With the world facing a climate crisis, urgent action is required on many fronts, not least in ensuring adequate levels of climate finance to support mitigation and adaptation in the Global South. Campaigns to shift public finance, provided through instruments such as development banks, out of fossil fuels and towards greener and cleaner investments have sparked a debate about how best public finance can support this needed transition. What matters is not only the quantity but also the quality of climate finance.

A new report published today by Recourse, Heinrich Böll Stiftung Washington DC, BankTrack, Trend Asia and Centre for Financial Accountability examines one particular type of finance, which is rapidly gaining popularity among publicly-backed financial institutions: ‘green equity’.

Put simply ‘green equity’ means using equity investments – or shares in a client – to promote environmental sustainability more generally, and as used in this paper, to ensure climate-compatibility of projects and programmes, especially with the mandates under the Paris Agreement.

Partly in response to the build-up to COP26, many multi- and bilateral financial institutions are revising their policies or positions on equity investing through financial intermediaries (FI) this year. The European Investment Bank is consulting publicly on a new Standard 11 on Intermediated Finance; the UK’s CDC is reviewing of its Code of Responsible Investing in 2021; the Dutch FMO is about to release a draft position paper on FI lending; the Asian Development Bank (ADB) is currently reviewing its Energy Policy, which addresses FI investing; the International Finance Corporation (IFC) is reviewing its Approach to Greening Equity, and the Asian Infrastructure Investment Bank(AIIB) will begin a review of its Energy Sector Strategy in December 2021. These policy reviews present an important opportunity: to ensure that equity investments made by these institutions are truly green and that their institutional investments have a transformative impact for the broader shift in equity investments that needs to happen. Efforts to green FIs can have a wider impact on the banking sector, raising standards and helping to support more banks to exit coal and eventually fossil fuels more widely.

Green equity is also gaining popularity at the Green Climate Fund (GCF), the biggest multilateral climate fund and at the core of the UNFCCC financial mechanism to support developing countries in implementing mandates of the Paris Agreement. Its signalling function in the overall climate finance architecture is significant, not least due to its growing implementing partner network and its proclaimed goal to support a broader portfolio shift towards low-emission and climate-resilient investments through its accreditation and engagement with its implementation partners. Over the past two years, the GCF has accelerated its support for equity investments, primarily through its Private Sector Facility (PSF). Equity investments, including the most recent approval of GCF equity investment support for two large private equity funds supporting adaptation, make up 22.1% of GCF private sector investments and focus on de-risking private sector climate infrastructure projects and programmes and structuring anchor investments in climate equity/debt funds.

Is all of this good news for people and the planet? The investment shift away from fossil fuels towards greener solutions is indeed welcome if very belated and still incomplete. But before the bandwagon goes careening off into the sunset, now is a good time to ask fundamental and critical questions. First, how green is green equity in reality? Does it pass the litmus test of being effective on its own terms, that is: does it contribute to tackling the climate crisis in the countries in which investments happen in a lasting and sustainable way? Second, being green is not solely a question of narrowly supporting only climate-compatible investments, such as those that reduce emissions. Shouldn’t it also support equity at a deeper level: by benefiting people and the planet at the same time, by being transparent and inclusive, by promoting gender equity, by doing no harm and by respecting and advancing human rights?

As the amount of public finance channelled into green equity grows, this paper examines possible loopholes and pitfalls in examples and practices of green equity investments so far and puts forward a set of building blocks to ensure equity puts people and planet at its core. Given their broader signalling function to a wide range of public and commercial investment actors, the report focuses primarily on the IFC and the GCF respectively, using examples in Paraguay, Ghana, India and Indonesia to bring crucial questions to light.

The report concludes that much of what is currently labelled green in equity investing, is anything but – and could even be termed green-washing. Instead of creating truly green outcomes for local communities and their environment, so-called green equity investments can perpetuate an extractive and exploitative development model.

There are, however, some hopeful signs that public funding used as equity can leverage change for the good: for example, IFC’s greening equity investment in India’s 7th largest private bank, Federal Bank – previously one of India’s leading coal backers that from now on will exclude coal mines and power plants from its portfolio. But such positive steps are too few and far between and are not holistic in their approach, lacking adequate accountability and transparency frameworks and performance expectations by public funders on the private equity clients they support.

There is tremendous potential for public funds to be used in a transformative way to shift financial flows out of harmful, dirty development towards green, inclusive, gender-responsive and pro-poor investments. Equity could be a powerful instrument to effect that change.

The report aims to prompt a renewed debate on how development banks and climate funds can use equity investments to avoid exacerbating climate change, to do no harm by preventing human rights abuses and negative social and environmental impacts, and to instead to do good by signalling how they can serve people and the planet better. The report’s recommendations can begin to steer financial flows in the right direction.

Excuses that these steps are too difficult, that the public funders have not got enough clout in engaging with private equity or that the market is not yet ready for such reforms will no longer wash – the climate crisis demands urgent and radical action. Public money must spearhead the solution.


Liane Schalatek, Heinrich Böll Stiftung, (Washington, DC): [email protected]

Kate Geary, Recourse (UK): [email protected]

Ryan Brightwell, BankTrack (Netherlands): [email protected]

Yuyun Indradi, Trend Asia (Indonesia): [email protected]

Anuradha Munshi, Centre for Financial Accountability (India): [email protected]


Photo by: Tiara Pertiwi/Trend Asia