January 24, 2019 - (updated on January 31, 2019) – For the third straight year, the World Economic Forum listed environmental threats as the biggest risk facing the global economy. So, it was timely that Tess Virmani, Associate General Counsel of the LSTA, participated in the Green Finance Seminar hosted by Banco de Mexico in Mexico City this week. The seminar, held in conjunction with the meeting of the Steering Committee of the Network of Central Banks and Supervisors for Greening the Financial System (NGFS), pulled together central banks and supervisors from all over North, Central and South America to educate them on the current state of, and challenges to, sustainable finance and possible ways forward. Sessions included a look at several of the voluntary frameworks informing activities in the sustainable finance sector. These included aspirational, industry-wide frameworks, such as the UNEPFI Principles of Responsible Banking and the Principles of Responsible Investment as well as transaction-focused frameworks, such as the Green Bond Principles and Green Loan Principles.
The timing of the seminar was right, because as we look back at 2018 it was an important year for green and sustainable lending around the world. LPC, a part of Refinitiv, recorded nearly $60B in green and sustainability linked loans globally in 2018. This is four times the volume seen in 2017. Of this volume, EMEA saw the most activity – 83% – and the most growth with six times more green and sustainability linked loan volume than in 2017. APAC saw $5B in loan volume with Japan seeing an additional $2.4B. While volume in the Americas was lower – roughly $2.5B — 2018 was still noteworthy as it was the first year the region saw any green and sustainability linked loan activity. Moreover, amidst that activity, the LSTA, together with the LMA and APLMA, published global Green Loan Principles in December. (For more information about the Green Loan Principles, click here.)
At the seminar, institutional investors also shared the relevance of ESG at their institutions. Clients are forcing more conversations around ESG materiality. And, inclusion of ESG factors need not come at the expense of returns. ESG considerations can actually be additive from a credit perspective. The seminar also focused on Task Force on Climate-based Financial Disclosure (TCFD). Panelists emphasized that while more ESG information is available now, investors still need further ESG-related information. The TCFD offers the most prominent standard for such disclosure. In many ways, the seminar was a call to arms for the regulatory community in attendance – if the prosperity of today comes at the cost of the prosperity of tomorrow, is it not the role of central banks to address that?
In conclusion, in many ways, the seminar was a call to arms for the regulatory community in attendance.