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Green financing: Practices, Measures and Barriers

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Vasanthagopal R
Vasanthagopal R

The document discusses green financing practices, measures, and barriers. It defines green financing as investments related to sustainable development projects like renewable energy and pollution control. Common green financial instruments include green bonds, loans, and public-private partnerships. Measuring the sustainability of the financial system considers resilience, efficiency, efficacy, and transparency. Barriers to green financing include a lack of long-term financing, regulatory issues, lack of data and standards, and a shortage of bankable projects. Overcoming these challenges will be key to achieving climate change goals.

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Click to edit Master title style 1 Green Financing: Practices Measures and Barriers R.VASANTHAGOPAL,Ph.D. University of Kerala
Click to edit Master title style 2 Agenda….  Green finance  Green finance- Practices  Green finance-Measures  Green finance-Barriers  Q&A
Click to edit Master title style 3 “We cannot solve the problem with the same way of thinking we used to when creating them -Albert Einstein
Click to edit Master title style 4 Introduction  Sustainable development is the pathway to the future.  It offers a framework to generate economic growth, achieve social justice, exercise environmental stewardship and strengthen governance (Ban Ki-moon, 2013).  Sustainable, inclusive and equitable growth can alone guarantee a social atmosphere of peace and stability within a country.  Three sectors of sustainable development: economy, environment and society. All these sectors are interlinked and complement each other  Principles of sustainable development: futurity, social justice, trans frontier responsibility, procedural equity and inter species equity.
Click to edit Master title style 5 Green Financing  Green financing is investments made or financial instruments traded related to the projects or green initiatives for environmental products and policies that encourage more sustainable development.  The major green financing projects include biodiversity production, clean water and sanitation, industrial pollution control, climate change adaptation, renewable energies, energy conservative efficiency and other climatic mitigation initiatives.  In India, green banking is promoted to a great extent by the developmental and commercial banks in the form of green loans, green credit cards and green bonds, and others.  Furthermore in 2015, the categories of social infrastructure and renewable energy have been included under PSL.
Click to edit Master title style 6 Scope of Green Finance
Click to edit Master title style 7 Green Finance Initiatives
Click to edit Master title style 8 Green Finance Initiatives
Click to edit Master title style 9 Green Assets/Projects  Renewable power generation  Low carbon transport  Low carbon buildings  Sustainable water management  Sustainable waste management  Sustainable land use etc.  Climate change adaptation or resilience measures such as flood defences.
Click to edit Master title style 10 Green Financial Instruments Debt Instruments  Green Corporate Bond  Green Securitisation  Green Sovereign Bond  Green Project Bond  Green Loan Equity Instruments  Public Private Partnership  Private Equity  Joint Venture  Investment Trust Debt/Equity Green sukuk Green perpetual bond Green convertible bond Green mezzanine bond
Click to edit Master title style 11 Green Finance: Measures  Currently no systematic methodology for assessing progress on greening/transformational impacts within the financial system.  This is made more difficult by inconsistent definitions of what constitutes green, the lack of data (availability and access), varying thresholds for labeling and reporting, and capacity and resource requirements (costs) associated with monitoring and measuring, allowing for investments to yield widely varying degrees of sustainability outcomes.
