GREEN FINANCE – A Roadmap to Environmental Sustainability

By BWA Envoy
April 04, 2022
2 Minutes Read

What is Green Finance?
In broader terms, a definition of green finance implies any structured financial activity created to ensure a better environmental outcome. It refers to financial investments flowing into sustainable development projects and initiatives, environmental products and policies, that aid in the development of a more sustainable economy.

Green financing includes investments in:

• Climate finance (Climate change impact reduction, Limitation of greenhouse gas emissions)
• Industrial pollution control
• Biodiversity conservation
• Deforestation reduction
• Promotion of renewable energies
• Reduction of carbon footprint
• Water sanitization

It is also interchangeably used with green investing or eco-investing, a form of socially responsible investing in companies that support environmentally friendly products and practices. But, in practice, green finance encompasses an extensive definition and also comprises operational costs of green investments as well such as land acquisition costs or project preparation costs.

What are the objectives of green finance?

The primary objective is to increase financial flows from the public, private, and not-for-profit sectors to sustainable development activities.

What are the types of green finance?

• Green loans
• Green bonds
• Sustainability securitizations

When did green financing start in India?

Green financing in India started in 2015 when India began issuing green bonds. The SEBI (Security Exchange Board of India) is the primary entity that regulates the issuance of green bonds in India. As of February 2020, the outstanding amount of green bonds in India is US$16.3 billion. In addition to corporate and government, the World Bank has also issued green bonds for many projects in India.

What is Green Finance Platform?

The Green Finance Platform is a one-stop-shop for banks, insurance and investment firms about the latest financial sector innovations. It aids in benchmarking themselves as to where they stand in their contribution to a green economy. It helps them to scale and measure their contribution to a green economic transition. It features tools for businesses to assess natural capital risks, guiding principles on responsible banking and finance, and reports on aligning their financial system with sustainable development.

What are green financial products?

Some innovative green financial products offered across the globe currently are:

• Green car loans - Encourages buyers to get cars that demonstrate low greenhouse gas intensity or high fuel efficiency ratings.
• Green credit cards - Users are rewarded with points when they act socially responsible. For example - buying eco-friendly products, making paperless transactions, using public transport, etc.,
• Green Deposits - Banks like DBS Bank India, HSBC, and IndusInd Bank provides Green Deposits so that organizations can invest in environmentally beneficial projects and work on Sustainable Development Goals.
• Alternative energy venture capital - Refers to investments in clean energy technologies (cleantech sector).
• Energy efficiency mortgages - It allows purchasing or refinancing properties with energy-efficient systems.

Why is green finance important?

Rapid economic growth is often achieved at the cost of the environment. In general, financial institutions show more interest in funding projects involving non-renewable resources (fossil fuels) than green projects, primarily because of the risks associated with the investment and lower rate of return. This could in turn pose a threat to the expansion and propaganda of green energy projects. Such projects are needed to maintain energy security and meet climate and anti-pollution goals. This is the most important reason to encourage green financing. More the promotion of green finance, more the financial flow in environmentally sustainable activities and projects, more the positive impact on the environment essentially making the world a better place for the generations to come.

It’s high time we learn to appreciate what’s offered by Nature and respect it. The planet’s precious resources are not just for the current generation to utilize and enjoy, but to also make it available, usable, and consumable for the future too. Each generation has to own that responsibility.