Green finance is one of a number of terms used to label activities related to the two-way interaction between the environment and finance and investment. Related terms include: responsible investment (RI), environmental, social and governance (ESG), sustainable finance and climate finance.
A sustainable financial system is… one that creates, values and transacts financial assets in ways that shape real wealth to serve the long-term needs of an inclusive, environmentally sustainable economy.
Source: UNEP Inquiry into the Design of a Sustainable Financial System
Green finance covers a wide range of financial products and services, which can be broadly divided into banking, investment and insurance products. Examples of these include green bonds, green-tagged loans, green investment funds and climate risk insurance.
Other products that are labelled as ‘green’ may not be universally accepted as such – for example:
Financial products (e.g. credit cards) which offer a donation to environmental protection work in reward for a certain level of spend
Financial products, which respond to an environmental issue (such as flood insurance) but do not seek to address the causes of this issue (such as climate change)
Financial products which minimise the environmental impacts of the provider’s operations (such as using recycled paper) or which offset the customer’s normal activities (such as the carbon emissions generated by air travel).
According to a report by Nielsen, 66% of global consumers say they’re willing to pay more for sustainable brands. This, even though is good news, has led to the creation of an atmosphere of suspicion among the customers as according to a report by TerraChoice Environmental Marketing, 98% of green-labelled products are actually greenwashed.