BTL 723 - Green Finance

 

The Banking Tutor’s Lessons

BTL 723                                                                          12 -11-2024

Green Finance

Green Finance is a term which refers to financial investments for those projects that support sustainable development.

Green financing is to increase level of financial flows (from banking, micro-credit, insurance and investment) from the public, private and not-for-profit sectors to sustainable development priorities. A key part of this is to better manage environmental and social risks, take up opportunities that bring both a decent rate of return and environmental benefit and deliver greater accountability.

Green financing could be promoted through changes in countries’ regulatory frameworks, harmonizing public financial incentives, increases in green financing from different sectors, alignment of public sector financing decision-making with the environmental dimension of the Sustainable Development Goals, increases in investment in clean and green technologies, financing for sustainable natural resource-based green economies and climate smart blue economy, increase use of green bonds, and so on.

Green investments include investments in biodiversity protection, water sanitation, industrial pollution control, energy efficiency, climate change adaptation, renewable energies, etc.

Green finance comprises of financing of public green policies, etc.

The terms ‘green finance’, ‘sustainable finance’, ‘climate finance’ is implicitly known as an eclipsing territory of matters on environmental, social, economic and governance.

Climate finance provides funds for addressing climate change adaptation and mitigation and can be considered as a part of green finance, whereas green finance has a broader scope as it also covers other environmental goals (e.g. biodiversity protection/restoration).

Climate Finance can be defined as the emerging form of green finance which is available for various projects in the developing countries. It is one of the growing sectors in the field of international development and environmental finance. Climate Finance also helps in reducing emissions or for adapting to climate changes. This can be achieved either by increasing the revenues that are available to both public and private development projects namely: tariff support, carbon finance. It can also be achieved through the improvement of project capital structure, for example by reducing the costs of debt and equity.

Role of Green Finance

Green finance is responsible for the financing of both public and private green investments along with the preparatory and capital costs. Some of the major roles of Green Finance are as follows:

a) To provide financing for environmental goods and services such as water management or protection of biodiversity and landscapes.

 

b) To prevent, minimize and compensate the damages to the environment and to the climate.

 

c) To provide financing of public policies which will encourage the implementation of environmental and environmental-damage mitigation or adaptation projects and initiatives.

Green Investments majorly includes the following areas:

1. waste processing and recycling

2. biodiversity protection

3. climate change adaptation

4. renewable energies

5. energy efficiency

6. water sanitation

7. industrial pollution control

8. other climate change mitigation

Green Bond

A green bond is a type of fixed-income instrument that is specifically earmarked to raise money to invest in climate solutions. The top three green bond issuers are the US, China and France.

Green Fund

Green Fund is an investment mechanism that will be invested in companies or businesses deemed to be socially responsible towards the environment or promote a sustainable responsibility towards it.

A green fund can come in the form of a focused investment vehicle for companies engaged in environmentally supportive businesses, such as alternative energy, green transport, water/waste management etc.

Sustainable Development Goals (SDGs) and Green Financing

UN Environment has been working with countries, financial regulators and finance sector to align financial systems to the 2030 sustainable development agenda – to direct financial flows to support the delivery of the Sustainable Development Goals.

At the core of today’s globalized economy are financial markets through which banks and investors allocate capital to different sectors. The capital allocated today will shape ecosystems and the production and consumption patterns of tomorrow.

The main areas for the current work on green financing are:

Supporting public sector on creating enabling environment

Promoting public-private partnerships on financing mechanisms such as green bonds

Capacity building of community enterprises on micro-credit.

Sekhar Pariti

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