Green finance: Beyond transparency

Financial markets still provide financing on a large scale for investments in environmentally harmful activities, while projects conducive to the green transformation are often not funded. Sustainable finance policies, such as new reporting requirements and standards for sustainable financial instruments, have so far mostly focused on creating transparency. However, transparency alone is insufficient to turn the financial sector from a driver of environmental crises into a lever for the green transformation. Many countries of the Global South face special challenges, including high interest rates, currency depreciation and limited opportunities to shape global policies (e.g. banking regulations and standards for sus-tainable financial instruments) in their interests. Aligning financial markets with sustainability objectives requires a comprehensive policy mix comprising policies that change incen-tives. These policies can include credit guidance instruments such as credit targets, green refinancing schemes and differentiated capital requirements, and tax policies such as differentiated capital gains taxes for green and non-green assets. International forums, such as the Network for Greening the Financial System (NGFS) and the Sustainable Banking and Finance Network (SBFN), remain valuable for mutual learning and for addressing cross-border effects of financial regulations. Policies to mobilise private resources should not be considered as a substitute for public investments or public steering, which are both crucial for the green transformation.