What is Green Finance?

We are hearing the term 'Green Finance' a lot. But what does it actually mean? And why is it getting airtime at the moment?

In simple terms, green finance, is where a product or service that is being invested in, is green. The outcome is, that in return for investing in something that is green, there will be a positive effect on the environment, not just on the business. Along with 'Green Finance', we are also hearing about 'Climate Finance' which is an emerging form of green finance made available for projects in developing countries to help adapt to climate change.

The Paris Agreement on climate change, which came into force in 2016, has paved the way forward for this significant new development in finance options, as under the agreement, nations have become united in a common cause to tackle climate change through appropriate financial flows, new technology initiatives etc.

So, the initiatives are in place at a high level, with governments and businesses lined up to support them, and now the challenge is to ensure that to tackle climate change, people have to potentially change some of their behaviours and actually use finance that is 'green' as a way of beginning to address the growing environmental issues we are facing. There is a huge focus on the availability of green finance as an option, but that doesn't necessarily mean that people are going to use it; there are still other finance options out there that aren't classed as 'green' that people can choose. So just having green finance available doesn't solve the issue, it is just part of a solution; the reality of tackling climate change is more complex.

Focusing here on the term 'green finance' though, it is something that is here to stay though, and that can only be a good thing in terms of raising awareness and creating a greener economy. The UK, as an example, sees the launch of the Green Finance Institute on 2 July during the Green Finance Summit, and this will also coincide with the first ever London Climate Action Week organised by the Mayor London. The Deputy Mayor for Environment and Energy, Shirly Rodrigues says 'To help mitigate climate change we must continue funding low carbon, green projects that are both good for our planet and our economy. This summer we will help launch the Green Finance Institute to help boost sustainable businesses during our London Climate Action Week and encourage every sector to help generate climate solutions.

So as accountants, we need to be aware of what is going on globally in terms of green finance. Countries are united to tackle climate change under the Paris Agreement, so green finance is an option that’s now recognised worldwide as a way of financing that increases the level of financial flows from the public, private and not-for-profit sectors to sustainable development priorities. A major part of this is to better manage environmental and social risks, take up opportunities that bring both a decent rate of return and environmental benefit and then, as a result, deliver greater accountability.