Stimulating Non-Bank Financial Institutions' Participation in Green Investments
Gianfrate, Gianfranco; Lorenzato, Gianni | August 2018
This paper analyzes the approaches adopted by institutional investors to manage climate risk in their portfolios and proposes policies to increase climate awareness in this large segment of the capital markets. Because of their size and their role as conduit of savers’ climate concerns to the capital markets, most non-bank financial institutions are ideally positioned to steer corporate capital allocation toward more sustainable uses. Over the past decades, an increasing number of institutional investors have adopted strategies to mitigate climate exposure. These include negative screening, positive screening, active ownership, sustainability ratings, and hedging of climate risks. These strategies reflect specific fund manager mandates and the recognition that climate risks can have a tangible impact on financial assets’ valuations and, as a result, institutional fund performance. We review the evidence about the adoption of these strategies, in both advanced and developing capital markets. We then analyze the pros and cons of each strategy in promoting more sustainable climate practices and identify best practices. We conclude with policy recommendations for capital markets regulators to incentivize the adoption of sustainable practices among institutional investors.
CitationGianfrate, Gianfranco; Lorenzato, Gianni. 2018. Stimulating Non-Bank Financial Institutions' Participation in Green Investments. © Asian Development Bank Institute. http://hdl.handle.net/11540/8639.
Climate impacts assessment
Global climate change
Asian Development Bank
Regional Economic Integration
Financial Sector Policies
Financial Risk Management
Regional Development Bank
Local government bonds
Multilateral development banksShow allCollapse