Greed Green is Good

 | August 06,2012 09:31 am IST

 A good news flashes and says, we have reached an important inflection point, where sustainable and environmental friendly practices are now integrated into the core business strategies and the financial world.


The revolution has begun.

Never in the history, Green was so popular. This piece of writing will show and prove that reasons are logical and justifiable. In religions like Hinduism, green symbolically represents heart chakra. The same concept has evolved and is evolving in Finance. In near future green is going to be the heart of any business deals and investments.


Green Finance is a concept which considers environmental impact in any market based investing and lending programs. It utilizes environmental benefits to take the business decisions. Primary lenders and venture capital investors have started green financing. They give special preference to projects and business ideas that are environmental friendly rather than investing in activities that are threat to environment. Green finance is available to both consumers and producers.

 

For the producers, green finance is used by individuals to discriminate between investing or lending practices in favour of green projects and against environmentally damaging projects. On the other hand, Consumers get incentives to put an effort to reduce emissions by their buying preferences.

 

There are lot of green initiatives taken in financial sector across the world.

 

Recently World bank raised $350 mn through green bonds. Green bonds are issued to generate money to support a business venture that is environment friendly and supports green movement. The money raised by World Bank will be used to invest in low carbon projects in developing economies. This is a good example to set a trend in which the bank can adapt traditional funding mechanisms to help to mitigate climate change and risks. For example, issuing loans to individuals and households for home retrofitting, greening of public infrastructure, loans to support fleet conversions and green technology funds.

 

On the same line, drawing inspiration from courageous program launched by Franklin D. Roosevelt's in the wake of the Great Depression of 1929, the Green New Deal Group comprising of experts on climate change, energy and finance - came together to prevent the situation like this and to lay the foundations for the future economic systems for the world economy. They plan to introduce major structural changes to the international financial systems with sustained investment in energy conservation and renewable energy generation.


Biggies like General Electric are also taking advantage of green finance. Recently it was announced that GE will be selling its first hydrocarbon refrigerators. These refrigerators will use hydrocarbons instead of Chlorofluorocarbons (CFCs) that deplete ozone layer and cause global warming.
Green factor has also touched the real estate sector. As we know financial institutions play an important role in supporting the development of real property by providing financing to developers, mortgages to homeowners, etc. They can play a leadership role in assisting the transition to a greener building stock. Green buildings and green building finance is a key factor in addressing climate change given that buildings consume approximately 40% of the worlds materials and energy. There are several certification systems available for green buildings, the major among them is the Leadership in Energy and Environmental Design (LEED) system from the U.S. Green Building Council.

There are number of innovative practice launched by payment industries for customers to become greener with their purchases. For instance, credit card company VISA takes detailed knowledge of the customers purchases and creates programs and incentives to create awareness and make the cardholder more environment friendly. A similar initiative by joint venture of VISA and RePay International allows customer to sign up for carbon neutral card that automatically calculates the carbon emissions and offset them with a green project. With such detailed information about customers preferences and spending, financial institutions are able to evaluate individuals environmental impact.


Stock markets have also started trading carbon credits or Certified Emissions Reductions. Rio de Janeiro Stock Exchange was the first one to trade carbon credits. The carbon credit system was ratified in conjunction with the Kyoto Protocol. Its goal is to stop the increase of carbon dioxide emissions.


Carbon Credit is a permit that allows the holder to emit one ton of carbon dioxide. Credits are awarded to countries or groups that have reduced their green house gases below their emission quota. Carbon credits can be traded in the international market at their current market price.
Looking at the seriousness of the climate change issue and incorporating it with financial sector, a two Day International Conference on Greening Financial Institutions will be held from September 08 - 09, 2011 in Karlsruhe, Germany. It will bring together top executives and members of financial institutions, academia, policy makers, regulators, economists, sustainable development specialists, SME and micro finance practitioners, environmental management professionals, representatives of governmental organizations and international development agencies and other who are interested in sustainable economic development and green financing.


A recent article in New Statesman said, If the past 25 years have taught us anything, it is the power of financial markets. To many, particularly on the left, this is reason enough to distrust them. However, given that they exist, we can use them to our advantage, to hold corporations to account and build a greener, more open society.


In India there are several Non banking finance corporations (NBFC) being setup to solicit foreign funds to fund in green technologies. It makes a lot of financial sense:

  • For marketing purpose, it is easier to solicit funds citing the global cause of environmental damage.
  • Due to the dearth of financing available in India, loans and other financial products that target a certain sector can command a price premium if they have funds to deploy.
  • Green technology is very attractive to foreign investors. Especially, low cost solutions that can be widely deployed.
  • Green technology can change the operating paradigm of a business, much like investing in other sorts of new equipment.


With the ever increasing industrialization and urbanisation in developed and developing economies, environmental factors are given less importance. It has been argued that calculation of gross domestic product excludes environmental factors and impact. With the help of green accounting, a new model can be devised to incorporate this component. This will make everyone more environmental conscious. It will impact policy framework for the betterment of future.

 

Every capital investment should start featuring the climate impact. At last, as the Greenpeace USA says, Greed Green is Good.

 

Concluded.

 

 

 

 

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