Banking Network Needed to Fill the Green Investment Gap

The final annual conference of the Financialisation, Economy, Society and Sustainable Development (FESSUD) project was held on the 27 and 28 September in Brussels.

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.

Financialisation has pervasive effects on our societies, and the FESSUD project has been analysing and seeking to understand those effects, to probe the interrelationship of financialisation and financial crisis, and to develop policy agendas.

A number of research topics were discussed over the two-day conference, including:

• Variegated financialisation – Andrew Brown, Leeds University Business School
• Understanding finance and financialisation – Malcolm Sawyer, Leeds University Business School
• De-financialising social well-being - Ana Cordeiro Santos, CES University of Coimbra
• The impact of financialisation on developing countries - Terry McKinley, SOAS, University of London
• The role of regulation in avoiding crisis - Jan Kregel, Tallin University of Technology
• The macroeconomic policies of the Economic and Monetary Union - Jerome Creel, French Observatory of Economic Conjunctures (OFCE) with Richard Corbett, Member of the European Parliament
• Innovative financing models for low carbon transitions - Andrew Gouldson, University of Leeds
• A European Social Union. Unduly idealistic or inevitable? - Professor Frank Vandenbroucke, University of Amsterdam
• How German cooperative banks serve SMEs and local communities - Stefanie Schulte, RWGV

The below blog post gives an overview of one of the topics that was researched as part of the FESSUD project and presented at the final conference in Brussels. 

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.

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.