Environmental sustainability is fast becoming a priority for consumers, businesses, and governments, as climate change is accelerating with recognizable impacts. In response, leading financial services firms across banking, investment, and insurance have launched a wide array of green finance products and experiences to contribute to climate change goals.
The rapid growth in green finance is part of a broader wave of sustainable finance. But the lack of standardized definitions, taxonomies, or reliable data makes it difficult to size the green finance market. “Green finance” and “sustainable finance” are sometimes used interchangeably but are not the same. Sustainability-linked bonds should not be considered part of green finance because, although they’re linked to firms’ overall sustainability targets, they could be used for general corporate purposes and not strictly for projects that have positive environmental or climate benefits. According to Forrester’s analysis, in 2021:
- Green finance exceeded US$720 billion. Green finance includes green bonds; green loans; venture capital (VC) and private equity (PE) funding for green tech; green IPOs; and green acquisitions, which use funds to buy companies that bring environmental benefits. According to the Climate Bonds Initiative, green bonds hit $522.7 billion in 2021; Forrester estimates that this accounts for more than half of all green finance. Forrester estimates that green loans exceeded $135 billion; increased consumer and business demand enabled some financial services firms to book double-digit growth in those loans. Data from Venture Scanner indicates that VC funding, PE funding, green tech acquisitions and green tech IPOs made up the remaining US$63.2 billion.
- The US and Germany topped green bond issuance. The US and Germany topped green bond issuance in 2020 and 2021, issuing more than $80 billion and $60 billion, respectively, in 2021. Renewable energy attracted the largest share of green investment across sectors and issuer types in 2021, followed by low-carbon buildings and transportation. The largest single debut sovereign green bond to date was issued in 2021: the UK’s $13.7 billion Green Gilt bond.
- Green loans lagged bonds, but financial services firms committed to more financing. Green loans’ contribution to many financial services firms’ goals to finance and facilitate solutions that address climate change is miniscule compared with activities such as the underwriting of green bonds, IPOs, M&A, and raising capital in debt and equity markets. Even so, global green loans contributed more than $135 billion to green finance in 2021. Banks such as Nordea and Société Générale reported green lending topping $9 billion. Forrester expects financial services firms to increase green lending in 2022 as firms such as Wells Fargo ($200 billion of sustainability investments by 2030) set more ambitious targets.
In our new report, The State Of Green Finance Products And Experiences In 2022, we sized the global green finance market using data from the Climate Bonds Initiative, Venture Scanner, and sustainability reports of 114 global lenders part of the Net-Zero Banking Alliance. We have also outlined the types of retail and corporate green finance products, as well as green digital experiences, that financial services firms are offering to their customers. The report helps leaders across sectors understand the landscape of green finance products and experiences and challenges in the market today. Also, our newly launched research theme, the green market revolution, is out now, including this research and other coverage of environmental sustainability!