Banking Network Needed to Fill the Green Investment Gap

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Centre for Advanced Studies in Finance

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A major network of European public banks and private institutions should be established to raise and co-ordinate investment in projects to mitigate climate change, new research has concluded.

A study into ways to increase funding for ‘green’ investments carried out by Professor Alessandro Vercelli of the University of Siena concluded that the formation of a ‘Green Banking Network’ would be the most effective way to raise and invest funds for environmentally-sustainable projects. 

Under the plans, the network would be run by a central body, possibly the European Investment Bank (EIB), and would use pooled funds raised from different national public banks as an incentive to raise larger sums of private capital to invest in a variety of large and small scale cross-border projects. 

The fund would invest in low carbon resilient infrastructure; mitigating risk by co-investing in projects; leasing real assets to split costs; warehousing small projects to reduce transaction costs; and allowing borrowers to repay loans through additional charges to utility bills.

The research was undertaken as part of the Financialisation, Economy, Society and Sustainable Development (FESSUD) research programme led by the University of Leeds, and the findings will be presented at the FESSUD conference in Brussels on 27 and 28 September. 

Professor Vercelli suggested that public funds could be raised from sources such as carbon tax revenue; emission trading schemes; utility bill surcharges; and reallocating funds currently used for incentivising carbon fuels. Funds could also be raised through financial markets and issuing bonds.

Professor Vercelli said: “Global private investment in climate mitigation and adaptation has been around $350bn per year in recent years. But the overall investment that is required is three times that amount. The problem is that the private sector prefers short-term, low risk investments, and environmentally-sustainable projects are often seen as longer-term and higher risk.

“By pooling funds raised from a number of public banks, greater amounts of private sector funding could be generated and private investors would have more confidence to make the investments needed with the backing of such an influential network. All EU country members are invited to designate a national bank to join the network – this is not compulsory but a well-designed network would offer strong incentives to join.”

Private businesses wishing to join would have to demonstrate a clear commitment to sustainability objectives and meet certain sustainability criteria. Public funds and incentives would be shared only with private banks that complied with strict principles of corporate social responsibility.

The paper identifies the UK’s Green Investment Bank, which was established in 2012, and Germany’s KfW Bank, a national bank which was founded in 1948 as part of the Marshall Plan, as models which could be adopted. 

FESSUD is funded by the European Union and led by Leeds University Business School and involves 14 business schools in Europe and South Africa. The €10m research project has examined the dominance of the financial system over other parts of the European economy in the last 30 years and suggests reforms to support economic, social and environmental sustainability.

Ends

Professor Vercelli is available for interview. Please contact:
Guy Dixon, University of Leeds media relations: 0113 343 1028, 07954 277 539 or g.dixon@leeds.ac.uk

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The views expressed in this article are those of the author and may not reflect the views of Leeds University business school or the University of Leeds.