The global green bond market continues to boom, but is London letting its influence slip?
The UK government wants to cement London's position as a global hub for green finance. It has said so on numerous occasions, most recently during the summer when City Minister and Economic Minister to the Treasury John Glen vowed that the capital will become a leading light for "responsible capitalism".
But it might need to step up its efforts to spur low-carbon investment across The City, after the UK this week slipped from first to third place in the latest Global Green Finance Index (GGFI).
The GGFI bases its rankings on the results of a major survey of finance professionals, recording their perceptions of the quality, size, and 'depth' of financial centres' green finance offerings.
Despite Glen's boasting in July that the UK's green finance sector has yet to reach its potential, it seems it is already being eclipsed - in the eyes of some professionals at least - by Amsterdam and Copenhagen. The cities which took first and second place respectively in the GGFI yesterday were praised for the 'depth' of their green finance offerings, while London fell to joint third with Luxembourg, after having led the rankings just six months ago.
London did retain the top spot for the 'quality' of its green finance offerings, meaning that finance professionals still regard it as a go-to place for high quality low-carbon investment opportunities. But here too its lead over the second placed city, Paris, almost halved from 52 to 27 points, according to the GGFI rankings.
So what has gone wrong? It's worth noting first off that the GGFI's compilers did warn future rankings are liable to change substantially from edition to edition, because they are based on a survey of financial professionals' perceptions of cities - such perceptions can shift quickly.
But put simply, competition is hotting up. In the inaugural rankings in March 2018, 47 financial centres featured. This year, 59 centres appeared, with a handful more just falling short of the minimum number of assessments required for inclusion this time around.
Just because London is widely regarded as a major financial centre, the growing interest in green finance means it can count on that legacy reputation to keep it ahead of rival green finance centres going forward. As the GGFI report pointed out, a number of financial hubs, including San Francisco, Toronto, and Vienna, moved up the rankings - some by more than five places. The scramble to position a city as a leader in green finance is on.
The GGFI findings were echoed by a new report also released this week by the Climate Bonds Initiative (CBI), which identified "enormous green potential" for the global bonds market thanks to "incredibly strong" investor interest.
According to the report, which looked at both labelled green bonds and bonds from issuers that derive the majority of their revenues from "climate-aligned" assets and green businesses, around $1.2tr of green or climate-aligned bonds were issued in 2018, up from just under $1.1tr in 2017. The report identifies over $1.45tr of potential green bonds "showing that the market has headroom for huge growth into the 2020s".
The update underlines the strong competition in the global market for green finance, with China topping the country rankings for green bond issuances followed by the US, France, and the UK. Meanwhile developing countries are also getting in on the act with more innovative forms of green financial instruments. Green 'sukuks' - Islamic financial instruments to support ethical investments - are being pioneered in Malaysia and Indonesia, for instance.
Addressing climate-relate risks is climbing the agenda for bankers, investors, regulators, and politicians the world over. Pressure to raise the finance needed to hit Paris targets is only going to increase. London might be in a strong position to lead in the green finance stakes, but it won't reclaim its top of the table position without a fight.
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