Introduction
Green finance has been a vital tool in addressing global environmental challenges. In this finance, investors align financial strategies with sustainability goals. With the growing awareness of climate risks, the need for green finance is rapidly gaining momentum in the global financial landscape. Green Finance is one of the prominent steps towards sustainable finance.
The World Bank has defined Green Finance as a practice of mobilizing private capital for environmentally sustainable development. It is a mechanism to fund projects that contribute to reducing carbon emissions, improving energy efficiency, conserving biodiversity, and building climate resilience.
The Organization for Economic Cooperation and Development (OECD) refers to Green Finance as financing of investments that provide environmental benefits, especially reductions in pollution and greenhouse gas emissions, climate change mitigation and adaptation, and the efficient use of natural resources.
Green Finance integrates environmental concerns into financial decision making. It acts as a bridge for integrating the environment, economic and social actors and factors.
From an environmental perspective, it promotes actions and businesses to fund renewable energy sources and encourages actions that lead to low carbon emission. For instance, European Investment Bank (EIB) investing and financing in renewable energy projects and sustainable water management.
From a social perspective, it promotes healthier society by promoting and investing in business and technologies that improve the air quality, conserve natural resources, utilizes resources and reduces pollution. The growing investment in energy efficient public transportation, renewable source powered infrastructures, biodegradable products etc.
From an economic perspective, this finance promotes clean technologies, eco-friendly infrastructures and sustainable agriculture. Clean technology evolution and innovation in many professions has led to an eruption of new jobs. For instance, the rise of electric vehicles has led to employment to thousands of engineers, service centers and manufactures.
Importance of Green Finance
Sustainable Development: It ensures that economic growth does not come at the expense of environmental degradation as green finance aligns financial flows with sustainable development goals.
Risk Management: It supports sustainable projects and helps investors and businesses to manage long-term environmental risks.
Market Opportunities: This finance promotes eco-friendly technologies, renewable energies and sustainable practices. This leaves plenty of opportunities to investors, technical expertise, workers and government to have potential financial and economic gains alongside a strong environmental impact.
Climate Action: It only accepts projects and businesses that address the urgent threat of climate change. This finance funds the projects that reduce greenhouse gas emissions and promote climate resilience.
Real life Green Finance Initiatives
- Masdar City (UAE) : Masdar city in Abu Dhabi is a sustainable city developed entirely powered by renewable energy. This city was funded by green finance and had attracted investment for solar power plants, green buildings, and sustainable infrastructures.
- Tesla Sustainable Loans: Tesla financed its expansion of solar energy business and electric vehicle production by securing green loans.
- Mexico City Airport Green Bonds: Mexico city constructed a sustainable airport terminal via green bonds. This airport project focuses on water conservation, energy efficiency, and waste reduction etc.