Sustainable Finance Policy Effectiveness Working Group

Sustainable Finance Policy Effectiveness Working Group

Research Priorities

The growth of sustainable finance in past years has involved positively reinforcing interactions between market institutions, regulators, and policy makers, all in the context of a ten-year bull market. As global disruptions – such as the COVID-19 – increase the potential of a major global recession, policy and regulatory institutions will face challenging tradeoffs between supporting financial stability, while also following through on climate-related priorities, according to governments’ green recovery plans and carbon neutral pledges. In this context, questions of policy effectiveness – and the degree to which different types of policy and regulatory measures may complement or mutually support action across the financial system – are likely to arise.

Building on the Green Finance Measures Database, a global compendium of policy and regulatory measures taken by national governments around the world to advance green finance, the purpose of the research project is to assess the effectiveness of different types of policy and regulatory measures for green and sustainable finance, in order to identify which measures may be most effective for a given market context. The Working Group focuses on two workstreams: developing a framework for evaluating green finance measures effectiveness according to a common theory of change and joint understanding of double effectiveness; and implementing the framework through a series of guidance documents focused on key objectives of financial regulations.

The research outcomes will be brought to governments and financial regulatory authorities’ agenda to improve the policy framework for green finance, strengthened policy incentives and encourage innovation in green finance products.

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ABOUT THE RESEARCH PROJECT

Since 2015, the integration of sustainability-related priorities into financial market practice has become a defining agenda for policy institutions, central banks and regulators in many markets, and at the international level. This rapid evolution of “sustainable finance policy and regulation” has had some academic focus, largely on the role of central banks in major markets. To date, however, there has been no formal global assessment or meta-analysis of this shift in policy and regulatory practice, or the implications of these interventions. Policy and regulatory measures to support the alignment of financial markets with sustainable development must integrate a wide range of factors, including financial market composition and dynamics, as well as broader sustainability and climate goals. Beyond responding to existing conditions, new measures must reflect dynamics between policy institutions, regulators, and market entities, as well as the needs and preferences of multiple stakeholder groups. To date, there has been little research conducted on how these different factors may be relevant for policy formation, and once implemented, how policy and regulatory measures influence market outcomes. The research contributes to these two knowledge gaps.

Committee Members

About the working group

The Sustainable Finance Policy Effectiveness working group (SFEG) has been established under the auspices of the Green Finance Platform, the International Network for Sustainable Financial Policy Insights, Research, and Exchange (INSPIRE) and the Grantham Research Institute on Climate Change and the Environment. This project has received funding from the Swiss Federal Office for the Environment (FOEN).