Climate-related financial policy index

This comprehensive study examines the climate-related financial policies of 74 countries between 2000 and 2020 to create a climate-related financial policy index showing how engaged each country is in climate-related financial planning and allowing international comparison of climate-related financial policy making across jurisdictions.

The authors first identify five green policy areas covering prudential regulations, credit allocation policies, financial principles, disclosure requirements and green bonds taxonomies and issuing. Using a combination of finance-related keywords and environment-related adjectives, they identify relevant publicly available documents on each policy area from central banks, financial supervisory authorities, governments and banking associations in each country, creating a panel database comprising 7,770 country-year observations over 39 advanced economies, 20 emerging economies, and 15 developing economies.

The study found that governments and central banks were the most common authorities promoting or implementing green policies, followed by financial supervisors and regulators. The most common policies recorded were disclosure requirements for non-financial institutions, followed by green finance guidelines, green bonds, prudential policies and credit allocation measures. No measure related to capital requirements, leverage ratios, liquidity regulations or systemically important banks was detected in the countries surveyed.

The analysis also found that 43% of the policy measures identified are mandatory and 14% voluntary, with the remainder considered “non-binding” or without relevant information.

Emerging economies are the most engaged in green financial policymaking, the study shows, with the highest ranking jurisdictions located in the Asia-Pacific and North European regions. Brazil, China, France, Indonesia and South Korea had the highest scores among G20 countries. The lowest ranking G20 countries were Saudi Arabia, Argentina, Turkey, Italy, Canada, Russia and the United States. Rankings were checked against three alternative versions of the index, suggesting that the results are robust.

The paper concludes by outlining how the climate-related financial policy index might be used as additional data become available. As well as allowing a more nuanced study and comparison among nations, the index can help investigations of the relationship between policy adoption and credit market changes, the authors suggest, helping to assess policy effectiveness in managing credit and financial cycles in the face of climate risks.