In 2022, fear of an ever-worsening climate crisis is making consumers, and big investors, to look for conscious, ‘green’ investment. Green financing has an important role to play in accomplishing net carbon zero and fighting climate change. As we begin to recover from the pandemic, green finance presents a way to build back with a greener future, creating new businesses and opportunities.
What is Green Financing?
It is a way 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, choose options that bring a decent rate of return and environmental benefit and deliver greater accountability.
Green finance offers financial tools to active agents to generate activities with positive and durable externalities. Some projects of green finance are the promotion of renewable energies, energy efficiency, water sanitation and environmental audits, and the reduction of transportation and industrial pollution, climate change, deforestation, carbon footprint.
To make green financing successful, multi-stakeholder partnerships must be promoted to include major actors in financial markets, banks, investors, micro-credit entities, insurance companies and public sector.
Why is green finance important?
Difference between climate finance and green finance
Climate finance, as discussed in COP26, is a subset of green finance. It refers primarily to public finance, or where developed countries provide financing through a variety of sources, that promotes multilateral efforts to combat climate change. Green finance is a wider term that encompasses all financial flows that support sustainable environmental objectives.
What is green investing?
Green investing seeks to support business practices that have a favourable impact on the natural environment. Often grouped together with socially responsible investing (SRI) or environmental, social, and governance (ESG) criteria, green investments focus on companies or projects committed to the conservation of natural resources, pollution reduction, or other environmentally-conscious business practices. Green investments may fit under the umbrella of SRI, but are more specific.