The Role of Green Financial Sector Initiatives in the Low-Carbon Transition : A Theory of Change
Green financial sector initiatives, including financial policies, regulations, and instruments, could play an important role in the low-carbon transition by supporting countries in the implementation of economic policies aimed to decarbonize their...
| Main Authors: | , , , , , , , , |
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| Format: | Working Paper |
| Language: | English English |
| Published: |
World Bank, Washington, DC
2022
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/099548409142222955/IDU0881e4d02027f504e120898502121116e2eb7 http://hdl.handle.net/10986/38028 |
| Summary: | Green financial sector initiatives,
including financial policies, regulations, and instruments,
could play an important role in the low-carbon transition by
supporting countries in the implementation of economic
policies aimed to decarbonize their economy. Thus, it is
fundamental to understand the conditions under which and the
extent to which green financial sector initiatives could
enable the scaling up of green investments and the
achievement of national climate mitigation objectives,
while, at the same time, avoiding unintended effects on
macroeconomic and financial stability. However, this
understanding is currently limited, in particular in the
context of emerging markets and developing economies. This
paper contributes to filling this knowledge gap by analyzing
opportunities and challenges associated with the
implementation of green financial sector initiatives. It
also considers the specificities of green financial sector
initiatives in emerging markets and developing economies,
which are often characterized by budget constraints, debt
sustainability concerns, and limited access to finance. The
analysis focuses on green macroprudential policies, green
monetary policies, and green public co-funding. For each
green financial sector initiative, the paper qualitatively
investigates the transmission channels through which it
affects the availability and cost of capital for high- and
low-carbon goods, but also investments, output, and
greenhouse gas emissions, considering the design and
implementation of the green financial sector initiative. For
each green financial sector initiative, the paper further
identifies its entry point in the economy and its direct and
indirect impacts. Building on these insights, the paper
develops a theory of change about the role of green
financial sector initiatives in climate mitigation and in
the low-carbon transition, identifying the criteria for
applicability and conditions to maximize impact. |
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