The authors of this paper assess the evolution of the green inclusive finance sector from 2011 to 2019. This encompasses products offered by a range of types of financial services providers (FSPs), including climate insurance as well as loans, such as for sanitation systems, renewable energy and sustainable agriculture.
The Action Group aggregated 1,130 environmental assessments of 866 FSPs and applied its Green Index framework to the data to quantify the performance of the FSPs with respect to green inclusive finance.
Among different types of organizations, banks had the highest average scores, surpassing those of non-banking finance institutions, NGOs, credit unions and government programs. By region, Asian FSPs had higher average Green Index scores than did their peers elsewhere. In Asia, Latin America and the Caribbean, green lending largely supported sustainable agriculture. In Europe and Africa, however, it mainly took the form of energy-efficiency or renewable energy loans.
Overall average scores remained almost constant throughout the period. Of the 122 FSPs that were assessed multiple times from 2011 to 2019, 41 percent improved their scores while 48 percent had declining scores. The average scores of all FSPs for external environmental risk management (ensuring clients minimize their own environmental risk) and environmental strategy (the implementation and monitoring of the FSPs’ formal environmental policies) decreased. The report also cites a general decrease in the environmental training of clients by FSPs.
Meanwhile, FSPs had the highest average scores in assessments of internal environmental risk management, such as reducing the usage of paper or energy within their offices. Average scores in this category and in promoting green products increased from 2011 to 2019.
The authors suggest that the obstacles to green inclusive finance may be a result of too much attention on short-term efforts such as pilot projects. Instead, the authors emphasize the need for “systemic change and the institutionalisation of green practices,” including “training and capacity building for clients” in order to ensure “sound and impactful delivery of green loans” as well as facilitating “the scaling up and impact of green inclusive finance.” Overall, however, the authors conclude that “there has been a positive change in the… intention of activity of FSPs” in their practice of green inclusive finance “from ‘do-no-harm’ to ‘do-good.’”
This is a summary of a paper by the e-MFP Green Inclusive and Climate Smart Finance Action Group, prepared under the coordination of Dr Davide Forcella and Dr Natalia Realpe Carrillo, and published by e-MFP, June 2023, 34 pages, available at https://www.e-mfp.eu/resources/state-art-green-inclusive-finance-2011-2019.
By James Stevenson, Research Associate
Additional Resources
European Microfinance Platform homepage
https://www.e-mfp.eu/
GICSF-AG webpage
https://www.e-mfp.eu/gicsf-ag
Green Index 2.0
https://www.e-mfp.eu/sites/default/files/resources/Green_Index_Nr_2_2016.pdf
Green Index 3.0
https://www.e-mfp.eu/sites/default/files/resources/2022/11/Green%20Index%203.0_final.pdf
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