Stimulating Non-Bank Financial Institutions' Participation in Green Investments
Gianfrate, Gianfranco; Lorenzato, Gianni | August 2018
Abstract
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.
Citation
Gianfrate, Gianfranco; Lorenzato, Gianni. 2018. Stimulating Non-Bank Financial Institutions' Participation in Green Investments. © Asian Development Bank Institute. http://hdl.handle.net/11540/8639.Keywords
Climate
Climate change
Climate impacts assessment
Global climate change
Asian Development Bank
Development
Regional Economic Integration
Financial Sector Policies
Financial Risk Management
Bond Financing
Climatic change
Climatic influence
Climatology
Investment bank
Investment policy
Capital Market
Regional Plans
Regional Development Bank
Development finance
Municipal Bonds
City planning
Urban climatology
Bank investment
Capital investment
Investment banking
Venture capital
Local government bonds
Bonds
Catastrophe bonds
Bond funds
Bond market
Multilateral development banks
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