Green finance refers to any structured financial activity – a product or service – designed to produce a better environmental outcome. It includes a variety of loans, debt mechanisms, and investments used to encourage the development of green projects or to reduce the environmental impact of more conventional projects. Or a combination of the two. Green finance can be used to develop environmentally friendly products or services, but it also has the potential to make existing products and services greener through improved technology and practices. Green finance is a relatively new term in the world of investment banking, but it is quickly becoming one of the most promising areas for all levels of investors. Green financing is critical to achieving several of the United Nations’ Sustainable Development Goals. Its Environment team is already collaborating with public and private sector organizations to align international financial systems with the agenda for sustainable development.
The green bond is a popular green finance instrument. There is a code of conduct that defines what a green bond is. A bond must meet certain criteria for the use of proceeds, have a process for project evaluation and selection, ensure proper management of any proceeds, and provide detailed reporting to qualify. Furthermore, the issuer must be able to demonstrate a clear commitment to sustainability and the implementation of best practices in all aspects of its operations.
The Green Bond Principles (GBP) are an industry initiative spearheaded by the Global Investment Movement (GIM), a group of investors who work together on investment issues such as green bonds and other sustainable investments. The Green Bond Principles were developed by the GIM to provide issuers with a code of conduct for issuing green bonds and to assist them in meeting investor expectations for transparency and accountability.
Green bond purchases by the ECB are also helping to drive down yields on other corporate debt, which means that more businesses will be able to access affordable loans for projects that reduce carbon emissions and conserve natural resources. Meanwhile, such bonds are in high demand in China, where many businesses are unable to obtain traditional bank loans due to the country’s tight monetary policy. According to the Paris-based Organization for Economic Cooperation and Development (OECD), approximately 20% of Chinese companies have negative net assets.