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Index ranking green financial centres due to launch in Q1 2018

Channels: Debt, ESG, Equity, Green Bonds, Policy

Companies: Z/Yen, City of London Corporation, Gresham College, Finance Watch

People: Michael Mainelli, Simon Mills

An attempt to rank financial centres according to their contribution to green finance is being launched by Brussels-based NGO Finance Watch and the London-based Long Finance initiative.

The Global Green Finance Index (GGFI) will draw on the methodology already in place for the Global Financial Centres Index (GFCI), backed by the Z/Yen think tank and the China Development Institute, which is now in its 11th year. Z/Yen manages Long Finance with support from the City of London Corporation and Gresham College.

“Green finance is no longer seen as a fringe activity, but a profitable and desirable activity, which drives financial markets, serves society and enhances the status of financial centres which demonstrate expertise,” said the GGFI backers.

Several cities have already made explicit commitments to position themselves as leaders in this fast-growing market.

The new index, which is sponsored by the MAVA Foundation – a Swiss conservation organisation – is intended to encourage cities to become greener, compare their performance with their peers, improve policy makers’ understanding of the drivers of green growth, and assist them in shaping the financial system to support sustainability goals.

The term ‘green finance’ is intended to include “any financial instrument or financial services activity – including insurance, equity, bonds, commodity and derivatives trading, analytical or risk management tools – which results in positive change for the environment and society over the long term”.

To compile the index, questionnaire responses from financial services professionals, NGOs, regulators, and policy makers will be combined with some 130 ‘instrumental factors’ that provide objective evidence of cities’ environmental credentials and contributions to green finance.

These two inputs are combined using ‘support vector analysis’ which predicts how respondents would rate cities with which they are unfamiliar.

“The problem with perception data is that individuals have knowledge of only a limited number of centres,” explained Z/Yen associate Simon Mills.

The ‘support vector analysis’ answers questions such as: “If a pension fund manager gives Paris and Sydney a certain assessment then, based on the instrumental factors for Paris, Sydney and Singapore, how would that person assess Singapore?

To avoid home centre bias, the centre that a respondent is based in will be excluded from the assessment.

Michael Mainelli, chairman of Z/Yen, said the questionnaire is due to be launched this month with data collection in January and publication of the index in March. It is then intended to repeat the exercise twice a year, as is done with the GCFI.

Examples of ‘instrumental factors’ to be used in the GGFI include:

  •          Banks’ ratio of green energy to high carbon energy lending 
  •          Climate-aligned bond issuance or listings as a fraction of total
  •          Green equity indices
  •          Sustainable Stock Exchange
  •          Air quality data
  •          CO2 emissions per capita
  •          Metro network length
  •          Climate Impact Vulnerability Index
  •          Energy intensity of GDP
  •          Sustainable Cities Index
  •          Quality of Living City Rankings
  •          Corruption Perception Index
  •          Global Innovation Index

 

Graham Cooper