Annex 16. Greening investments through upstream green finance frameworks

In partner countries, the attainment of the SDGs calls for country level leadership to implement holistic financing reforms geared towards national development priorities with the support of international actors. Partner countries are mobilising public and private resources to address environmental and climate objectives. There is a growing demand from ministries of finance, line ministries, central banks and regulators, development partners, civil society, and private sector partners including financial institutions at national or regional level to implement integrated and innovative financing approaches and learn from each other as they do so.

Beyond banks and financial institutions, other institutions which compose the financial ecosystem can also deploy an array of sustainable practices in their respective field (for example, a Stock Exchange can be labelled sustainable as far as it recommends or requires its listed companies to disclose their sustainability and non-financial impacts in their annual reports, and/or promote green bonds). Central banks can join the efforts of the International Platform on Sustainable Finance or the Network for Greening the Financial System to promote climate change and biodiversity loss as systemic risks among the banks of their respective jurisdictions.

A growing number of EU supported actions targeting the implementation of green bonds schemes at national or regional level, sustainable finance taxonomies or sustainable finance roadmaps at jurisdiction level, are being prepared and implemented. For instance, the Global Green Bond Initiative (GGBI) aims to support the expansion of green bond markets in the EU’s partner countries. The initiative consists of a fund that will pool capital from a consortium of European DFIs led by the EIB, and from private investors, to invest in green bonds. The EU, as a global leader in sustainable finance and green bond issuance, has also set up the Sustainable Finance Advisory Hub. The hub will provide technical support for developing sustainable finance frameworks and sustainability-related financial instruments in partner countries. Additionally, the hub will assist GGBI partners in their expansion of green bond markets.

The EU Sustainable Finance Disclosure Regulation, Taxonomy and Green Bonds Standard are three major references and best-practice examples to conceive programmes of activities in favour of partner countries, while taking into account national circumstances and strategies such as NDC and Biodiversity Strategies and Action Plans. Similarly, regional programmes such as the “Greening Finance in the Eastern Partnership for Economic and Investment Plan implementation” intends to support preparatory work to help EaP countries to tap into bonds markets to finance green investments and pilot test climate adaptation and resilience projects. Several EFSD+ PIPS as well aim to support Green Bonds frameworks by providing anchor investment and methodology. At country level, India 2023 Annual Action Plan supports advancement of the International Platform on Sustainable Finance (IPSF) to scale up green finance and bonds through knowledge sharing and best practice, including in relation to the EU Taxonomy. South Africa received support to build and establish its own Taxonomy, whose structure is inspired on the EU Taxonomy to facilitate interoperability.

The Integrated National Financial Frameworks (INFF) promoted under the Addis Ababa 2030 Agenda are also an option to elaborate a public and private finance coordinated strategy for a partner country. The EU is a regular supporter of the UN INFF process and periodic actions provide funding to UN implementing partners to develop INFF with volunteer countries. Similarly, more actions are being designed to support carbon pricing or domestic or regional carbon markets, and some of them prepare the ground for CBAM.

In actions that aim at the development of financial instruments with climate and biodiversity objectives, key elements to check are the alignment of the proposal with international practice and trends, and ensuring country ownership in the process, to ensure institutions of the partner country, which may already be involved in peer-to-peer international initiatives, keep the lead in their reforms. An ex-ante mapping exercise of the existing initiatives is recommended. When an INFF or an initiative to build a national Taxonomy exist, any supported action should be conceived in coherence with those frameworks, with a view to implement the NDC and emerging national Biodiversity plans.

Suggestions on how the different stakeholders of the financial system may do their part of greening to contribute to the efficiency in the whole system are indicated in the table below.

STAKEHOLDER	POSSIBLE ROLE IN GREENING THE FINANCIAL SECTOR
Local FIs (commercial banks, micro-finance, funds)	FIs should undertake internal reforms to adopt or strengthen their sustainability frameworks, including policies, risk management framework, environmental and social management framework and safeguards to meet international standards (e.g. IFC performance standards, Equator Principles, EU taxonomy). They could as well propose a range of sustainable financial products (both assets and liabilities: credit lines, loans, investment products etc.). They should disclose their sustainability impact in their annual report and could try to be listed in sustainability indexes. They might promote green vehicles such as funds and issuing green bonds. They might join a recognised international initiative to learn with peers (e.g. CDP, Science-based Targets - SBTi, Task Force on Climate-Related Financial Disclosures - TCFD, Taskforce on Nature-related Financial Disclosures - TNFD, Mainstreaming Climate in Financial institutions, and the Finance for Biodiversity Pledge).
FIs with mission (DFI, agriculture bank, green bank)	FIs with mission usually already have a number of the above elements in place, due to their mandate. Smaller institutions should upgrade their standards to reach international standards adopted and promoted by large IFIs. These institutions usually have the adequate profile to channel international climate finance thanks to their sustainability processes.
Central bank and regulators	Central banks can join the efforts of the International Platform on Sustainable Finance or the Network for Greening the Financial System to promote climate change and biodiversity loss as systemic risks among the banks of their respective jurisdictions. Regulators of pensions and insurances can play a significant role in their respective field to encourage green investing, request climate risk tests and modelling, etc.
Investors (insurance companies and pension funds, Sovereign Wealth Fund)	Insurance companies and pension funds have been early birds in detecting climate change risk and have created the demand for green investment products since the early 2000’s. A lot can still be done for them to overcome regulatory barriers that prevent them from investing in green bonds or other sustainable solutions within their industry. Sovereign Wealth Funds may join the One Planet SWF working group to mainstream environment & climate in their investment processes.
Stock Exchange	A Stock Exchange can be labelled sustainable as far as it recommends or requires its listed companies to disclose their sustainability and non-financial impacts in their annual reports, and/or promote green bonds. Stock exchanges may adhere to the UN led Sustainable Stock Exchanges Initiative to become green, sustainable and Paris-aligned.
Financial Centre	In cities where a financial centre is institutionalised (usually around a stock exchange or banking association), there is usually fruitful dialogue between sustainable projects to respond to the needs of the city and financial players likely to invest in them. Financial centres also gather among themselves and share their experiences, challenges and progress in the Financial Centres for Sustainability Network.
Service providers (fund managers, brokers, research centres and verification bodies, consultants…)	The financial system runs thanks to the intervention of a myriad of service providers. Fund managers and brokers are key to make the link between investors and financial instruments available in the market, they need to develop their competences and run efficiently a methodology to invest in green activities and projects, whether they are infrastructure projects or MSMEs programmes, equities, bonds, etc. Research centres and academia are also key to provide second opinion of third-party verification, together with audit firms and certification bodies.
Professional associations and civil society as end-borrowers or retail investors	Sectoral or professional associations (association of accountants, of executive directors, societies, chambers of commerce and industry, cities’ associations such as the Covenant of Mayors etc.) are interesting networks to mobilise to sensitize and disseminate information, best-practice, and peer-to-peer learning on how to mainstream environment, climate and biodiversity in their respective field of the financial sector. CSO defending the purchasing power of citizens or practicing advocacy and stakeholder activism may be identified and supported to participate to the greening effort from banks and companies and by creating awareness and demand by the public for green products and services.
Ministry of Finance	MoF can be the conductor of the orchestra and use tools and strategies such as the Integrated National Finance Frameworks to pilot and overview each stakeholder’s progress in greening under their respective role in the financial system.

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Annex 16. Greening investments through upstream green finance frameworks