A quick look at the diversity of financial intermediary roles

All - Sep 06 2018

Global GHG emissions and financial intermediary roles (external financing only)

Note: Data on financing shares are illustrative only and do not reflect actual ratios

The ultimate goal of finance is to connect economic agents who need financing with agents that can provide it. However, agents and financing needs are so varied that the role of banks as financial intermediaries is equally diverse: from retail banking to portfolio investment and asset management, as well as corporate or investment banking. This is all very well, but how to track the GHG emissions associated with these financial channels? This is exactly what today’s graph (from WRI/UNEP-FI/2°II) tries to roughly represent. On this graph, only agriculture, land use, land use change and forestry (AFOLU) emissions are not mapped with their financing sources. For the rest, two things can be noted: (i) most emissions are generated by industry, buildings and road transportation, and (ii) these emissions are linked to both banking balance sheets and to securities sold to investors.

 

Several other key facts should also be noted. First, the role of investors is closely linked to industry’s emissions (through corporate bonds and equity), and to some extent to buildings, but it should be noted that a significant share of emissions is linked to other financing channels. For example, greening corporate credit and mortgages is also a challenge. Second, this graph reminds us that sovereign debt requires a specific treatment. Based on government-owned assets, government bonds might seem not to be an issue. However, governments play a key role as regulators beyond their direct impacts, and the share of government debt in total debt is huge (not visible on this graph). Out of USD 233 tn of global debt at the end of Q3 2017, 27% was government-related. Finally, this global picture confirms the key role of banks and investors. Not only do they finance the other agents (except when it is financed by household equity or public budget surpluses), but financial institutions also have significant amounts of debt to repay (25% of the world’s total).

 

Guillaume Emin, Project Manager  –  Sources: Beyond Ratings, IPCC, WRI/UNEP-FI/2°II, IIF

 

 

 

 

 

 

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