Click to edit Master title style 12 Green Finance: Measures  In order to measure the performance of a financial system we focuses mostly on depth, inclusiveness and stability of a financial sector .  To measure sustainability within the financial system, additional criteria will be needed, include:  Resilience (degree to which sector is capable of bearing risks) (Indicators include: Capital E&S risk, ESG);  Efficiency (degree to which sector operates at cost at a societal level) (Indicators include: level of subsidies, carbon prices, transaction costs, etc.)  Efficacy (degree to which the sector serves the real economy from a societally appropriate perspective); and  Transparency which is essential to ensure effective decision making.
Click to edit Master title style 13 Impact Indicators for Green Financing • (i) The amount of absolute and of reduced GHG emissions for investments; (ii) the amount of private investments mobilized through subsidized projects; (iii) jobs created; (iv) energy savings in GWh; (v) green bond market issuers and total volume; (vi) sector relevant indicators e.g. hectares of forest, number of people protected from increased flooding, LEED(Leadership in Energy and Environmental Design) status of buildings etc; (vii) ESG indicators and their materiality; (viii) reduction in predicted pollutants; (ix) air and water quality; (x) regional economic impacts; (xi) distribution of energy labels/certifications; (xii) compliance with ISO 26000 guidelines; (xiii) life cycle analysis; (xiv) co-benefits; and (xv) voluntary and compliance carbon markets
Click to edit Master title style 14 Green Financing: Guidelines & Standards  International:  Green Bond Principles (GBP)(developed by ICMA-International Capital Market Association)  Green Loan Principles published by the Loan Market Association (LMA)  Climate Bonds Taxonomy and Climate Bonds Standard  Regional:  ASEAN Green Bond Standards  Country-specific:  Sustainable and Responsible Investment Sukuk Framework (Malaysia) These principles provide useful guidance on four key aspects:  setting eligibility criteria, asset / project screening,  management of proceeds and post-issuance reporting.
Click to edit Master title style 15 Green Financing: Barriers • Lack of low-cost, long-term finance. • Regulations and RBI guidelines on interest rates, exposure limits, security and other conditions • No effort to incorporate the environmental impact into commercial lending • No authentic data regarding environmental financing by FIs
Click to edit Master title style 16 Green Financing: Barriers • No loan tracking process by FIs on green finance. • Poor cooperation among market players in the development, promotion, and dissemination of green financial products. • Lack of awareness that environmental and climate risks can pose a threat to the financial sustainability • Lack of staff knowledgeable in ESG issues in assessing environmental, climate risk and green lending.
Click to edit Master title style 17 Green Financing: Barriers • Shortage of bankable and investable projects • Lack of mandatory environmental risk analysis and ESG disclosure requirements • No institutional arrangement for ensuring green finance in sustainable development-related expenditure. • Lack of sufficient relevant disclosure for investors by listed companies to assess ESG issues (WWF, 2015).
Click to edit Master title style 18 Conclusion It is true that challenges for scaling up a green transformation to low-carbon economy are high; aligning the financial sector with sustainable development, improving ways of defining and measuring the progress across the sustainable financial system, developing specific country context green finance instruments and ensuring a coordinated and systematic approach which involves all relevant stakeholders will be key elements for India to accomplish the Paris Agreement's (2016) long-term goal- keep the increase in global average temperature to well below 2°C above pre-industrial levels; and to limit the increase to 1.5°C.
Click to edit Master title style 19 Thanking You vasanthagopalr@gmail.com

