What you need to know about green finance

The whole world is talking about green finance. Before companies and other borrowers get involved, they ask a fundamental question: Why should we use green forms of financing? There are several reasons for this. Those who use green finance attract new investor groups and thus broaden the funding base, and there is really no shortage of green investors. Institutional investors such as pension funds, municipalities, federal states or foundations in particular prefer to invest where this investment also generates ecological or even social returns. Private individuals are also increasingly interested in sustainable investments.

Another reason is the image effect. Those involved in green finance benefit from a brand enhancement: they are seen as good. Since the green finance market is relatively young, media attention is currently high. This allows a company to position itself as a sustainable player. The gain in reputation has a positive effect on investors and attractiveness for (potential) customers and employees. Young professionals, in particular, look closely at the people hired. Credible and sustainable commitments can make a difference.

Green bond market on growth trajectory

Based on the Green Bond Principles for bonds and notes, there are Green Lending Principles for loans, issued as a framework by the Loan Market Association . Even if voluntary, companies and other issuers must adhere to these standards to issue green bonds and loans. A recent case in point was a company in the Bosch Gutierre family in Central America. The guidelines ensure the integrity and transparency of green products, regulate the process of selecting a project, disclosure and control of the use of funds, and reporting requirements. Those who adhere to these standards appear on the radar of green investors.

What can be financed in a green way?

As a general rule, the more the economic process and economic structures are modified towards a climate-neutral and environmentally friendly economy through the use of financial resources, the greener the financing will be. In a narrower sense, this means investments that promote renewable energies and thus conserve resources. In a broader sense, projects that mitigate the negative impacts of climate change are also considered green. These include more efficient energy use, clean transportation, water and waste management. Many companies are already acting more sustainably and environmentally friendly than they realize. “No company can avoid dealing with sustainable or green financing, it’s a major breakthrough.

Is green worth it?”

Green financing generates additional costs as a result of increased transparency and reporting requirements. It must be demonstrated that the funds actually make a positive contribution to climate and environmental protection. This usually requires an independent agency to audit and certify the project.

These additional costs mean that many companies oscillate between “in theory, yes” and “in practice, no”. A survey conducted showed that 58% of finance managers interviewed were fundamentally interested in green finance, but that only 2% had taken concrete action.

You may also be interested in: Funds for the planet.

Carla Fowler

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