheets

Goverments are using their public balance sheets to provide fiscal incentives, risk guarantees or public investment in ways that improve the risk adjusted returns of green investment and seek to 'crowd-in' private investors.  Incentivizing sustainable finance through the use of the public balance sheet has been a feature in every country reviewed by the Inquiry.

Examples

Steps that can be taken to develop new green investment incentives, or to align existing incentives to sustainable development include: 
  • Target fiscal support: Establishing and optimising fiscal incentives to mobilize private capital for green investment.
  • Review fiscal incentives: Reviewing the alignment of existing fiscal incentives for savings, investment, lending and insurance with sustainability.
  • Sustainability mandates of public financial institutions: Strengthening sustainability as part of the mission and operation of development finance institutions and sovereign wealth funds.
  • Establish new green institutions: Launching new green investment banks and funds.
  • Blended finance instruments: Developing and using financial instruments designed to share risks and overcome barriers to private investment (such as through risk underwriting & results based financing).
  • Central banks refinancing operations: Extending refinancing operations to include green assets.
  • Central bank asset purchase programmes: Incorporating sustainability factors into asset purchase programmes.
  • Public procurement criteria: Introducing sustainable development performance into procurement of financial services by the public sector.

 Impacts

These measures are widely adopted and can be effective, but the scale of new funding available is limited. Nevertheless the financial system is already the recipient of, and conduit for, significant public financial support, which has the potential to be aligned to sustainable development.      

Inquiry Publications

  • The Financial System We Need: Aligning the Financial System with Sustainable Development

    Date: 08-Oct-2015

      Download the full report: [AR] [CH] [EN] [ES] [FR] [PT] [RU] Download the policy summary: [AR] [CH] [EN] [ES] [FR] [PT] [RU] This first edition of “The Financial System We Need” argues that there is now a historic opportunity to shape a financial system that can more effectively finance the development of an inclusive, green economy. This opportunity is based on a growing trend

  • Making Waves

    Date: 17-Apr-2018

    The Inquiry into the Design of a Sustainable Financial System was initiated by the United Nations Environment Programme to advance options to align the financial system with sustainable development. ‘Making Waves: Aligning the Financial System with Sustainable Development’ is its final, global report. This report reviews the Inquiry’s core analysis, summarizes progress made in aligning

  • The Financial System We Need: From Momentum to Transformation

    Date: 29-Sep-2016

    Download the policy summary: [AR] [CH] [EN] [ES] [FR] [PT] [RU] Download the individual chapters: Chapter 1: Mapping the momentum | Chapter 2: Harnessing financial technology for sustainable development | Chapter 3: Measuring performance | Chapter 4: Steps towards transformation Our follow-up annual report reveals a doubling in policy actions over the past five years to align the global financial system with sustainable

  • Financing the Transition – How Financial System Reform Can Serve Sustainable Development

    Date: 15-Nov-2016

    This report is focused on understanding how the growing number of policy and regulatory measures taken in the financial system can support a real economy in transition, seeking to answer the question: ‘what measures are most needed to deliver efficiency, effectiveness and resilience in ways that the financial system can contribute to specific sustainability priorities

  • UK Country Report

    Date: 14-Jan-2016

    This paper looks at the steps that the UK has taken towards a sustainable financial system shaped by its role as a global financial centre and a distinctive dynamic between social entrepreneurs and civil society organisations, market innovation and policy frameworks.The City of London is not only home to some of the world’s largest financial markets, but

  • Green Finance Opportunities in ASEAN

    Date: 15-Nov-2017

    This report lays out ways in which the ASEAN region can unlock this investment and protect its people, environment and economies. It provides an analysis of green investment opportunities in the region from 2016 to 2030, assesses the characteristics of those opportunities, and estimates current green finance flows. Based on a literature review and expert

  • Establishing China’s Green Financial System: Progress Report

    Date: 16-Nov-2017

    The report finds that China – which put green finance on the G20 agenda during its 2016 presidency – is following through on its political commitment to boost the financing required to do this. The report looks particularly at progress since the State Council in August 2016 approved a set of recommendations for action on

  • Bangladesh Country Report

    Date: 09-Oct-2015

    Bangladesh has been a leader in developing policies to shape a greener and more inclusive financial system. It has a suite of green banking regulations and policies including concessional green refinancing, credit quotas for green finance and guidance and requirements on environmental due diligence. Green finance is growing but it remains modest compared to the scale of Bangladesh’s

  • China Report

    Date: 06-Oct-2015

    The Inquiry collaborated in an 18-month project, Greening China’s Financial System, carried out by the International Institute for Sustainable Development (IISD) and the Finance Research Institute (FRI), Development Research Center (DRC) of the State Council. The aim was to develop specific proposals for greening China’s financial system, based on an analysis of current practice in China

  • US Country Report

    Date: 11-Feb-2016

    While US financial institutions have at times enjoyed a reputation of being something of a laggard on sustainability issues versus their European counterparts, significant changes and innovations are under way which are beginning to drive meaningful change. Record levels of awareness on sustainability issues in the US, including from millennials, are accelerating activities such as: Increased levels of

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Further Reading

  • South – Originating Green Finance: Exploring the Potential

    Zadek, S., Flynn, C. (2013). Geneva: International Finance Dialogues.

  • The Green Investment Report – The ways and means to unlock private finance for green growth

    World Economic Forum (2013).  Geneva: WEF.

  • Time for Green Quantitative Easing

    Werner, R. (2012).

  • Blended Finance Vol. 1: A Primer for Development Finance and Philanthropic Funders

    WEF (2015). Geneva: WEF.

  • Driving a Green Economy Through Public Finance and Fiscal Policy Reform

    Sukhdev, P. and Stone, S. (2010). UNEP Green Economy Working Paper 1.0. Nairobi: UNEP

  • Mobilizing Public and Private Funds for Inclusive Green Growth Investment in Developing Countries

    Maheshwari, A. et al (2013). International Finance Corporation.

  • Funding the Green New Deal: Building a Green Financial System

    Kapoor, S., Oksnes, L. with Hogarth, R. (2011). Policy Maker Report, Green New Deal Series volume 6. Brussels: Green European Foundation.

  • Déjà Vu, All Over Again: QE3 and Developmental Central Banking

    Diaz-Bonnila, E. (2012).

  • Effective Green Financing: What Have We Learned So Far?

    Buchner, B.K., Heller, T.C., Wilkinson, J. (2012). Venice: Climate Policy Initiative.

  • A Proposal To Finance Low Carbon Investment In Europe

    Aglietta, M., Espagne, E., Fabert, B.P. (2015). Note d’Analyse No. 24. Paris: France Stratégie.

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