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© 2023 International Monetary Fund
WP/23/11
IMF Working Paper
Office of the Executive Director
A Market for Brown Assets To Make Finance Green
Prepared by Laura Cerami and Domenico Fanizza*
Authorized for distribution by Ananthakrishnan Prasad
January 2023
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
ABSTRACT: This paper proposes a market solution to enhance the role of the financial sector in the green transition. Developing a secondary market for “brown exposures” can allow banks to dispose more quickly of stranded assets thereby increasing their capacity to finance green investments. Furthermore, newly created instruments – the brown assets backed securities (B-ABS) – can expand the diversification opportunities for specialized green investors and, thus, attract additional resources for new green investments. The experience of the secondary market for non-performing loans suggests that targeted policy and regulatory measures can simultaneously support the development of the secondary market for brown assets and green finance.
| JEL Classification Numbers: | G21; G23; H63; Q54 |
| Keywords: | Green finance; financial innovation; greenium; financial sector; climate change |
| Author’s E-Mail Address: | lcerami@imf.org; d.fanizza@afdb.org |
| JEL Classification Numbers: | G21; G23; H63; Q54 |
| Keywords: | Green finance; financial innovation; greenium; financial sector; climate change |
| Author’s E-Mail Address: | lcerami@imf.org; d.fanizza@afdb.org |
Title Page
WORKING PAPERS
A market for brown assets to make finance green
Prepared by Laura Cerami and Domenico Fanizza1
Contents
1. Introduction
2. Trends and challenges for green finance
3. The case for a secondary market for brown assets: a supply-side perspective
4. The case for a secondary market for brown assets: a demand-side perspective
4a. The markets for green bonds
4b. The greenium
5. The role for policies
4a. The European market for NPL
4b. A policy simulation
6. Conclusions
References
The author was Executive Director for Italy, Albania, Greece, Malta, Portugal, San Marino at the time this paper was prepared. He is currently Executive Director representing Italy, the United Kingdom, and the Netherlands at the African Development Bank.
We would like to thank William Oman and Zhongxia Zhang for their helpful comments and suggestions. We also thank Pasquale Lucio Scandizzo, the organizers and participants of the Annual Conference SITES 2022, Università Parthenope, Naples, Italy, September 16–17, 2022, for discussions.