More Related Content

Green financing: Practices, Measures and Barriers

  • 1. Click to edit Master title style 1 Green Financing: Practices Measures and Barriers R.VASANTHAGOPAL,Ph.D. University of Kerala
  • 2. Click to edit Master title style 2 Agenda….  Green finance  Green finance- Practices  Green finance-Measures  Green finance-Barriers  Q&A
  • 3. Click to edit Master title style 3 “We cannot solve the problem with the same way of thinking we used to when creating them -Albert Einstein
  • 4. Click to edit Master title style 4 Introduction  Sustainable development is the pathway to the future.  It offers a framework to generate economic growth, achieve social justice, exercise environmental stewardship and strengthen governance (Ban Ki-moon, 2013).  Sustainable, inclusive and equitable growth can alone guarantee a social atmosphere of peace and stability within a country.  Three sectors of sustainable development: economy, environment and society. All these sectors are interlinked and complement each other  Principles of sustainable development: futurity, social justice, trans frontier responsibility, procedural equity and inter species equity.
  • 5. Click to edit Master title style 5 Green Financing  Green financing is investments made or financial instruments traded related to the projects or green initiatives for environmental products and policies that encourage more sustainable development.  The major green financing projects include biodiversity production, clean water and sanitation, industrial pollution control, climate change adaptation, renewable energies, energy conservative efficiency and other climatic mitigation initiatives.  In India, green banking is promoted to a great extent by the developmental and commercial banks in the form of green loans, green credit cards and green bonds, and others.  Furthermore in 2015, the categories of social infrastructure and renewable energy have been included under PSL.
  • 6. Click to edit Master title style 6 Scope of Green Finance
  • 7. Click to edit Master title style 7 Green Finance Initiatives
  • 8. Click to edit Master title style 8 Green Finance Initiatives
  • 9. Click to edit Master title style 9 Green Assets/Projects  Renewable power generation  Low carbon transport  Low carbon buildings  Sustainable water management  Sustainable waste management  Sustainable land use etc.  Climate change adaptation or resilience measures such as flood defences.
  • 10. Click to edit Master title style 10 Green Financial Instruments Debt Instruments  Green Corporate Bond  Green Securitisation  Green Sovereign Bond  Green Project Bond  Green Loan Equity Instruments  Public Private Partnership  Private Equity  Joint Venture  Investment Trust Debt/Equity Green sukuk Green perpetual bond Green convertible bond Green mezzanine bond
  • 11. Click to edit Master title style 11 Green Finance: Measures  Currently no systematic methodology for assessing progress on greening/transformational impacts within the financial system.  This is made more difficult by inconsistent definitions of what constitutes green, the lack of data (availability and access), varying thresholds for labeling and reporting, and capacity and resource requirements (costs) associated with monitoring and measuring, allowing for investments to yield widely varying degrees of sustainability outcomes.
  • 12. Click to edit Master title style 12 Green Finance: Measures  In order to measure the performance of a financial system we focuses mostly on depth, inclusiveness and stability of a financial sector .  To measure sustainability within the financial system, additional criteria will be needed, include:  Resilience (degree to which sector is capable of bearing risks) (Indicators include: Capital E&S risk, ESG);  Efficiency (degree to which sector operates at cost at a societal level) (Indicators include: level of subsidies, carbon prices, transaction costs, etc.)  Efficacy (degree to which the sector serves the real economy from a societally appropriate perspective); and  Transparency which is essential to ensure effective decision making.
  • 13. Click to edit Master title style 13 Impact Indicators for Green Financing • (i) The amount of absolute and of reduced GHG emissions for investments; (ii) the amount of private investments mobilized through subsidized projects; (iii) jobs created; (iv) energy savings in GWh; (v) green bond market issuers and total volume; (vi) sector relevant indicators e.g. hectares of forest, number of people protected from increased flooding, LEED(Leadership in Energy and Environmental Design) status of buildings etc; (vii) ESG indicators and their materiality; (viii) reduction in predicted pollutants; (ix) air and water quality; (x) regional economic impacts; (xi) distribution of energy labels/certifications; (xii) compliance with ISO 26000 guidelines; (xiii) life cycle analysis; (xiv) co-benefits; and (xv) voluntary and compliance carbon markets
  • 14. Click to edit Master title style 14 Green Financing: Guidelines & Standards  International:  Green Bond Principles (GBP)(developed by ICMA-International Capital Market Association)  Green Loan Principles published by the Loan Market Association (LMA)  Climate Bonds Taxonomy and Climate Bonds Standard  Regional:  ASEAN Green Bond Standards  Country-specific:  Sustainable and Responsible Investment Sukuk Framework (Malaysia) These principles provide useful guidance on four key aspects:  setting eligibility criteria, asset / project screening,  management of proceeds and post-issuance reporting.
  • 15. Click to edit Master title style 15 Green Financing: Barriers • Lack of low-cost, long-term finance. • Regulations and RBI guidelines on interest rates, exposure limits, security and other conditions • No effort to incorporate the environmental impact into commercial lending • No authentic data regarding environmental financing by FIs
  • 16. Click to edit Master title style 16 Green Financing: Barriers • No loan tracking process by FIs on green finance. • Poor cooperation among market players in the development, promotion, and dissemination of green financial products. • Lack of awareness that environmental and climate risks can pose a threat to the financial sustainability • Lack of staff knowledgeable in ESG issues in assessing environmental, climate risk and green lending.
  • 17. Click to edit Master title style 17 Green Financing: Barriers • Shortage of bankable and investable projects • Lack of mandatory environmental risk analysis and ESG disclosure requirements • No institutional arrangement for ensuring green finance in sustainable development-related expenditure. • Lack of sufficient relevant disclosure for investors by listed companies to assess ESG issues (WWF, 2015).
  • 18. Click to edit Master title style 18 Conclusion It is true that challenges for scaling up a green transformation to low-carbon economy are high; aligning the financial sector with sustainable development, improving ways of defining and measuring the progress across the sustainable financial system, developing specific country context green finance instruments and ensuring a coordinated and systematic approach which involves all relevant stakeholders will be key elements for India to accomplish the Paris Agreement's (2016) long-term goal- keep the increase in global average temperature to well below 2°C above pre-industrial levels; and to limit the increase to 1.5°C.
  • 19. Click to edit Master title style 19 Thanking You vasanthagopalr@gmail.com