FINANCING THE GREEN FUTURE

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At its simplest, green finance is any structured financial activity that’s been created to ensure a better environmental outcome. It includes an array of loans, debt mechanisms and investments that are used to encourage the development of green projects or minimize the impact on the climate of more regular projects.

Green financing is basically to increase the 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 Finance is important as it promotes and supports the flow of financial instruments and related services towards the development and implementation of sustainable business models, investments, trade, economic, environmental and social projects and policies. As the financial sector plays a key role through its intermediary functions and risk management in advancing sustainable economic development while directing investment to the real economy, the intertwinement of both is crucial.

Moreover, based on the lessons learned from the global financial crisis in 2006-2009, the availing of the global warming and the need for more sustainable business practices, Green Finance Initiatives have to address the 2030 Sustainable Development Goals (SDG’s) Agenda by emphasizing the shift of focus from shareholders’ value creation (economic) to the generation of stakeholders’ value (economic, environmental and social).

The green finance discussion is a fast-growing area with potentially significant global impacts and our daily conversations should revolve around funding sustainability and the path to double profit i.e., profits of investors and positive social impact for the society and maybe what kind of finance tools can help to push us to NET-ZERO.

With climate change posing risks to all, green finance is looming large on the agenda of policymakers and regulators worldwide as huge investments are required to fuel the global transition to a low-carbon economy. we know we need greater private and public investment to shift to clean energy. Smart investments in climate action can generate real financial returns above the capital cost. So, climate investments done right will not only speed up the energy transition but also reduce energy poverty recognizing that still today over 1 billion people (roughly 15% of the world population) lack access to reliable and affordable clean power supply.

In China for example, the government aims to peak carbon dioxide emissions by 2030 and achieve carbon neutrality by 2060, it is estimated that tens of trillions of dollars are needed to fulfill this climate objective, but government funds alone will only cover a fraction of the demand.

So where do such massive investments come from?

Clean sources of energy can be brought to fruition through the right combination of planning consent, strategic priorities and availability of capital. Such projects could be given preferential treatment to make them a more attractive option than, for example, fossil-fuel derived energy infrastructure.

Reaching such desired objective will need a number of approaches, some of which I believe include;

a)      Ensuring current and future financial risks and opportunities from climate and environmental factors are integrated into mainstream financial decision making, and that markets for green financial products are robust in nature.

b)      Accelerating finance to support the delivery of the world’s carbon targets and clean growth, resilience, and environmental ambitions, as well as international objectives.

c)      Ensuring that global financial services capture the domestic and international commercial opportunities such as climate related data and analytics, and new green financial products and services.

d)      Supporting public sector on creating enabling environment

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

Finally, a more inclusive financial system should lead to more vigorous economic growth. However, if such growth also depletes the world’s natural resources, destroys the environment, and contributes to climate change it will be unsustainable. The world can no longer hope to “grow first and clean-up later”. Instead, it should be pursuing “green growth”, which enhances the efficiency of natural resource use, is less energy and carbon intensive, and uses clean technology that will not just change the nature of growth but will also accelerate it. It means – building a legacy for future generations based on a development path that is low in carbon and high in poverty reduction and social well-being.

#FinancingNetZero

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