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The Challenges of Green Finance

In this article, we’ll explain what green finance is, why it is important, the challenges of green finance, and how your company can get started.
Ecology News
2024-02-16T00:00:00.000Z
en-us
laptop next to green leaf jar

Finance is already a difficult subject, especially for business owners who have to manage their money carefully in order to efficiently run their business – but green finance is a whole other story.

Green finance refers to the method of utilizing financial activities to help aid the transition to a clean energy economy and to combat global warming. 

In this article, we’ll explain what green finance is, why it is important, the challenges of green finance, and how your company can get started.

What is green finance?

Green finance, as commonly referred to as sustainable finance, is the notion of practicing environmentally friendly or beneficial financial practices that align with the current needs of climate change.

The idea of green finance was first coined by a British-Canadian economist and banker named Mark Joseph Carney.
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Green financing includes working alongside companies with a similar mindset to ecological reform – such as projects that value reforestation, recycling of raw materials for the manufacture of new products, and more. 

In addition to this, green financing also values ensuring social equality – such as by promoting fair trade and encouraging equal pay amongst employees. Therefore, green finance strives to promote sustainability in all ways – not just via reducing our environmental impact.

💡 However, it is important to note that green finance is predominantly concerned with improving environmental circumstances – whereas sustainable finance takes a more well-rounded approach to benefitting both people and the planet. 

Examples of green finance include:

👉As concerns regarding the environment continue to rise, green finance is likely to continue growing in popularity – as it serves as a way to fight climate change while also benefiting economic endeavors.

Why is green finance important?

Green finance is important, seeing as it as an “all-in-one” way to combat both climate change and financial circumstances or constraints. 

In other words, green finance can help a business both to improve their profitability while also helping in the fight against climate change.

Green finance is important seeing as it can help to encourage:

  • Greater environmental sustainability
  • Reduce global emissions
  • Allow for improved risk management
  • Engage stakeholders
  • Cultivate greater social responsibility
  • Give businesses long-term value

One of the main reasons why green finance is important is because it helps to support projects that benefit the environmental crisis such as helping to reduce waste, promote recycling, protect biodiversity and ecosystems, and more. 

💡In fact, green finance could help to bring greater awareness to the climate change crisis – as a newfound interest in investing as a whole continues to intrigue both Gen Z and Millenials.

Therefore, green finance works in conjunction with the objectives of the Paris Agreement – a global treaty with multiple countries working to reduce emissions together. This means that green finance can help to simultaneously support numerous green projects and initiatives.

However, the overarching reason why green finance is important is because it encourages eco-friendly initiatives without sacrificing business growth – which is often what will refrain companies from shifting to the use of more sustainable practices. 

This is especially valuable when companies work hard to illustrate their commitment to green finance, such as with BlackRock – who has vowed to manage $7 billion dollars of investments towards green finance. As a result, this helps to inspire other companies to do the same – which helps to encourage a world that ultimately presumes the practice of sustainable or green finance over other investments. 

👉 Ultimately, green finance is crucial in helping to promote the transition to a green economy as well as to advocate for the use of renewable energy and other sustainable initiatives.

green wallet with green calculator

What are the benefits of green finance?

There are multiple benefits to the use of green finance, such as helping to promote more sustainable habits and helping to transition to a clean energy economy. 

Green finance can not only help to make your business more sustainable and open opportunities for new investors, but it can also help improve overall business efficiency with risk management and improved brand reputation.

Some of the benefits of green finance include:

  • Allows Eco-Friendly Technologies to be Widespread – Green finance can help to deploy green infrastructure and other environmentally friendly initiatives through the use of green finance being implemented into local markets.
  • Competitive Advantage – The development of low-carbon technologies and other initiatives as a result of green finance can help give your business a competitive advantage. In addition to this, green finance can keep your business one step ahead of upcoming environmental regulations.
  • Increased Business Value – Green finance can help add value to a company’s portfolio, which in turn – can help to pique the interest of stakeholders, investors, and current or future customers. 
  • Boosts Economic Endeavors – After all, the term “finance” makes up one half of green finance – meaning that committing to something as simple as a green bond or switching to a sustainable credit card can help to encourage even more green initiatives while also benefiting your financial endeavors. 
  • Promotes the Importance of Sustainability – You’ve heard the term, “monkey see, monkey do” – and the same goes for green finance. If one company notices another utilizing green finance, it can inspire them to influence their own local markets and develop renewable energy themselves.

