If there is one statement that is true in all its sense, it is that climate change is real! We are living on a planet of which, its environmental health is declining at an alarming rate. Climate change has caused so much damage to Mother Nature that it seems if correct policies and prompt measures are not taken now, we might lose a beautiful home for our future generations. If we look deeper into the damages and costs of the climate change there are two main categories identified as 1) the physical costs associated with frequent and extreme weather events and 2) the transition damages caused due to the policy and technological changes required to achieve a greener environment.
How is finance linked to the environment?
In an economy, each sector is directly or indirectly linked to one another. Likewise, climate changes influence a number of businesses, some positively while some negatively. Many of the businesses are owned by the public and there comes the role of financial institutions. These financial institutions aid these businesses and individuals of an economy by providing several services like providing loans, other credit or assistive programs like California finance program for covid 19, to help them manage their funds according to needs of the economy being affected by let’s say any environmental change. Therefore we can say it is a chain; any policies regarding the environment will affect the business and the business will affect the financial system of the economy.
Another way to link the environment and finance is the other way round. The individuals in the economy directly investing and depositing funds for green projects are playing a huge part in saving the planet. There are also many schemes of project financing offered by the financial institutions within the framework of policies and laws outlined for an environmentally friendly business. Another financial instrument being used is green financing. Green financing is becoming popular and a concept introduced to encourage a healthy atmosphere through innovation.
Green finance and its importance
Green finance is a term used for all these financial instruments and products specific to promoting investment in green projects that give good investable returns as well as environmentally positive results. This involves internalizing environmental externalities and adjusting risk perceptions in order to boost environmentally friendly. These investments are made sure to give a more sustainable business plan and strategies are in line with future environmental challenges. The focus is on both current projects, making them less harmful to the environment or on new ideas. Projects such as clean energy, sustainable transport, natural resources management, ecosystem services, biodiversity, sustainable tourism, and pollution prevention and control are highly anticipated in green financing.
We do realize that if anything that should be a top priority to the government, it should be green finance. Given the current situation of the world, climate change has brought some hazardous events to us, putting our lives at stake. Forest fires, floods, tsunamis, heat waves, extreme cold, non-seasonal rains, storms and whatnot. It is the need of the hour to start giving back to the planet earth, of what it is due for long. Green financing may help save the world’s health as one of many options.
How to promote green financing?
- Simplifying the policies for the common public to understand the workings of green financing
- Good disclosure is very critical for an investor. He must be well-informed before making any decision to invest in a green project.
- Initiative for issuing green bonds must be taken.
- Prices must be put on natural resources as well to allow them to be valued for investment purposes.
- Awareness programs should help educate the public about the long term and sustainable benefits of investing in green projects.
- New and innovative green financial products should be launched.