Record Green Financing in Europe Is Still Nowhere Near Enough

Gautam Naik, Bloomberg News

Wind turbines in Brandenburg, Germany, on Monday, May 2, 2022. European leaders have promised to scale up the continent's renewable-power capacity while reducing imports of Russian gas, but builders say fast-tracking the energy transition means unraveling red tape and reconciling lofty, national climate ambitions with the limited capacity of most local authorities to implement them. Photographer: Krisztian Bocsi/Bloomberg , Bloomberg

(Bloomberg) -- European governments, banks and businesses raised a record 311 billion euros ($324 billion) of green finance last year, which is almost twice the amount reached in 2020 but still nowhere near enough to meet a mid-century target of net zero greenhouse gas emissions, according to a report by New Financial.

“It’s worrying because it’s quite a big number, and it’s a number that needs to be repeated each year for the next 20-30 years,” William Wright, managing director of the UK-based think tank behind the report, said in an interview. “We shouldn’t be blasé about it.”

Europe is still well ahead of other regions, and the amount it dedicated to green finance in 2021 represents about 12% of its total capital market activity, according to New Financial. But in order to hit climate neutrality by 2050, Europe will need to spend as much as 1 trillion euros each year, the EU Commission estimates.

Green finance refers to money raised for environmentally friendly and sustainable activities. But there are different shades. Only about 40% of Europe’s green bonds are “dark green,” meaning they finance projects that play a significant role in the transition to net zero, according to the New Financial report. When it comes to sustainability-linked loans, just 40% can be defined as green, based on an analysis of the projects they finance.

The report also identified the UK as a green-finance laggard when compared with the rest of Europe, and estimates that the country is about four years behind the region on average.

Britain “is punching below its weight,” the report concludes. “This also highlights that green finance is one of the few areas in banking and finance where the EU is a clear global leader, with more than 40% of all global activity in sustainable finance and ESG.”

Other findings in the report...

More than 95% of Europe’s green finance comes from bond and loan markets. In 2021, almost 200 billion euros was raised via labeled green bonds, while companies raised a further 100 billion euros in the loan market.
Equities accounted for only 4% of Europe’s green finance market in 2021, as companies find it easier to tap debt markets when funding large projects.
Some 22% of Europe’s green finance activity was associated with companies whose primary activity is to help address climate change, such as makers of solar panels. By contrast, 27% was raised by companies that contribute to emissions, such as oil producers. The rest was associated with companies deemed neutral for the climate.