Greening the Financial Sector pp 165-190
Mainstreaming Impact over Time – Who Measures What for Whom?
Within environmental finance, the guiding question of “who measures what for whom” can be examined from different angles. In this paper the authors argue that, provided environmental markets are well-designed, measuring environmental performance is very closely related to measuring financial success for the primary actors on the market. Hence, at the aggregate level, market volume can be used as a highly correlated proxy for environmental success. In a second-order interpretation of the guiding question it is, however, revealed that information-related concerns need to go beyond simple measurement issues. It is argued here that transaction costs in the form of information barriers mainly account for inefficiently low levels of environmental finance. The authors explore this information-finance nexus on a actor-by-actor basis in order to identify the general nature of these barriers. From these general considerations, the authors deduce that a part of these transaction costs could be reduced through enabling actors to scale-up overall investments by pooling small-scale projects. In fact, different actors could assume the role of an Information & Technology Broker. Due to limitations in scope, the authors focus their analysis on two of these actors: the Clean Development Mechanism project developers and energy services companies. As it turns out, while seeking to secure project financing, these actors face information related barriers on the supply side. Commercial finance institutions apparently have difficulties to assess the risks associated with environmental small-scale projects, which is due to the lack of an established credit history as well as a deficit in banking expertise for these markets. To overcome such information related barriers, a case for intervention by governments or development finance institutions definitely exists. In this context, all measures fostering a “risk-reduced learning by doing” seem to be particularly promising.
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