Green Financing-Scope-Initiatives-Projects-Instruments-Measures-Impact-Standards-Barriers

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Green Financing: Practices
Measures and Barriers
R.VASANTHAGOPAL,Ph.D.
University of Kerala

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Agenda….
 Green finance
 Green finance- Practices
 Green finance-Measures
 Green finance-Barriers
 Q&A

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“We cannot solve the problem with the same way of
thinking we used to when creating them
-Albert Einstein

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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.

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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.

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Scope of Green Finance

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Green Finance Initiatives

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Green Finance Initiatives

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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.

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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

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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.

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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.

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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

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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.

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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

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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.

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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).

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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.

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Thanking You
vasanthagopalr@gmail.com