Green Finance refers to the financial arrangements that are specific to the use for projects that are environmentally sustainable or projects that adopt the aspects of climate change. The simplest way to describe Green Finance is that it is any form of structured financial activity which is created to ensure better environmental sustainability.
It is actively supported through curated green projects funded by state governments, as well as specific loan instruments to fund these long-term investment vehicles that have a positive influence on the environment.
Given the importance of rebounding the economy to its normalcy, the Governments, Central banks, and financial institutions across the world all have a role to play in ensuring that stimulus packages are rolled out to revive the Covid 19 – struck economies.
While it is an unchallenged fact that the world economy has plunged to new lows in these 2 years of the pandemic, it is of even greater importance for the economy to revive back not only monetarily but also with more Eco-friendliness for the governments cannot afford to fund reverse climate change stimulus packages any time soon.
The British Government has announced a $1.2 billion dollar stimulus package to make private investments in green projects in India. The presence of bilateral agreements of such kind can only be comprehended as Green Finance being the most viable form of investments to be made keeping in view of both the Environment and Profitability.
Given the above statistics and on seeing the raise of awareness of Green Investments, it is of no wonder that MSCI 2021 Global Institutional Investor Survey, found out that around 79% of investors in Asia have significantly increased their investments in ESG funds, allocating over $25 billion in 2020, an almost 131% increase from 2019.
The best way for an investor to contribute to more sustainable growth for the economy and help finance climate change solutions is to purchase Green bonds.
As the whole world suffers from unseasonal rains and cyclones in the wave of the pandemic along with sporadic wildfire lasting days, reducing the environmental assets worth in billions to ashes, Green Finance has become a crucial component in policymaking in India.
Green Finance marked its presence in India significantly since the 2008 G20 summit. This meeting would lay the foundation for various milestones which would be made by the Indian Government in the future.
This meeting was further supplemented by major flagship programs like Principles for Responsible Investment (PRI), Equator Principles (EP) for Financial Institutions. These programs evolved the public disclosure of companies regarding the eco-friendliness of their products in such a manner that at one point of time, it led to an evolution of a new stock market index created as an initiative to ensure that signatory countries have their companies to comply with ESG (Environmental, Social and Governance) guidelines.
Indices of such kind are introduced to help concerned investors to track their investments in companies that conduct their activities in compliance with ethical and moral guidelines maintaining environmental security. This ensures that the companies who give back to the society value, for the resources that they have taken from the society are duly rewarded with a specific array of investors and investments from caring NGOs.
The 2 major stock exchanges in India, the BSE and NSE are a part of this initiative and publish separate ESG indices such as NIFTY100 ESG Index and S&P 100 ESG Index to cater to the needs of the concerned investing community.
Australian Government has mandated its two regulators most relevant to the finance sector, the Australian Prudential Regulatory Authority (APRA) and the Australian Securities and Investments Commission (ASIC) to take into consideration the risks to financial stability in the absence of Green Finance and the role of these institutes in mitigating these risks.
In July 2018 a group of financial sector organizations from across Australia – including Banking, Insurance, and Investment industries, representing a large group of financial institutions in Australia with $10 trillion in assets signed a joint statement in support of sustainable finance.
Released by the United Nations Environment Programme Finance Initiative (UNEPFI), the statement calls on organizations across the finance sector to support the development of Sustainable Finance Roadmaps for Australia and New Zealand.
While there is no legislation in Australia directly regulating Green Finance in a legal angle, there are still regulators which serve as Industry guides and develop codes to encourage more social responsibility towards attaining sustainable goals.
These include Australian Securities Exchange (ASX) codes and Responsible Investment Association Australasia (RIAA). International initiatives like Principles of Responsible Investment (PRI) also create an impact on Green Finance in Australia.