Just picture it- you, a small-time businessman, set up a factory in a well-known industrial area. Everything is perfect save for one major mistake- you built your factory in October, just before Diwali. It isn’t long before the streets are thronged by protesters demanding limitations on industrial development to preserve the air quality: Delhi at the forefront. So you begrudgingly allocate a portion of your hard-earned capital to planting trees to fulfil your corporate social responsibility and call it a day. End result? You aren’t happy, the people are dissatisfied, and the environment is in more or less the same place it was before.
We all know that there is a need to invest in the environment, but the actual amount is staggering. NITI Aayog estimates about $2.5 trillion worth of investment in the environment is needed over the course of the next decade. To put things into perspective, the investment into overall infrastructure over the past 15 years has been $1 trillion – not great odds. Why is it that industries, corporates, businesses see environment amelioration as a financial burden? According to a 1970’s study- and common sense – profits generally take a hit when funds are diverted to green causes. This is not true today, though. For example, the cost of generating energy in India today is Rs. 5/kWh, while the cost of solar energy is Rs. 2.2/kWh – less than half. What we need is incentive. Incentive that comes only from tying in ecological growth to financial prosperity. This is where green financing comes in.
Green financing is any financial investment or instrument used to improve the environment. Going deeper- it is a movement to induce capital markets to create and distribute financial goods and services that simultaneously enhance the environment and the finances of a business.
We all know that there is a need to invest in the environment, but the actual amount is staggering. NITI Aayog estimates about $2.5 trillion worth of investment in the environment is needed over the course of the next decade. To put things into perspective, the investment into overall infrastructure over the past 15 years has been $1 trillion – not great odds.
 
Fast track to a few months later. You know better now, and you understand that buying a couple houseplants won’t cut it. But your investors don’t see it that way, nor do the banks.
Here we make use of green financial instruments, generally green bonds and climate bonds. By setting up portions of capital specifically for environmental projects, investors are assured that their money will be well utilised. These implements get money flowing between investors, businessmen, NPOs, and banks in a regular and normalised way, not just as a response to government or social pressure. This is done to better manage environmental and social risks, take up opportunities that bring both a decent rate of return and environmental benefit and deliver greater accountability.
Green finance also sorts out some of the flaws of the financial and commercial markets. Ecological activities and externalities are often not addressed or accounted for in most pricing or funding systems. It also builds up a database of companies and NPOs that are involved in such efforts, because the average producer and investor is not well aware of the environmental market.
It was only after great research that you as a business owner could come across these green bonds, and with good reason, as green financing as a whole is a very new branch. Investors and industries are simply unaware of such instruments. It is thus that government has to play a leading role in awareness and implementation, by changes in the country’s regulatory framework and promotion of investment into environmentally motivated projects. This ensures prioritization over unsustainable business patterns. On the fiscal and taxation side, subsidies for fossil fuels could be phased out, while subsidies for green products could be phased in. On the legal side, information disclosure could be made mandatory, along with environmental insurance. Banks could also be made accountable for the environmental damage of the companies they lend to, a concept referred to as “lender’s liability.”
The Indian government isn’t alone, however. International organizations, particularly the UN Environment, offers the service of reviewing financing systems of it’s charter countries. It is organising cross border investments to efficiently and uniformly inculcate green financing culture as the new norm.
Green financing is a new term today, one that is severely underutilized. But the aim is that, in the future, that the 'green' facet becomes so ingrained in investment that it becomes just 'investment'.
Congratulations! You’ve established a healthy, environmentally sustaining business. Those pesky protesters forcing you to put aside money for some mindless CSR project? They were right all along. Your business is booming and the world is all the better for it.