Western European financial centers are considered the leaders in green finance, helped largely by favorable government policies, according to a new ranking on the "greenness" of the world's leading financial cities, which warns that cities that do not become greener run the risk of losing revenues.

The third edition of the global green finance index demonstrates that London, the U.K.'s capital, is regarded as the leading financial center for the quality of its green finance, while the Dutch city Amsterdam ranks first in terms of depth.

The index is compiled by Z/Yen Group, a U.K.-based thinktank focused on finance and technology, and European nongovernment organization Finance Watch, which promotes sound financial regulation.

Based on surveys of bankers, insurers, and investors, traders among others, the index looks at factors such as infrastructure, carbon emissions, laws and public policy to obtain the ranking.

"It is a story of Western Europe being seen and perceived [as] good at green finance," Mike Wardle, head of Indices for Z/Yen, said at an event in Paris to launch the index. "The quality of work on green finance is very strong," he said.

Policy frameworks

One of the reasons for this was favorable government policies on green finance, including the EU's sustainable finance action plan, he said.

"Stable policy frameworks do appear to be very important," he said.

In the ranking, London and Paris, France's capital, retained their positions as first and second in the quality index, while Amsterdam took third place and Hamburg in Germany rose four places to take the fourth position. While Amsterdam took first place in terms of depth, Swiss city Zurich rose seven places to become equal with Copenhagen, the Danish capital.

"Zurich has been active in talking about its green financing. It has realized in the first edition of the index that it didn't perform as well as it could have done as it has put a lot of effort into developing a green finance offering," Wardle said. "This is an effect of Zurich saying 'we are doing well.'"

Looking outside Europe, Casablanca in Morocco jumped to 15th position in terms of quality from 28th.

"Casablanca has an ambition to be a hub for African green finance," he said. "It is perceived very well," adding that cities doing well would push other cities to perform better.

"If we are trying to get financial centers to do more on green finance and go deeper on green finance it is this kind of information that starts to be a spur," he said.

Fossil fuels

He also noted that San Francisco in the U.S. fared better at 11th position in the quality ranking than New York City, which came in at 32nd place, which could be in part due to its financing of fossil fuels.

The report also said large cities with a history of fossil fuel financing tended to far worse in terms of depth such as London and Paris, which both fell in the depth ranking, despite their top quality rankings.

"People notice that you are doing a lot of fossil fuel financing and they will mark you down for it," Wardle said.

He also said that financial centers faced "significant" revenue risks from their carbon exposure, especially if they were to stay in line with the goals of the Paris Agreement on climate change, which aims to limit global warming ideally to 1.5 degrees C and to 2 degrees C at the most.

Centers that demonstrated leadership in certain areas of green finance, such as Luxembourg on green bonds and Hamburg on environment, social and governance equity had a positive impact on rankings as well. Luxembourg, which has its own green bond market, took fourth position in terms of depth, while Hamburg took 10th position.

"If you are seen as a good place to work in that particular field of green finance you will attract people around the world to come and work in it," Wardle said.