After the adoption of UN sustainable development goals and the Paris Agreement, there is a need for better alignment of the financial system with sustainability to reduce financial risks. Article 2.1 (c) of the Paris Agreement describes one of its goals as;
“Making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.”
The finance in this context includes both public and private finance as well as domestic and international finance. However, the objective laid down in this article focuses on the adaptation of the impact of climate change or the reduction or limitation of greenhouse gas emissions, which means that it only deals with “Climate finance”. Climate finance is just one aspect of green financing. Green financing is a much broader term that includes:
· Investment in green goods and services in both public and private sector,
· Financing of public policies that focus on the implementation of sustainable development or project for adaptation or mitigation of environmental damage.
· Financial instruments that deal specifically with green investments, such as Green Climate Fund or Green Bonds.
Many national and international banks have introduced green bond frameworks to create a general understanding of what it includes which also acts as an eligibility criterion for investors. For example, the Nordic Investment Bank has defined the sectors into which eligible categories must fall (energy efficiency, renewable energy, public transport solutions, transmission and distribution systems, waste management systems, wastewater treatment, green buildings) and determines that a long-term lock-in in high carbon infrastructure should be prevented. Energy efficiency project has eligibility criteria that it must lead to a reduction in electric energy use of at least 30% and must use renewable sources of energy.
Green financing is the key to align long-term economic goals with sustainable development. Green economic policies will be most successful to the extent that they build on existing strengths in the city, region, or state. Regulations, incentives, technical assistance, and marketing programs can help stimulate the green economy. With the increasing environmental risks and the climate risks that surround us, green imperatives need to be embedded in every country’s financial system. India currently is facing extreme climate conditions in the form of unprecedented floods, water- shortage, drought, untimely rainfall and record-breaking heatwaves. India’s major cities, for instance, Bengaluru’s groundwater levels are depleting rapidly, and the city can soon run out of groundwater if it is continued to be exploited at the same rate. Delhi has become the most polluted capital of the World and Gurugram (the part of the NCR) the most polluted city. India’s National Action Plan on Climate Change (NAPCC) which was announced in 2008 adopted scientific and inclusive methods of implementing conventional afforestation programmes using decentralized governance frameworks necessitating community participation. However as of 2018, officials have been unwilling to provide any information and the budget heads and schemes through which the plan is being implemented have changed enough times to make tracking its performance not exactly impossible, but difficult. NAPCC can be looked like a fruitless effort just to secure an international standing before the G8 summit, as China introduced its National Plan on climate change in 2007.
Studies conducted by the Government of India show that there will be a substantial and continuous decline in India’s future Green House Gas (GHG) emissions. However, the factors accountable to arrive at these estimates consider the assumptions on GDP growth rates, penetration of clean energy, assumed energy efficiency improvements. These assumptions cannot be expected to occur practically, given the current slow-down in the GDP rate as well as the government’s efforts in introducing clean energy alternatives. A climate crisis is approaching and India is going to be one of the worst affected countries from climate change according to the Climate Change Performance Index (CCPI) of 2019.
Climate Change experts have said that financing in green technologies or sustainable development models can be the cornerstone to deal with this upcoming crisis. The first question regarding this is; what exactly is green financing? Green financing includes investing in public and private green projects, sustainable development projects and initiatives, green technologies, environmental- friendly business models. Green financing is different from green investment and is a broader terminology that includes targeted as well as untargeted financing. Targeted finance includes the use of proceeds in green technologies and green activities. Untargeted green finance includes the use of proceeds by specialist green companies or companies with good or better than average environmental performance through corporate finance or equity investment.
How can green financing be implemented?
Four key elements can facilitate its implementation:
1. Good Policy-making: The government shall formulate policies that introduce public financing into green bonds, green investments, green lending and green equity investments.
2. Development Finance: This generally refers to efforts of local communities to support, encourage and catalyse expansion through public and private investment in physical development, redevelopment and/or business and industry, such efforts if taken into green technologies or green models can be an effective way of sustainable development.
3. Tool Box: This refers to the usage of public resources in a transformative manner, for example, a global innovation lab for climate finance, these labs can provide the essential research needed to locate the emerging areas where green financing is possible.
4. Transparency and progressive reporting: If schemes and policies are introduced, their implementation process shall be kept under public domain, and actively reporting the utilisation of funds and other investments is as important as any other step.
This sounds very viable and easy task, but it is not as easy as it looks. We will soon have to arrive at systematic solutions against environmental damage and climate change which can be brought by innovative policies and instruments, along with global cooperation. The government should introduce regulations into green financing for both public and private investors. These policies should boost the motivation of investors into investing in green technologies/ projects and business models. Impact of such efforts should be assessed effectively, and positively reporting of the impacts will lead to more and more “green” investors and motivate the public as well in supporting “green reforms”.
We have the solutions in our hand, there is enough research already done to solve the problem of climate change and environmental damage, we just have to act now.
“We are the first generation to feel the effect of climate change and the last generation who can do something about it.”
- Barack Obama
5. Kahlenborn, Walter (adelphi), Annica Cochu (adelphi), Ivo Georgiev (COWI Denmark), Frederik Eisinger (adelphi), Dominic Hogg (Eunomia) “Defining “Green” in Context of Green Finance”, European Commission -Final Report, < https://op.europa.eu/en/publication-detail/-/publication/0d44530d-d972-11e7-a506-01aa75ed71a1/language-en>