1.    Introduction

The global green finance development index (GGFDI), jointly developed by the International Finance Forum (IFF) and the International Institute of Green Finance (IIGF) of Central University of Finance and Economics (CUFE) in China, is a quantitative measure of progress in developing green finance at the country level. Focusing on three areas―policy and Strategy, product and market, and international cooperation, it aims to provide consistent information on the global development of green finance.

2.    Results- green finance country rankings

Overall, GGFDI results show that the development of green finance is very uneven across countries. The average score of GGFDI is 50 for the 55 countries. It is 62.1 for the developed countries and 39.2 for developing economies. Across the region, the average score is the highest for Europe at 63.6, followed by North America at 61.7, Latin America at 53.8, Asia and the Pacific at 47.1, Africa at 41.4, and the Middle East at 20.6.

France is ranked first among the 55 countries by the GGFDI score. The other countries in the top 10 list include, in the order of ranking, the UK, Germany, China, Netherlands, Japan, Sweden, Denmark, Spain and the US. Except for the US, all these countries have high ranks in all the three focal areas: (i) policy and strategy, (ii) product and market, and (iii) international cooperation. Those ranked above the median are mostly advanced countries with relatively mature financial systems. But several emerging markets also score high. Apart from China which is ranked 4th in GGFDI score, Mexico is ranked 15th, Chile 17th, and Brazil 21st. Several developed countries are ranked below the median, including Canada, New Zealand, Greece, and Australia. Ranking of all 55 countries is shown in the Figure 1.

Most of the top 10 countries ranked by GGFDI have high scores in all its three components. For example, France is ranked the first in GGFDI, second in Policy and Strategy, first in Product and Market, and second in International Cooperation. The UK is ranked second in GGFDI, first in Policy and Strategy, sixth in Product and Market, and fourth in International Cooperation. China is ranked fourth in GGFDI, third in Policy and Strategy, eighth in Product and Market, and fifth in International Cooperation. Similarly, countries that are ranked low in GGFDI also tend to be ranked low in all three components. But there are exceptions. For example, the US is ranked 10th in GGFDI, fourth in Product and Market and 17th in International Cooperation, but only 38th in Policy and Strategy. Hungary, Portugal and South Korea are ranked the 20th, 21st and 22nd in GGFDI, but 4th, 6th, and 7th in Policy and Strategy, respectively. Mexico is ranked 15th and Brazil 23rd in GGFDI, but 8th and 7th in International Cooperation. Romania and Kazakhstan are ranked low in GGFDI but have a relatively high policy and strategy score.

3.            Detailed results

The GGFDI is constructed from 53 country-level indicators, including three-level 1 indicators: (i) policy and strategy, (ii) product and market, and (iii) international cooperation. The detailed design of the indicator is presented in the report. [READ FULL REPORT] We will explain some of the research outcomes in each of the 3 areas.

Policy

Policy and Strategy have two Level 2 indicators: green development policy and Strategy and green finance-related policy and Strategy. The former focuses on whether a country has an overall green development strategy and action plan, nationally determined contribution (NDC) commitment, and carbon pricing. In the case of a NDC commitment, it differentiates whether there is a commitment, whether there is a carbon neutrality target, and whether the target has been made into the law. However, as indicated earlier, these indicators do not take into consideration a country’s stage of development and differentiated responsibility in emission reduction. As a result, developed countries, especially European countries, tend to receive high scores. In the case of carbon pricing, it considers both the carbon tax and carbon trading, and those countries with both, such as France and Japan, receive a higher score than countries with only one or none of them. Green finance-related policy and Strategy looks at whether or not a country has a general policy, product specific policies, and policy related to climate-related information disclosure and risk management, including stress testing. Countries with a relatively mature financial system tend to receive a high score, most developed countries. In the case of information disclosure and stress-testing, countries where these are compulsory, mostly in Europe, get higher scores than those where these are voluntary or non-existent.

The UK is ranked the first in Policy and Strategy, and the other countries in the top 10 list include France, China, Hungary, Japan, Portugal, South Korea, Brazil, Netherlands, and Sweden. Some of these countries such as the UK, France, Japan, and Portugal, scored equally high in green development and green finance-related policies and strategies. The high rank of China, Hungary, Brazil, South Korea, and the Netherlands is driven more by a high score in green finance-related policy and strategy. Denmark is more driven by its high score in green development-related policy and Strategy. Though the EU has put in place a comprehensive policy framework for green finance, some of the policy measures are not compulsory. Therefore, there are differences in policy strength among the EU members, leading to varying scores in Policy and Strategy. Among other countries, Colombia, Norway, Mexico, New Zealand, and Canada have a relatively low rank (below the median country Philippines) in Policy and Strategy mainly because they have a low score in green finance-related policy and Strategy, while their green development policy and strategy area has a much higher rank.

Market

Product and Market has two Level 2 indicators: green finance products and institutional development of green finance market. The former includes green bonds, loans, insurance, funds, and carbon finance. Among these, only green bonds are measured quantitatively. The other green finance products are all measured qualitatively due to the lack of consistent data across countries. The use of qualitative indicators for most green finance products limits the ability of GGFDI to differentiate countries with differing levels of the development of green finance products. Green bonds are measured by the ratio of the value of green bonds issued to GDP, and hence the effect of country size is eliminated in country scores, and countries with a relatively small economy but high issuance of green bonds are scored high such as Sweden. Institutional development of green finance market mainly measures the commitment of various types of financial institutions to green finance and whether there are systems in place for environment-related safeguards, information disclosure, and risk management such as stress testing.

