Record green financing in Europe is still nowhere near enough

EUROPEAN governments, banks and businesses raised a record 311 billion euros (S$453.1 billion) of green finance last year, which is almost twice the amount reached in 2020 but still nowhere near enough to meet a mid-century target of net-zero greenhouse-gas emissions, according to a report by New Financial.

“It’s worrying because it’s quite a big number, and it’s a number that needs to be repeated each year for the next 20-30 years,” William Wright, managing director of the UK-based think tank behind the report, said in an interview. “We shouldn’t be blase about it.”

Europe is still well ahead of other regions, and the amount it dedicated to green finance in 2021 represents about 12 per cent of its total capital market activity, according to New Financial. But in order to hit climate neutrality by 2050, Europe will need to spend as much as 1 trillion euros each year, the European Commission estimates. 

Green finance refers to money raised for environmentally friendly and sustainable activities. But there are different shades. Only about 40 per cent of Europe’s green bonds are “dark green”, meaning they finance projects that play a significant role in the transition to net zero, according to the New Financial report. When it comes to sustainability-linked loans, just 40 per cent can be defined as green, based on an analysis of the projects they finance. 

The report also identified the UK as a green-finance laggard when compared with the rest of Europe, and estimates that the country is about 4 years behind the region on average. 

Britain “is punching below its weight”, the report concludes. “This also highlights that green finance is one of the few areas in banking and finance where the EU (European Union) is a clear global leader, with more than 40 per cent of all global activity in sustainable finance and ESG (environmental, social and governance).”

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Other findings in the report:

• More than 95 per cent of Europe’s green finance comes from bond and loan markets. In 2021, almost 200 billion euros was raised via labelled green bonds, while companies raised a further 100 billion euros in the loan market.
• Equities accounted for only 4 per cent of Europe’s green finance market in 2021, as companies find it easier to tap debt markets when funding large projects.
• Some 22 per cent of Europe’s green finance activity was associated with companies whose primary activity is to help address climate change, such as makers of solar panels. By contrast, 27 per cent was raised by companies that contribute to emissions, such as oil producers. The rest was associated with companies deemed neutral for the climate. BLOOMBERG