Asian Development Bank working paper calls for standardized green investment definitions

Think tank looks at non-bank financial institutions (NBFIs)

A new working paper from the Asian Development Bank Institute (ADBI), the Tokyo-based think tank that feeds into the work of the bank itself, has called for the standardization of definitions of green investments and financing tools in a bid to avoid greenwash (“green PR”).

The paper is called Stimulating Non-bank Financial Institutions’ Participation in Green Investments, where non-bank financial institutions (NBFIs) are defined as pension funds, asset managers and sovereign wealth funds etc.

It was prepared by Gianfranco Gianfrate of Harvard University’s Kennedy School of Government and Gianni Lorenzato, a former investment director at Taconic Capital and executive director at Goldman Sachs in London, who is now an independent consultant. It is stressed that the paper does not necessarily reflect the views or policies of ADBI or the ADB.

The 20-page study includes a series of policy recommendations, including a call for a “concerted and coordinated effort” to promote the “standardization of definitions of green investments and financing tools”.The authors write: “Too often the initiative is left to individual NBFIs or issuers—a problem that is evident for green bonds and green banks. Not only does this risk diluting green goals, in favor of generic “green PR”, but also hinders the widespread acceptance of green financial products among savers and asset managers.”

Standardisation would lower the cost of “ESG monitoring over time”. Listed companies and non-bank institutions “would not need to ‘reinvent the wheel’ and could adopt off-the-shelf methodologies.”

The ADBI has been focusing on green issues lately.

Amongst other papers, this month it released a paper on managing credit risk and improving access to finance in green energy projects in which it said: ““The use of credit ratings may be constraining the allocation of institutional capital to clean energy projects.”

The paper went on to say: ““In the long run, green factors are likely to reduce the long-run credit risk; hence, it may be useful to include positive externality factors of clean energy in credit rating frameworks, which would then tilt the playing field for both commercial banks and institutional investors and help in correcting the credit market failure for clean energy finance.”