Financing our way to a “greener” future

By Sam Jerow

creative commons solar

The data on climate change is clear and many people are working to undertake projects that tackle the problems that are being or will be created. As varieties of problems arise, so do the opportunities for innovation and solutions.

The types of issues people are working to solve vary greatly in nature. They include issues like pollution water sanitation and conservation, but all of the bold projects and initiatives have one common need: money.

This has led to the relatively new area of finance and banking called green finance. Price Waterhouse Coopers Consultants say, “green finance is defined as financial products and services, under the consideration of environmental factors throughout the lending decision making, ex-post monitoring and risk management processes, provided to promote environmentally responsible investments and stimulate low-carbon technologies, projects, industries and businesses.”

Essentially, any financial tool that is being used to finance a project that will in some way better the environment now or in the future is considered green finance.

The rise of a new area of financing related specifically to environmental issues points to some important trends. First, investors recognize that to be successful in the 2016 business world, they need to invest in projects that are environmentally friendly, or even entirely environmentally based. Second, it points to the fact that the number of these green projects is increasing and the market for tools that can be used to finance them is, in turn, also rapidly increasing. Deutsche Bank reports that the trend towards renewable energy will continue to become even stronger around the world over the next few years.

Most countries are taking the environment more seriously than ever before, but China has recently taken a particularly new direction to diminish pollution and protect the environment. Accounted efforts include attending the climate change conference earlier this year in Paris and laying out a detailed plan to “declare war” on pollution in March.

Policy and fiscal actions like these show commitment on a legislative level that ease the market fears by largely removing some of the risk, which in turn further spurs green investment within the private sector. This is important because most of the green financing will need to come from the private sector to accomplish all of the various, expensive projects; it is simply too large of an expense for governments to handle beyond putting some skin in the game.

Although green finance has improved greatly in the past five years, there is still a lot of work to be done to improve the environment. This means more research to conduct and that means more money will need to be invested in the sector. For this to happen individuals and businesses need to work on meaningful projects that incentivize and provide returns to investor. Governments should aim to reduce market volatility by investing some of their own money, and cooperative relationships must be created between the public and private sector on the topic of environment.


Photo Credit: Creative Commons

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