👉 However, despite the benefits of green finance – there are numerous challenges that many companies are bound to face when making the transition to green finance.

bitcon on green background

What are some of the challenges of green finance?

There are numerous challenges to green finance, such as the fact there is little regulatory compliance, transition risks, and hesitancy to venture down the path of green finance due to financial concerns. 

Even though green finance can reap numerous benefits, the lack of standardization or “ground rules” for green finance make it difficult for everyone to follow through – in addition to fear that green finance will not prove lucrative for a company.

Here are some of the many challenges associated with green finance:

  • Lack of Standardization – Seeing as there is no universal standard for what qualifies as a mode of green finance – it can be hard for investors and consumers alike to differentiate a company that is truly committed to incorporating green finance or which companies are greenwashing customers.
  • Data Availability – Green finance is relatively new, with the first green bonds only being issued in November 2008 – reliable data regarding green finance is scarce and difficult to quantify which companies are proving to be “successful” in green finance. 
  • Risk Assessment – Pricing for green finance is difficult due to both lack of standardization and data availability.
  • Uncertain Financial Performance – Green Finance may make some investors hesitant due to their reservations regarding the differences between traditional and green finance. This is because while long-term performance of green finances have proven to be lucrative, the same can’t be said for short-term investments. 
  • Regulatory Concerns – Seeing as green finance is predominantly influenced by government policies and regulations, some investors may fear that future environmental regulations could deem the investments less lucrative.
  • Transition Risks – Seeking to switch to a low-carbon economy will require numerous industries to change their business practices, which can have an impact on investor’s portfolios. In addition to this, customers may change their preferences and technological advancements may not be in line with the needs for green finance. This could further impact investor portfolios.

👉 Overall, there are numerous challenges to implementing the use of green finance – with the need for more standardized framework and improved data transparency.

person counting money

How can your company get started with green finance?

Your company can get started with green finance by allocating your financial resources to more sustainable groups and projects – such as by switching to a more eco-friendly bank or partnering with other companies dedicated to making a difference in the environment.

Making the switch to green finance doesn’t have to be an all encompassing daunting task – it can really be as simple as taking baby steps towards greener finance decisions which overtime, will encourage your company and those around you to take similar actions.

💡It is important to note that green finance can be pursued both by a company or an individual. For example, someone getting into the world of investments or finance management can pursue green finance for themselves – such as by switching to a green neo-bank or an eco-friendly credit card.

One of the easiest ways to get started with green finance is to join a green neo-bank, but there are several other options for those who are hesitant to make this decision. 

Some of the other options to get started in green finance include:

  • Investing in the Undertakings for Collective Investment in Transferable Securities (UCITS)
  • Investing in the variable capital (SICAVs)
  • Seeking mutual funds or green bonds
  • Seeking a Stock Savings Plan (PEA) (France)

In addition to this, green finance goes beyond where you decide to keep or invest your money – but the projects and partnerships that your business chooses. This means that your company should seek to identify which goals are most important to them, all of the areas in which green initiatives could be implemented, and then carefully consider the most relevant green finance options accordingly. 

Even after green finance has been put into motion, it is important to share your beneficial impact with everyone – as this continues to inspire others to do the same and seek the benefits of green finance, even if the challenges are still present.

What about Greenly? 

If reading this article about the challenges of green finance has made you interested in reducing your carbon emissions to further fight against climate change – Greenly can help you!

It can be challenging to determine the best solutions to avoid the challenges of green finance in your business, but don’t worry – Greenly is here to help. Click here to schedule a demo to see how Greenly can help you find ways to effectively implement and utilize green finance. 

Greenly can help you make an environmental change for the better, starting with a carbon footprint assessment to know how much carbon emissions your company produces.

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