The Cost of Going Green - Exploring Green Financing
In the next 20 years, Asian cities will contribute to more than half the increase in global greenhouse gas emissions in a business as usual scenario. The financial sector plays an important role in the fight against climate change by actively supporting the development and implementation of green projects with proven climate change risk reductions.
This type of financing is called green financing.
What are the different Instruments for Green Financing?
Financing green projects in the construction sector involves raising capital and companies have to find fundings for that. The most used one are:
Green bonds: raise funds for green projects with a positive environmental impact, issued by banks, organizations or governments.
Tax incentives: a government measure that reduces taxes for businesses and individuals in exchange of commitment to projects that mitigate environmental impact.
Schemes: form of financing made by governments to help raise money for specific goals such as education for a family or construction project for a company.
Grants: financial award given by a company, foundation or government to invest in a project development, in the building sector this can result in rethinking existing buildings to be resource efficient and achieve net zero emissions.
Funds: pool of money allocated to a specific project. It can be given by a city government, or an insurance company that saves money for their projects. They are environmentally supportive businesses, such as alternative energy, green transport, water and waste management, and sustainable living.
Prefered loans: A form of debt, a corporation, financial institution or government advances for a project with an environmental objective and waiting to be paid back with interest before a certain date.
What is the difference between Green Bonds and Climate bonds?
Climate Bonds are financial instruments raising finance for green projects promoting clean energy, energ efficiency and climate change adaptation and mitigation strategies. Once they have been issued you have to guarantee to repay the bond after a certain period with a variable rate of return.
To receive a Climate Bond finance you need to comply with the criteria defined by each bond specifically. As a general motto, you need to prove that the funds will be used to finance projects that deliver a low carbon and climate resilient economy.
Green Bonds on the other hand encompass a broader category of projects : which have a positive environmental impact., for example renewable energy and green buildings. Currently, the global bond market totalises US$90 trillion of investments with US$118 billion in green bonds.
In order to finance projects that reduce carbon emissions or alleviate the effects of climate change The Climate Bonds Initiative, an international organization, mobilized a US$100 trillion bond market. Its main investors are from the public and private sector such as multinational banks (Bank of America, HSBC), foundations (Rockefeller, Gordon…) and the United Nations and European Union’s Horizon 2020
programme. Other organizations also have been created to mobilize capital for sustainable projects.
The International Finance Corporation
The International Finance Corporation is headquartered in the USA and is an international organization in over 100 countries. It aims to introduce environmental, social, and governance standards to markets. IFC already invested US$ 13 billion in green initiatives such as wind and solar projects.
With the objective of supporting sustainable development, IFC was created in 1956. Now 479 companies, cities and other organizations are global investors in the organization.
Other than investing in green projects, IFC also provides advisory and council services to promote environmental actions and green investments.
The International Monetary Fund
The International Monetary Fund is also an international organization composed of 190 member countries. They aim to support and promote green finance more broadly and climate related actions.
The IMF states that the world needs US$3.3 trillion green investments in a year to reach net-zero carbon emissions by 2050.
The UN Environment Programme works with countries and financial organizations to align the financial sector with the Sustainable Development Goals for 2030.
The UNEP defines Green Economy as "one that results in improved human well-being and social equity, while significantly reducing environmental risks and ecological scarcities."
Their goal is to increase investments in clean and green technologies, by building initiatives with private sector leaders for the green economy. By advising on sustainable finance roadmaps and encouraging central banks investments, the UNEP wants to shape tomorrow’s economy.
The Green Climate Fund
The Green Climate Fund was established during the Cancun Agreements in 2010 by 194 countries . It’s the world’s largest climate fund and is headquartered in the Republic of Korea.
They support countries in the development of low emissions projects with a global climate architecture. As evidence of their involvement they approved US$ 3 billion for 21 projects in 2021.
We are currently working on a eco district project in Mongolia partially funded by GCF and The Asian Development Bank. Learn more here : https://www.greendesignconsulting.com/single-post/gbce-presents-ulaanbaatar-s-ahurp-s-sustainability-roadmap-kpis
What is the Green Focus in the ASEAN Economy?
In Asia, sustainable finance just emerged in the economy, but several projects already unlocked investment opportunities. For a green transformation of the ASEAN market, banks and organizations promote green bonds and loans to finance sustainable infrastructure projects such as renewable energy generation, and low carbon buildings.
As a matter of fact, The Asian Development Bank (ADB) has been created to develop the ASEAN economy and assist its members in the building of new projects by providing loans, technical assistance, grants and investments.
As of today, 22.5% of the loans in ASEAN are green loans, and it’s estimated that the average annual demand will be US$200 billion by 2030. For the moment the annual demand is about US$40 billion.
To learn more: Join Our Event "The Green Real Estate: Beyond Net Zero" on February 9th 2023!
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