Green finance is loans, investment or bonds that support environmentally friendly endeavours. The principle behind green finance is to create a market where considering the climate impact of financial investments is a key factor and thus drives climate positive projects.
As it stands the UK has pledged to spend £5.8bn of International Climate Finance but there are also calls for further private sector funds to be more invested in climate friendly ventures. A central discussion point of COP26 will be how best to mobilise green finance and the role it will play in the reduction of global emissions. The aim for the next decade is for all finance to be green.
To drive green finance there needs to be an improved practical translation and clear guidance for how businesses, of all sizes, can properly disclose climate related information. A common set of standards and regulatory frameworks could provide clarity and help drive corporate behaviour with impact then filtering into consumer and individual choices.
The UK Government’s independent climate change advisors estimate that around £360bn of investment will be needed to upgrade and decarbonise homes in the UK by 2050. The major question is: where will this money come from? Perhaps a global carbon tax would help.
A key part debate within green finance is the role of carbon taxes. Currently there are 64 different carbon taxes across the world, each with different aims, interests, and frameworks. There have been calls for COP to mark a move towards a global carbon tax that could help stimulate movement towards greater green finance investment.
However, growing interest in green finance has led to accusations of ‘greenwashing’, whereby misleading or unsubstantiated claims about environmental performance are made by funds or organisations. This has been recognized by the UK government which has formed a Task Force on Climate-related Financial Disclosures (TCFD). The TCFD plan to use sustainable disclosure requirements to bring together new and existing reporting requirements and improve transparency in green finance.
Green finance will be a crucial topic at COP26 with global cooperation vital to ensure it is able to build into a bigger market.