U.S. Lags in Green Finance

New York may rank number one in the world as a competitive financial center, but it ranks 41st for green finance, according to Z/Yen, a commercial think tank in London that seeks to encourage financial centers to become greener.

The Global Green Finance Index (GGFI) is sponsored by the MAVA Foundation and delivered by Finance Watch, Long Finance, and Z/Yen. It is compiled using quantitative measures provided by third parties, such as the World Bank, Economist Intelligence Unit, OECD, and United Nations.

The GGFI report is structured around a ranking based on a worldwide survey of finance professionals’ assessments on the quality and depth of green finance offerings in financial centers.

U.S. Cities Lag

Western Europe leads, with Amsterdam in the top spot in the depth index and London first in the quality index.  

The United States does rather abysmally. The highest-ranked city is San Francisco at 17, followed by Los Angeles at 29. Washington, DC comes in at 33, Boston ranked 34, New York was 41, and Chicago’s at 42 — each well behind Shanghai (11), Beijing (19), and Seoul (21).

Factors in Green Finance

The report says that in green finance, renewable energy investment, green bonds, and sustainable infrastructure finance remained the most interesting and impactful.

The report asks whether the financial sector has the right mix of institutions to meet environmental goals, noting that far more financing goes to fossil fuel and other unsustainable uses than to sustainable activities.

Private finance appears to play a limited role unless it is pushed by regulation, tax policy, or subsidies.

“Private finance is currently ill-suited to conservation finance,” says the report, something few first year political science students would find startling.

Michael Mainelli, chairman at Z/Yen, and Bob Giffords, Independent Banking and Technology Analyst at Z/Yen, are intent on trying. They co-authored a piece that ruled out larger government intervention as a solution but said, “What may be needed is bolder, yet more pointed, government intervention.” They pin their hopes on mission-oriented financial institutions and financial products earmarked for conservation projects.

They admit the results haven’t been impressive: “Only $50 billion of conservation finance is being raised annually, a sixth of the estimated global funding need. And of this, 80% comes not from financial markets but from public and philanthropic sources.”

Software to the Ramparts

One issue is that non-financial reporting, such as green impacts, lacks common metrics and methodologies. Tata Consultancy Services found the lack of standards and consistency is one of the greatest failures in GRC (government risk and compliance).

Stanford University’s InVEST has developed a suite of free, open-source software models used to map and value the goods and services from nature that sustain and fulfill human life. The models can run independently or with Esri’s ArcGIS.

If properly managed, ecosystems yield a flow of services that are vital to humanity, including the production of food, water purification, and life-fulfilling conditions such as beauty and opportunities for recreation, InVEST said on their website.

“Despite its importance, this natural capital is poorly understood, scarcely monitored, and, in many cases, undergoing rapid degradation and depletion,” it noted.

However, in the GGFI report, Z/Yen said, “Natural capital valuation is mentioned least often both in terms of interest and impact.”