What Role Can Finance Play in Creating a Greener Economy

What Role Can Finance Play in Creating a Greener Economy

Finance is often maligned by the uninformed as solely a force for destruction in our world. Banks are held up as epitomes of greed and rapaciousness. While there is a lot to point to in support of these sentiments, finance has and is already playing an outsized role in the development of a greener global economy and a greener future. More must be done, but below are some of the ways finance is and can continue fulfilling its role as an instigator of change.

Investing in Renewable Energy

Renewable energy startups and even established operations require access to capital in order to scale up their operations and drive the paradigm shifts the world needs if we are to wean ourselves off of fossil fuels. Principal lenders and investors must partner with governments around the world to help protect and help fund companies with good ideas for alternative energy, from the research and development stage to helping to underwrite equity and debt issuances and running IPOs.

The idea of green banking is not a new one and banks and other financial institutions around the world have been orienting their investment strategies to a more renewable energy-heavy portfolio for some time. This is in recognition of both the profit-making opportunities that exist in these industries as well as the desire to do good through investing.

Divesting From Fossil Fuels 

The reorienting of our economies and societies towards sustainable and renewable sources of energy also requires a simultaneous divestment from fossil fuels if we are ever to see a meaningful paradigm shift. The problem is that large financial institutions around the world continue to decrease and increase their investment in the fossil fuel status quo. There is, as of yet, no concerted global effort on behalf of the world’s biggest banks to divest en masse. Banks have tremendous power when it comes to climate change, for better and worse.

Capitalizing Small Businesses With Green Ideas

This is something that is already taking place, and increasingly on a significant scale. More than $250 billion in ‘green bonds’ were issued during 2019 to finance environmentally-friendly projects around the world. These financial instruments appeal to the growing number of investors who want to see their money go towards projects with measurable, beneficial environmental and social impacts.

Green loans and developing a universally applicable framework for them is something that, while still in its infancy, has a lot of potential to help capitalize green startups in both developed and developing countries.

Conclusion 

In summation, finance has an outsized role to play in the development, capitalization and realization of green business and industries, and therefore the reorientation of the global economy towards renewable and sustainable sources of energy. Without financial markets and institutions, the task is left entirely up to beleaguered and indebted world governments, which does not bode well for a greener future. Increased investment in renewable energy, divestment from fossil fuels and carbon-intensive industries and helping green business access capital are the three main tasks ahead of the financial industry.