The world built a new kind of finance to green small business. We were asked whether any of it was actually new.
Strip off the label and most of it was ordinary finance, made more onerous, resting on data that does not exist.
Location / capital-markets photographyThe road to net zero runs through the world’s small businesses. Small and medium enterprises (SMEs) are most of the economy and a large share of its emissions, especially in developing markets, and they cannot green themselves without money they do not have. A whole industry has grown up to supply it: green loans, green bonds, green funds, guarantees and grants, all of it labelled and governed by a thickening set of taxonomies and principles.
The World Bank Group wanted to know what in all of this actually reaches an SME, whether a “green” instrument is genuinely different from an ordinary one or simply an ordinary one wearing a label, and what a policymaker in a developing economy would have to do to make any of it work. It asked us to map the global green finance landscape for SMEs and answer those questions.
- Framework development
- Market & landscape analysis
- Benchmarking
- Trend analysis
- Regulatory & legal analysis
- Investment risk analysis
- Interviewing
- Desk research
- Verification & triangulation
- Recommendation & roadmap design
- Synthesis & report writing
- Knowledge-product & toolkit creation
ClientNo shortage of instruments. A shortage of data.
1 Market data as at 2022.
There was no missing instrument. There was missing data.
The instinct behind a study like this is to hunt for the missing instrument, the green product no one has built yet. We found the opposite. There is no shortage of green instruments; the market is crowded with them, and inventing more would change nothing. The real problem sits underneath the labels. Strip the taxonomy away and a green loan is a loan and a green bond is a bond; what “green” adds is not a better instrument but a set of extra demands, the data to collect, the impact to report, the framework to maintain, and no one has shown that the small discount a green instrument sometimes carries covers the cost of meeting them.
So for an SME with a choice, the green version is simply the harder, dearer route to money it could raise anyway. Beneath even that lies a plainer failure: most SMEs do not measure or disclose their environmental performance at all, so the data every green instrument depends on does not exist, which is why the whole structure leans on public guarantees and grants to stand up. The barrier was never a shortage of green finance. It was that green finance asks an SME to carry a burden it cannot, for a benefit no one has proven, on data that is not there.
How we pulled it together
We answered the question everyone else tiptoes around.
The brief asked, in effect, whether green finance is really different from ordinary finance or just ordinary finance with a label. Most reviews never quite answer it. We did: we built a matrix that sets each green instrument against its traditional twin and marks, in plain colour, how materially it actually differs. The conclusion it drove to was blunt. At their core these are the same instruments; what “green” adds is not a better structure but a layer of terms, data and paperwork on top.
We told them to stop inventing instruments.
The reflex on a study like this is to end with a shiny new green product to build. We found there was no need for one. The market is already crowded with green instruments, and the thing holding SMEs back is not a missing structure but that the structures which exist were built for large companies and fit SMEs badly. Recommending more would have been easy, and wrong.
We found the hole underneath the whole thing.
A green instrument only means something if the environmental impact behind it can be verified, and for most SMEs there is nothing to verify. They are not required to measure or report their environmental performance, so the data these instruments depend on is never collected. Meanwhile regulators are turning banks into the enforcers of the transition, pushing them to green their books on information they can neither obtain nor check, against more than a thousand competing ways of scoring it. We named that paradox as the real constraint, because no instrument solves it.
We gave the policymaker a choice, not a checklist.
Rather than hand over a generic list of things to do, we put the decision where it belonged. Everything turns on one prior question: does a country treat green as a core part of all finance, or as a niche to be supported at the edges? We set out both paths and what each actually demands, from mandatory environmental disclosure at one end to targeted guarantees and grants at the other, so the recommendation was a decision the client could own rather than a menu.
What we delivered
The study turned on one comparison, made over and over: is this green instrument really different from the ordinary one beneath it? You cannot answer that without knowing the ordinary one intimately, and the ordinary ones live in two different worlds. A green loan is a banking product; a green bond is a capital-markets product; the expertise to judge them sits with different people. So the team was split the way the market itself is, a banking hand and a capital-markets hand, each testing the green versions of instruments they had actually worked with.
Thierry Clarke led the study and took the capital-markets instruments himself, the green bonds, mini-bonds, sukuk and equity structures, drawing on years spent inside the institutional investment world where these instruments are built and bought. The banking side went to Richard Jones, whose career spans banking, capital markets and green finance, and who could tell a real green lending innovation from a relabelled loan on sight. Between them the two halves of the debt market were held by people who had lived in each, which is what let the report say, instrument by instrument and with authority, how much “green” actually changed.
Tsvetelina Zapryanova ran the coordination and the direct outreach to market participants, with a team of analysts beneath her gathering the underlying research. The study was delivered in-house from end to end: the analysts did the legwork, the seniors owned the judgment, and the comparison the client actually wanted, green against traditional, was made by people who knew the traditional cold.
