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In the year 2015, being someone who likes to stay abreast of various political and economic developments, I was often confused by the term ‘Green Finance’. Furthermore, the excessive use of the term in the G20 prompted me to learn more about it and understand you as well.
Green finance can be described as an umbrella term that refers to changes in financial flows that are needed to support projects that help not only the environment but also society. Pollution, air quality, water quality, greenhouse gas emissions, energy efficiency and renewable energy are some of the categories that fall under green finance.
To meet the aspirational goal of the Paris Agreement, it is important to align green growth and the financial sector. If we talk of green finance in the long term, we should be happy to know that it has ample opportunities for profitable investments in developed and developing economies. Investing in the green economy will set the tone for the carbon footprint. The only need at this juncture is to move towards greening the financial system. There is a growing awareness in the financial system of stability risks, commercial opportunities and changing customer preferences. The government has facilitated these developments through national roadmaps, sectoral guidelines and policy signaling. The economy is witnessing competing calls among financial centers and companies for green finance leadership.
An accepted green finance will always be the right proportion of policy action and market. Below are some actions that can be helpful for an effective market action:
Linking environmental risk analysis with core business activities
feed back into the policy process
Driving Environmental Risk Analysis
anchoring stability, and
Controlling financial technology to strengthen retail demand.
Authorities need to be able to shape effective policies to reduce market failures and create conditions that help green finance grow. In addition to using policy packages with fiscal policy and environmental reforms, there should be a partnership to support the greening of financial markets with the following options:
Supporting data provisioning and capacity building
effectively utilizes the limited public, and
Creating a smart and streamlined incentive system.
After the government, multilateral development banks and international financial banks also have an important role, with options such as:
Streamlining governance structures and departments as per the Paris Agreement
using methods to strengthen environmental guidelines, and
Promoting the development of financial markets and filling project pipelines.
Since the Paris Agreement, businesses have begun that streak of competition at various levels of the financial system. Global financial centers such as London, Shanghai, or Paris are positioning themselves as global green finance centers – this and many others entice specialist companies to move there. Designing smart market systems and policies to maximize positive impacts over the long term can be a strong approach towards increasing green finance.
Developing countries face large investment gaps and receive a small share of green finance flows. This is the case when these developing economies offer huge opportunities for long-term green investment in sectors such as transport, agriculture, infrastructure and energy. There are many developing countries that are advertising green bond roadmaps, highlighting the potential of green finance. However, an updated version of the environmental risk analysis is needed to understand the various impacts to manage the potential development policy implications. UN Environment is developing a range of options to make the most of the joint activities of green finance and sustainable development.
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