Opinion: Going for Green Finance
A sustainable future is achievable, but only if our investments pivot decisively towards green projects
By Viiveck Verma
In recent years, green finance has transitioned from a fringe idea into a foundational pillar of global investment strategies. This shift reflects a growing recognition that financial markets must be active participants in addressing the environmental crises facing our planet. Green finance, with its focus on funding sustainable projects, underscores the notion that economic growth and environmental stewardship are not mutually exclusive. Indeed, a sustainable future is achievable, but only if our investments pivot decisively towards green projects.
Measurable Benefits
At its core, green finance involves the allocation of capital to projects that offer environmental benefits, from renewable energy initiatives to green infrastructure and pollution reduction projects. Distinct from conventional finance, green finance demands a commitment to sustainability, aiming to produce measurable benefits in terms of reduced carbon emissions, improved biodiversity and more efficient resource use. This form of finance also supports resilience projects that address climate risks like rising sea levels and extreme weather events, ultimately fortifying economies against environmental shocks. Among the critical instruments of green finance are green bonds, debt securities raised specifically to finance environment-friendly projects. These bonds have seen remarkable growth in recent times, with issuance reaching over $500 billion globally by 2021, according to the Climate Bonds Initiative.
Major institutions, including governments, multinational corporations and banks, are increasingly turning to green bonds, attracted by their capacity to fund projects that align with climate targets. For instance, the European Investment Bank has committed billions to such projects, illustrating that green finance is no longer the preserve of niche players but a priority for financial giants.
Integral to the green finance landscape is Environmental, Social, and Governance (ESG) Investing. ESG metrics evaluate not just the financial return on an investment but also its impact on society and the environment. With regulatory bodies across Europe, the United States and Asia moving to standardise ESG reporting, companies are now incentivised to disclose their sustainability metrics transparently. ESG is not merely about ethics but also about creating a new benchmark for business resilience and societal value — a concept long overdue in traditional finance.
Greenwashing
However, the ESG landscape is still rife with challenges. It particularly struggles with greenwashing, wherein many corporations position themselves as sustainable, touting vague environmental credentials without the transparency or evidence to back them. This misrepresentation poses a severe threat to the credibility of green finance, diluting its impact and most importantly, eroding public trust. Yet, with advancing technology in data analytics and enhanced regulation, greenwashing is becoming harder to disguise, bringing hope for a more transparent and accountable green finance sector.
The United Nations’ Sustainable Development Goals (SDGs) and the Paris Agreement have created a global framework for sustainable growth, emphasising a collaborative, cross-sector approach to climate and development challenges. However, achieving these ambitious targets requires a transformation in how we think about capital allocation. Green finance thus serves a dual purpose: it drives financial returns while also fostering societal good in line with these SDGs. Investments in green finance directly support SDG targets on affordable energy, sustainable cities, climate action and water conservation, among others, creating a multiplier effect where financial gains translate into broader, positive societal impacts.
From a practical perspective, green finance is also proving itself to be resilient in the face of market volatility. The recent pandemic, for example, underscored the vulnerability of traditional sectors and the resilience of green sectors, particularly renewable energy. Companies that had embedded ESG criteria into their operations, including environmental risk management, generally fared better than those solely focused on profit maximisation. This resilience is a persuasive argument for sceptics, illustrating that sustainable investments are not only socially responsible but also financially astute and are likely to have better track records in times of global distress.
Capital Gap Challenge
The most significant challenge for green finance is the Capital Gap, the sheer volume of funding needed to meet global sustainability targets. According to the UN, reaching net-zero emissions by 2050 will require investments ranging from $3 trillion to $5 trillion per year. While green finance is expanding, these figures indicate an urgent need for public and private sectors to work together to channel funds. Policymakers, too, must play a role in providing the frameworks, incentives and assurances necessary to de-risk green investments and attract a broader pool of capital.
Yet, this funding gap is also an opportunity. Emerging markets, for instance, stand as vast, untapped sources of green growth potential. Developing economies often suffer disproportionately from climate impacts, making them prime candidates for green investment that builds resilience while fuelling economic progress. For investors, this offers a high-impact prospect: the chance to support climate adaptation while achieving growth in underdeveloped markets, creating a win-win scenario for finance and sustainable development while also garnering goodwill among people.
The question now is not whether green finance will become mainstream but how quickly it can scale to meet the needs of a rapidly changing world. Looking at how both public awareness and regulatory frameworks advance, it’s clear that green finance is evolving from an alternative to a primary investment focus. Moreover, the value proposition of green finance is increasingly compelling: it provides an opportunity to ‘do well by doing good’. Investors are recognising that the risks posed by climate change, from economic disruptions to physical damage, make sustainable investments not only a moral imperative but also a financially sound choice.
However, for green finance to fulfil its promise, it must resist complacency. It must ensure rigour and transparency in reporting, hold itself accountable to measurable outcomes, and continually innovate in funding mechanisms and financial instruments. As individuals, businesses and governments, we have the collective power to influence how capital flows, shaping not only markets but the future of our planet.
The future of green finance lies in making these responsible investment choices not just the norm but the foundation of a new era in global finance, an era where profitability and responsibility are, finally, in alignment. In the end, the success of green finance will be judged by the tangible impact it creates: the clean energy produced, the ecosystems protected and the resilience built against future crises.
(The author is founder & CEO, Upsurge Global, co-founder, Global Carbon Warriors, and Adjunct Professor, EThames College)