France is ranked the first in Product and Market, and other countries in the top 10 list include, in the order of ranking, Germany, Netherlands, the US, Denmark, the UK, Sweden, China, Austria, and Spain. Most of these countries have equally high ranks in both green finance products and institutional development of green finance market. But Spain has benefited mainly from a high score in the former and Austria from the latter. Many countries outside the top 10 receive quite different scores in the two areas. For example, Norway is ranked the sixth and Portugal 10th in green finance products, but their scores in the green finance market are much lower. On the other hand, Japan, Singapore, Colombia, Malaysia, and Vietnam are ranked the 9th, 10th, 11th, 12th and 13th, respectively, in the green finance market, but receive much lower score in green finance products. As indicated earlier, Product and

Market measures the actual status of green finance development, rather than policy objectives or intentions that Policy and Strategy tries to measure. Countries such as the US and Germany are ranked high in Product and Market partly because of their well-developed financial system and capital market. On the other hand, countries such as Kazakhstan and Romania are ranked low (below the 40th) even though they are ranked above the median in Policy and Strategy.

International cooperation

International Cooperation also has two Level 2 indicators: participation in major global green finance platforms and networks by financial regulators and in major international green finance initiatives by market participants. Such participation facilitates green financerelated cross-country policy coordination, sharing of good practices, harmonization of standards, and peer-to-peer learning. Due to data constraints, International Cooperation considered only global initiatives. Thus, for countries that have been active in bilateral or regional cooperation in green finance, such as the UK and Germany, this aspect has not been captured. International green finance platforms and networks in which financial regulators are participants and covered by

GGFDI include Network of Central Banks and Supervisors on Greening the Financial System (NGFS), International Platform for Sustainable Finance (IPSF), Sustainable Banking and Finance Network (SBFN) , and Coalition of Finance Ministers Climate Action (CFMCA). These are all measured with a qualitative indicator. The results show that most of the 55 countries’ central banks or financial regulators are members of NGFS, the exceptions being the US, Czech, and several countries in Middle East, North Africa and South Asia. Members of SBFN are mostly developing and emerging economies. Members of the CFMCA mainly include developed countries and several emerging economies. IPSF was initiated by the EU jointly with Argentina, Canada, Chile and China, and it has quickly attracted new members. Global initiatives participated by market participants covered by GGFDI include Sustainable Stock Exchanges Initiative (SSE Initiative), International Development Finance Club (IDFC), Equator Principles, UNEP Finance Initiative (UNEP FI), Responsible Investing Principle (PRI), and Task Force on Climate Change Related Financial Disclosure (TCFD). The first two are measured with a qualitative indicator and the rest are measured quantitatively by counting the number of participating financial institutions.

The results show that most of the 55 countries have participated in SSE Initiative, but the participation in IDFC is more limited. There are large differences in the number of financial institutions that have signed up to or supported PRI and TCFD across countries. For instance, in France, the UK, Germany, Netherlands, and Australia, the number of financial institutions that have signed up to PRI have all reached more than 100, but the number is much lower in other countries. In the case of TCFD, in countries such as China, India, and Brazil, more and more financial institutions are signing up to it, but overall, developing countries are scored lower than developed countries such as the UK, Japan, the US and Australia. Japan is ranked the first in International Cooperation, and the other countries in the top 10 list include, in order of ranking, France, Germany, the UK, China, Spain, Brazil, Mexico, Norway and Canada. Thus, not only developed countries, but many emerging economies are also actively pursuing international cooperation in green finance. Other emerging markets that are outside the top 10 but still ranked high include Chile, India and South Africa. Most of the top 10 countries have equally high ranks in official and market participation in international cooperation. But Brazil’s high rank is driven mainly by a high score in market participation. Most countries with a low rank in International Cooperation tend to have equally low ranks in both official and market participation. Even though Romania and Czech are EU members, they are not ranked high in International Cooperation, possibly reflecting the fact that, while the EU policy has helped the two countries to receive a relatively high score in Policy and Strategy, domestic interests in green finance are not as high. In countries dominated by high-emission industries such as Russia, despite government support for green finance, responses from market participants have been weak, leading to low ranks in International Cooperation.

4.    Recommendations

Despite the encouraging progress, the review and results of GGFDI point to a number of issues and challenges in global green finance development such as:

• uneven development across countries.
• limited diversity in products and services.
• lack of consistency in green finance definitions and disclosure standards; and
• the negative impact of the COVID-19 pandemic.

Addressing these issues and challenges requires continued policy efforts to incentivize more actions. Policy priorities are many and likely depend on country circumstances.

Putting in place an effective policy framework for supporting green finance. Countries where green finance is better developed mostly have a relatively comprehensive green finance policy framework. Such a policy framework often has two elements:

• a long-term national strategy for sustainable development to lay the foundation for green finance and its sustained growth; and
• a green finance strategy and action plans.

Promoting financial innovation to develop more diversified green finance products and services. Diversified products and services can cater to varying needs of large and small firms, different investor groups, and households. This study finds that a country’s green finance development is often related to the maturity of its financial system. Thus, developing green finance also requires continued reforms to make the financial system more open, liquid and efficient.

Promoting harmonization in green finance definitions and disclosure standards. Given the differences in the level of development and financial systems across countries, globally uniform green finance definitions and disclosure standards may not be practical. A gradual and more feasible approach is to focus on harmonization at a regional level or among countries with similar circumstances initially, while encouraging countries to move towards adopting global definitions and standards.

Strengthening international cooperation in developing green finance. International cooperation can play an important role in

• harmonization of green finance definitions and disclosure standards.
• promotion of sound investment principles and practices.
• developing human capital and building capacity.
• facilitating climate-related financial flows to low income and vulnerable countries;
• improving green finance statistics and data collection.

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