As the United Nations’ 16th Conference of the Parties (COP16) concluded in Colombia last week, we revisit the conversation around green finance. How successful have the initiatives established in the industry been? Are green targets sufficiently ambitious? Is this all a form of greenwashing?
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The landmark Kunming-Montreal Global Biodiversity Framework, agreed upon two years ago at COP15, called for an economy-wide pivot to halt and reverse biodiversity loss by 2030. Private capital is fundamental to achieving this transformation of the $90 trillion global economy – it cannot be accomplished by government cooperation alone. Yes we all need to be bought into this!
As a recap, Green finance is any structured financial activity created to improve environmental outcomes and comes in the usual forms of stocks, bonds, and mutual funds. Unlike regular finance, green finance solely funds companies that provide in an auditable manner environmentally friendly goods and services. The International Finance Corporation has an in-depth guide on metrics for impact reporting, which aims to clarify which business activities are actually improving the environment.
The UK is at the forefront of this movement and became the first major country to publish a green finance strategy back in 2019, as well as the first G20 nation to require large companies and financial firms to publicise reports on financial risks and opportunities generated from climate change. The UK has established a UK Infrastructure Bank with £22 billion capital to level up and decarbonise the economy and has raised over £26 billion through selling green gilts (as of 2023). While these measures are a good start, they represent just 1% of the £2.7 trillion UK economy – there is still a long way to go, which provides opportunities for the whole of the UK Sustainability sector.
Globally, green finance appears also to be making excellent progress. A recent Bloomberg NEF report found that “biodiversity finance” – broadly defined as financial flows towards the preservation and restoration of nature – now stands at about $208 billion a year, up from $166 billion three years ago. This is leaps and bounds ahead of targets set in Montreal in 2022 of $200 billion a year by 2030, which begs the question – are global leaders setting the bar high enough? Even if you consider the differences in how “green” or “biodiversity” finance is defined, it is clear that government leaders appear to be timid in relation to some of their sustainability goals whilst the market powers ahead, again we see that in reality whilst government set the mood music, it is private enterprise that is what ultimately delivers. In the case of the move to electric cars we have seen government setting up frameworks that the consumer is not yet ready for, leading to the unintended consequences seen in UK car plants being shut down to avoid crippling fines. As ever it is a balance but let’s remember there is a long way to go- an estimated $7 trillion a year invested in “nature negative” activities, it is clear that sustainable investment targets can be more aspirational.
Even if you consider the differences in how “green” or “biodiversity” finance is defined, it is clear that government leaders appear to be timid in relation to some of their sustainability goals whilst the market powers ahead, again we see that in reality whilst government set the mood music, it is private enterprise that is what ultimately delivers. In the case of the move to electric cars we have seen government setting up frameworks that the consumer is not yet ready for, leading to the unintended consequences seen in UK car plants being shut down to avoid crippling fines. As ever, it is a balance but let’s remember there is a long way to go – an estimated $7 trillion a year invested in “nature negative” activities, it is clear that sustainable investment targets can be more aspirational.
Much like the UK Government, other nations have also established “green funds,” and governments at present account for $173 billion (approximately 80%) of global biodiversity finance. The chasm between this governmental supplementation and where society needs to be can and needs to be bridged by green private capital.
These outcomes can help mobilise more resources for biodiversity conservation and create new opportunities for green finance, contributing to the broader goals of sustainable development and climate resilience.
It is exciting to see where green finance is set to go. Unsurprisingly, it is a highly anticipated initiative, and events like COP16 help to drive the movement, but the onus is still on private investors to deploy funds into operations that boost biodiversity, combat nature-negative businesses, and drive net zero.
