Green financing or investing is a form of responsible investing where investments are made in organisations that support or provide environmentally-sustainable products and services. It all comes down to transforming exploitative human practises to a more sustainable way of being in the world.
The market for green financing is relatively young. When I was in business school, mortgage-backed securities were all the rage; and we all know how that story ended–with the 2008 Global Financial Crisis which cost many people their jobs, their life savings, their homes, and even all three. So what is green finance and how does it all work? And is it just another passing fad?
For now, it seems that there’s no universal definition for what counts as green or sustainable finance. Green finance is a broad term. It can refer to financial investments flowing into sustainable development projects and initiatives as well as policies that encourage the development of a more sustainable economy. Some asset managers back only pollution-free energy whereas others focus on resource efficiency or creating and maintaining a strict series of policies on key environmental concerns. The key here is knowing where you want to focus your precious resources.
In 2019, at least $30.7 trillion worth of funds was held in sustainable or green investments, up 34% from 2016, according to a report by the Global Sustainable Investment Alliance.
But once again, what do green financiers do with their precious resources? There are four main areas of focus:
This relates to the quality and functioning of the natural environment in which life–in all its forms–springs forth. To me, it is all about taking care of Mother Nature so she can better take care of us.
If you’ve ever been sick or come down with anything, you know that it’s hard to be at your best when your resources are running low. You simply need time to recover and recalibrate. Even if you did haul yourself to work–which I really recommend that you don’t–you’ll find yourself functioning on a fraction of your real capacity.
When we talk about ‘the environment’, what we are really talking about is Mother Nature herself. She is in charge of the quality and functioning of the natural world. From biodiversity loss, to renewable energy, to waste management–investing in this area of sustainable finance calls on us to take care of our Mother so that she will be healthy and happy.
This green financing sector focuses on the rights, well-being and interests of people and communities. The focus here is on human welfare in areas like: labour standards, health and safety protocols, relations with local communities, activities in conflict zones, access to healthcare as well as consumer protection.
Is it possible to leave the world having only left footprints in the sand? Highly unlikely.
I’ve run into so many people who enter a war zone with a bandaid and then sit around with their champagnes and have ‘talks’ about why things are not getting better. If surgery is the call of the day, then please keep your bandaid in your first aid kit and not expect it to do the job.
If a community has been devastated, it will take a long time to rebuild and recalibrate. Be patient. Rome was not built in a day.
This area focuses on the impact that businesses and investors have on broader economic conditions at the local, national, and global level. Performance areas include: risk management and overall financial performance, as well as supply chain viability and the provision of sustainable forms of infrastructure.
This falls under the scope of politics and international relations. Often, we think of the economy as global vs local, but I think this is another short-term view. I’ve always maintained that globalisation is nothing new. Despite the current border closures, we are more reliant on the global supply chain than ever before.
Governments, businesses and large institutions all over the world will need to cooperate and collaborate on a global level as our world becomes increasingly digitalised despite border closures. Speaking of border closures, when it comes to the land, we can demarcate our borders; but when it comes to the ocean, especially from an ecological perspective–it is futile to even try.
This area relates to the management of internal structure of the entity. Issues include: board structure, size, diversity, skills and independence. From executive pay, to shareholder rights, to the disclosure of information–this area deals with general issues relating to the relationship between a company’s management, its board, its shareholders and its other stakeholders.
The key here is to set up your business for sustainability from the get-go, as opposed to having it as an after-thought when you realise way down the line that you’ve created havoc on the earth for generations to come. It all comes down to proper internal planning so that we’re in a better position to deal with the external changes that will inevitably arise in the future.
The Future of Green Financing
It’s easy to get swept up in the idea that green investing is some fad that won’t last. But ideas surrounding environmental sustainability go way back–all the way to the earliest humans that first roamed the planet. Indigenous cultures all over the world had a belief in taking care of Mother Nature. By taking part in green initiatives, we are not so much progressing; but simply going back to our long-lost and much-needed roots.
I think the true purpose of green financing is to increase the percentage of financial flows–from banking, micro-credit, insurance and investment–to sustainable development priorities, and not just profitable ventures that benefit humans and devastate the environment.
My personal opinion and experience has taught me that if businesses continue to focus on short-term gains as well as short-sighted economic indicators of profitability; they do so at their own peril.
We do live in an abundant universe and Mother Nature is very strong. If we take care of her, she will take care of us. If we exploit her, demean her and take advantage of her; we’re the ones who will have to pay the price.
So let’s focus on the long-term horizon, take care of the precious earth, and venture forth with the premise that we need to leave behind a healthy world for our descendants–as well as all those other precious souls who are yet to come.