How can we effectively measure the greening of financial flows?

By Stéphane Voisin, Julie Raynaud, Nestor Toroman, Adrien Ferrand

The Paris Agreement, with its goal of limiting global temperature rise to 1.5°C, crystallized the commitment of Parties to align global financial flows with low-carbon pathways. Achieving this objective requires clear tracking of financing directed toward both green and fossil energy sources. The “green to brown ratio” has thus emerged as a key indicator, enabling comparison between investments in “green” versus “brown” activities.

This article offers an in-depth analysis of the ratio and its construction process, focusing on its application within the energy sector. It introduces the concept of the Energy Supply Ratio (ESR)—an indicator designed to better monitor financial flows toward sustainable activities relative to those allocated to fossil-based ones. This ratio is critical for evaluating financial institutions’ decarbonization strategies and their impact on the real economy’s energy transition.

The article also provides a critical review of BloombergNEF’s Energy Supply Banking Ratio (ESBR), one of the most advanced and widely used indicators to date. Based on this, it offers recommendations to enhance the robustness and relevance of an ESR.

Amid evolving regulatory guidelines and rising stakeholder expectations, implementing such a ratio represents a strategic opportunity for financial institutions—particularly banks—to shape financing strategies that are better aligned with climate goals.

This work is part of a broader series of analyses aimed at helping financial institutions better understand and implement responsible financial practices to support the energy transition.

➡️ Read the full article in French [here] 

➡️ Read the full article in English [here]