A recent study by scientists from across the globe has claimed that the world has already crossed crucial tipping points in its fight against climate change. While countries have tried to introduce sustainable practices, their effect has not been substantial. The concept of green financing has now come to our rescue, showcasing a potentially green and clean future.
When a government, a bank or any other organization sets apart a portion of its funds to support green, sustainable initiatives/projects, it is called green financing. The term has gained renewed importance, especially post the 2015 Paris Climate Agreement. With green financing gaining popularity, more and more cities and organisations are adopting it for promoting use of green resources.
How it can help
One of the biggest hurdles in quick adoption of green initiatives is the cost which is associated with them. It is necessary to understand that a major portion of the project which municipal corporations undertake bears heavy investments. This is mainly because sustainable development is not a cheap affair. Therefore, although government agencies have a steady source of revenue, the same is not the case with private players. Their primary aim is to make profits and to justify the costs of the organisation to the shareholders.
This makes investing in high-cost sustainable projects a tough choice. Here is where green financing plays its part. International organisations like the World Bank, the United Nations, and the Asian Development Bank, have specific funds which aim to aid such private players and government agencies in undertaking green projects. These may range from banning the use of plastic to building infrastructure which has minimal carbon footprint.
Secondly, green financing also means that the prospect of battling climate change is inclusive and promotes participation from all sections of the society, whether a small company or a big multinational corporation, the urban local body (ULB) of a small city or that of a big metropolis.
Thirdly, through green financing, international organisations and governments can plan sustainable development strategies based on the needs of different regions. This helps in overcoming the ‘one shoe fits all’ approach to development.
Issues and Challenges
Although more and more ULBs, governments and international private and public organisations are moving to adopt green financing, the concept is not without shortcomings. One of the major issues is that green financing has no fixed definition. Moreover, the lack of an international set of guidelines and framework for the same is also a deterrent to green financing. Some of the other issuees with green financing are:
Incoherence between the SDG targets and national goals
This is a major issue which hinders governments and ULBs from adopting green financing. Simply put, a developing country may focus primarily on rapid economic growth to meet the aspirations of its people. And since this may not always coincide with sustainable development, the latter suffers. Another obstacle is that the costs associated with green financing, are often very high as compared to the same project done in the conventional way.
Absence of a regulatory framework
In most cases, green financing is connected with undertaking projects that benefit the environment around them in some way. However, once these projects have been formulated, there is virtually no central authoritative body with appropriate powers to regulate and monitor if the project is being implemented in the right way. This means that the organisations actually responsible for implementing these projects may find it easy to flout the basic tenets of the projects in order to make profits.
Preference of short-term projects
A long term project financed through funds available under green financing can often be less preferred than a short term project. This is mainly because the returns on a short term project are received much earlier. In the case of a long-term project, however, the investment is large and the returns are delayed.
For example, a project for the construction of an eight-lane bridge between two mountains while keeping the SDGs in mind is a long-term project. On the other hand, the construction/maintenance of a city road is a short term project. This is why ULBs and private firms prefer undertaking short-term projects.
Case Studies
Despite its shortcomings, green financing has been successful in various instances in promoting a shift to more sustainable and greener projects. One of the most recent examples of this is that of the Asian Development Bank, which decided that it will stop funding projects working on extracting non-renewable fuels and will use those funds to finance extraction of green fuels. This way, the Bank not only promotes a shift but also assures the concerned stakeholders of sufficient funding so that they will be able to shift their operations and still remain profitable.
Another success story is the Delhi Transport Corporation (DTC)’s CNG bus fleet. The entire fleet of the DTC was changed in the time preceding the 2010 Commonwealth Games. With it, the overall carbon footprint of the state public transport provider was reduced, while at the same time, it produced thousands of employment opportunities for the unskilled and semi-skilled workers. The switch also bettered the fleet of the DTC which, in turn, encouraged more people to adopt public transport facilities. This decreased the number of cars on Delhi roads, thereby reducing pollution levels and traffic jams in the city.
A third one would be that of installing a concentrated solar power system in Morocco. Under the project, mirrors and lenses are used to concentrate a larger amount of sunlight onto the solar panels, which in turn are able to generate more energy. Since the project required a sizeable investment, the African Development Bank, as part of its green financing funds, helped the Moroccan government with the project, which now accounts for 38 per cent of the country’s total energy generation.
The number of organisations engaged in green financing has been increasing in the past decade. However, if we wish that it should avert climate change and prevent it from affecting millions, if not billions, of people worldwide, we will need to come up with solutions to the challenges that green financing faces and learn from the success stories which are
already available.