Green Finance - Climate Friendly Investments

Posted in Finance Articles, Total Reads: 668 , Published on 14 March 2016

Green Finance is the financial investment done for sustainable development projects. It includes investment in environmental products and policies for the development of a sustainable economy. Although there has not been fixed definition for the term. So, there has been a proposal for the definition of the term. Green Finance comprises financing of green investment be it preparatory cost or capital cost. It also includes financing of public green policies and green financial system.

Green Investment includes investment for climate change mitigation, elimination of green house gas emission, biodiversity protection, sanitation, Pollution control, investment in renewable energies, energy efficiency. Green Investment is critical as it requires significant financial resources and large-scale investments to adverse the climatic change and brings sustainable development. Investments in renewable resources like solar energy, wind energy, tidal energy have long term benefits but are expensive. According to the International Energy Agency, world need to invest $13.5 trillion of funds in low carbon energy solutions by 2035 to reduce emissions.

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Green bond is an investment solution which provides interest on investment. Around $5 billion of Green bonds have been issued by World Bank and other multilateral lenders. But this is just a stepping stone to the overall fund required by the green economy. These funds need to offer significant returns to motivate investors to purchase green bond. Tumbling price of solar and wind energy suggests that might be a reality soon.

Green Investments are different from traditional investments in a way that underlying business is involved in improving the environment.

It has been aligned to the strategic goal and operations of many companies as it is considered as the next big thing. In 2010, around $243 billion was invested in green technology which was double the amount invested in 2006. This has increased to $391 billion in 2014 which is around 18% growth over the previous year. China has been largest investor with jump of around 30%.

It’s a challenging task to create market-based and radical solutions which could address environmental problems like climate change, pollution, and deforestation etc. at the same time satisfy customers.

Not just start-ups or social entrepreneurs are trying to tap the market of green finance but also there are heavy weights like General electric, which has invested power generation through wind energy.

Recently London launches new green initiative as it wants to achieve status of climate finance capital. It wants to become global hub for green finance.

United Nation Framework convention on climate change

UNFCC foresees that both the developed and developing nations have different capabilities to fund for the Green economy and sustainable development. So, the developed country should provide financial assistance to the developing countries for implementing the convention. Hence, a financial mechanism has been established which provides funds to developing countries for sustainable development.

Also, Green Climate Fund (GCF) has been designated as an operating entity of the aforementioned financial mechanism. This Financial mechanism helps in deciding funds to be allocated for policies concerning climate change, Sustainable development, technologies for low carbon emissions and any other which satisfies eligibility criteria as per GCF. This is also in accordance with Kyoto protocol.

Last month, in December, a summit was organized in Paris known as UN Climate Change Conference or CoP21. In the conference, whole world committed to step forward and take concrete and radical steps to create a framework for low carbon emission and establishment of green economy. This is the need of the hour if want to ensure long term economic and global security. There was a commitment to restrict the global temperature rise within 2 degrees. For this an estimated investment of $53 trillion will be required in infrastructure, new technologies and innovation. For this requirement of Green Finance is must.

Lots of countries and companies see it as an opportunity and want to tap it before any other does. Here are the few cases and examples mentioned below:

China as a hub for Green Finance:

China has been one of the fastest growing countries with around 7%-8% of growth rate for last few decades. China has been more of a manufacturing country. Industry pollution has become the major challenge that the country was facing in the race for economic growth. There has been huge pressure on the government of China to revamp its strategy and focus more on sustainable development. Recently China has issued official rules for the use of ‘Green Bond’. This will help country to acquire required capital in its effort to become green economy. China needs injection of $330billion to finance climate solution.

China has recently established a green task force to develop a robust framework. It will help the country align sustainable outcomes into its domestic capital market development. Significant organizations like People's Bank of China, the National Development and Reform Commission are working toward issuing new definitions, clarity and guidance regarding green financing to help this market grow.

Also, Agricultural Bank of china has issued a $1 billion green bond funds in London which has been the first ever green bond issued by a Chinese bank.

New York Green Bank Initiative:

This is a state-sponsored investment green bank under the control of PSC (public service commission). Being a state-sponsored bank provides it the benefits of autonomy as it doesn’t have any stakeholders. It has freedom of charging sub-market interest rate and offer longer duration for repayment to make the loans commercially viable. NYGB will help technologies to achieve lower cost of capital.

United Kingdom to become Climate Finance Capital: As mentioned earlier, UK wants to establish itself as a hub for Green Finance. This is an exciting time of expansion for green economy and the green bond market. The market size has tripled in size between just one year time span i.e. 2012 to 2013. The growth has been same subsequent year as well and hence by 2014, $ 42 billion of green bonds were issued. London is the third largest bond market in the world which accounts for 9% of total global issuance out of which 21% of the issuances, in 2014 were in non- sterling currencies.

The great work has been done by bodies like The International Capital Market Association and Climate bond initiative to accredit green bonds. The London Stock Exchange has also included green bond segment on its market. There is a huge investor appetite for the new asset class i.e green bond. There is an imminent need of definitions, standards, accountability and transparency. This cannot be done without the global cooperation.

UK has established a Green Finance Study Group which is being co-chaired by the People's Bank of China and UK’s Bank of England.

India’s efforts for global finance: India is also looking how it can grow its own green finance market. Recently, Prime Minister Narendra Modi has made lots of ambitious pledges on renewable energy products and services. The securities regulators are in process of finalizing its official green bond requirements. Green bonds are seen as a valuable tool for meeting India's pledges for green finance at CoP21. Now we need international collaboration and coordination to make the most out of these valuable efforts.

It’s a strategic opportunity for the whole world, be it countries or companies or even an individual. This is an opportunity to overcome the climate challenges and invest in sustainable development and green economy.

This article has been authored by Jyotika Jain from SIMSR


Peters, EJ 2014, 'Bankable Savings: Analyzing New York's Green Bank', Stanford Environmental Law Journal, 33, 3, pp. 457-469, EBSCO Environmental Engineering Collection: India, EBSCOhost, viewed 20 January 2016.

United kingdom: 'there's real momentum in the green finance sector', says economic secretary. (2016, Jan 15). Asia News Monitor Retrieved from


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