BankThink: Get the Transition To Green Financing Right

Originally published in American Banker’s BankThink

The regulatory debate over the nexus between climate and finance is heating up this year, particularly now that the Federal Reserve has joined the global Network for Greening the Financial System.

Unfortunately, much of the international regulatory work to date has focused on identifying business sectors as either good (green, less risky) or bad (high carbon emitters, more risky). In some instances, this dualistic approach has suggested that financing to a “bad” company must be cut off entirely. This could result in companies not receiving the necessary funds to accelerate the transition to more climate-friendly business models, and support their capital investment in greener infrastructure and technology.

The dualistic approach to labeling is also occurring within sectors.