With the rise of sustainable development, more and more attention has been given on how banks can achieve sustainability. The industry believes that although they still have many challenges in developing green finance business models; the opportunities definitely exceed the challenges.
Investing in the environment is good business.
Green finance refers to “economic activities that support environmental improvement, response to climate change, resource conservation and efficient use of resources”. It not only includes investment methods but also pays more attention to building a financial system for sustainable development including various means such as energy-efficient projects or cleaner sources of power generation like solar panels and wind turbines
Green finance is an emerging industry that has been met with great interest from both investors and consumers. There are many different types of environmentally-friendly financial tools, such as green bonds, credits for companies who make their products in a sustainable way or invest in the environment; green stock index funds which invests specifically into environmental projects without any consideration to performance; insurance policies that protect against pollution risks faced by industrial producers while also supporting agricultural production methods more mindful of our planet’s natural resources. Another one is Carbon finance, a model that offers another avenue for investing responsibly – this type of investment considers how much carbon dioxide is released when deciding whether to fund a project instead of traditional factors like profit margin or duration return on investment (ROI).
From the perspective of sustainable development, green credit risks are relatively low. But this does not mean that the banks are having it smoothly in green finance, and there are still many challenges. At present, the banking industry is in the process of developing more acceptable and resilient business models for the development of green finance while current regulatory frameworks have not paid special attention and consideration of environmental risks.
In order to meet challenges and seize opportunities, banks first need to change their approach. Commercial organizations also need to consider non-economic factors. For example, instead of investing in quasi-public industries, it is necessary to strengthen the market’s ability to allocate ACTUAL and REAL, TANGIBLE green resources. Mandatory environmental information disclosures are implemented to allow investors to identify who is sustainable and who is not. This process enables the financial industry to effectively carry out incentive resource allocation and reduce resource allocation in polluting industries.
At the end of the day, there are also some projects whose benefits are not high enough due to external factors, and they also need to be encouraged by relevant incentive mechanisms. Interest discounts, guarantees, etc. from the financial sector, and the cost subsidies for green bond issuance certification by local governments, are all useful incentive mechanisms that can enable sectors with low green revenues to meet revenue requirements and promote the development of green finance.
To learn more on how to conduct specific sackground checks for mandatory environmental information disclosure please head over here.