A Market for Brown Assets to Make Finance Green

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.

Keywords: Green finance, financial innovation, greenium, financial sector, climate change, market solution, experience of the secondary market, green transition, policy simulation, Climate finance, Nonperforming loans, Securities markets, Climate policy, Global, Europe

JEL Classification: G21, G23, H63, Q54, Q50, G10, Q58