Why successful global green finance is all about the colour of private money
Deborah Lehr says amid growing alarm over the possible economic fallout of climate change, governments must find ways to draw private capital to foot the gigantic bill for environmental solutions
As leaders in the global financial community gathered in Washington for the annual IMF/World Bank meetings, the hottest ticket in town was for a technical discussion on green finance. Awareness – and alarm – is growing about the potential financial impact on the international economy of risk related to climate change.
Experts from investment banks, rating agencies, central banks, finance ministries, institutions, investors and technology companies gathered for a lively discussion about how to bring green finance into the mainstream, to offset or at least prepare for these potential “climate caused” shocks to the system. In addition to being necessary to support the transition to a low-carbon economy, green finance may also be the key to stimulating moribund growth.
Others must now follow China-US climate action, or be left in the dust
At the G20 summit in Hangzhou ( 杭州 ) in September, the heads of state for the first time recognised the importance of agreeing on a set of principles for greening their financial infrastructures. While these commitments are not binding, they capped a year of growing momentum about how to harness widely available private sector capital and deploy it to promote green solutions.
Governments must create the right combination of incentives and disincentives to promote investment in green projects – in short, allow investors to make money
The governments of these leading economies have made significant progress in demonstrating the political will to address climate change, seen through commitments at the Paris climate summit. And enough countries have now ratified the treaty to ensure it takes effect. But even the wealthiest of nations will not have the necessary public capital to pay for the fulfilling of these commitments.
The challenge lies in how to develop a financial architecture that puts public monies to best use, while attracting the available private funds into green investing.
This will require leadership by government, combined with innovative thinking. Governments must create the right combination of incentives and disincentives to promote investment in green projects – in short, allow investors to make money. And they must capitalise on growing social awareness of environmental challenges to turn “being green” from a fad into a way of life, including the way business is done.
Pilot projects that might provide the platform for this transition are springing up around the globe. Many of these are starting in the developing countries that see the transition to low-carbon growth as a potential competitive advantage, creating new jobs. One minister at the green finance meeting in Washington noted that, in Nigeria, with 70 per cent of the population under 30, the transition to green industries can help provide jobs and opportunities for the youth – and keep them away from militant Islamist group Boko Haram.
