Green banking

Analysis of green financial systems informs climate change policy.

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Research into the effectiveness of green financial systems has informed policy debates in the UK and Europe, helping political parties and conservation charities promote the introduction of green investment programmes for banks in an effort to reduce CO2 emissions.

Dr Giorgos Galanis’ work has provided politicians, policymakers and campaigners with new information about the financial stability of green quantitative easing schemes.

This research has led to the development and realisation of campaign pledges and contributed to debates about the financial industry’s potential contribution to a global green new deal.

Since the 2007 financial crisis, the potential role of the banking industry in delivering green policies has received considerable attention among policymakers and policy institutions. Yet economic models that inform policymaking lacked a clear understanding of the interaction between macroeconomic, environmental, and financial variables. Without this data, policymakers could not advocate policies that target both financial stability and environmental sustainability.

Computational economic models developed by Galanis and colleagues analysed the interaction between ecosystems, financial systems, and the macroeconomy, and took into account people’s cognitive limitations and biases.

Using these systems, the team were able to evaluate and model the extent to which the implementation of a green quantitative easing programme (the purchase of government bonds or other financial assets by a central bank in order to put money into the economy) would help banks reduce the financial risk associated with climate change.

Their findings provide the first coherent study on the effects of green quantitative easing and show that central banks could help countries move closer toward their decarbonisation targets by purchasing green corporate bonds, without risking financial instability.

In 2017, Galanis presented at the EU Parliament, which made amendments to its ‘Sustainable Finance’ report as a result, and his work has also been used by WWF Hellas to advise the Greek Government on the creation of a Hellenic Development Bank.

The UK Labour Party has used new information about the financial viability of green banking systems to endorses their proposals for a green new deal, with delegates at the party’s 2019 conference voting overwhelmingly in the policy’s favour.

This research was submitted for REF 2021.