Right now, there is a revolution happening in green finance. After the financial crisis of 2008, foreign governments introduced policy changes that sought to improve the efficiency and resilience of their financial systems. Along with that, the adoption of the 2030 Agenda for Sustainable Development and the Paris Agreement on climate change have paved the way for a global shift in perspective on climate change.
The movement is gathering momentum spurred on by innovation and leadership in an attempt to combine sustainable development and an efficient financial system. Progress has been achieved in different countries both in the developing world and in the major economic powerhouses, at multiple levels and involving diverse sectors of which real estate is at the forefront.
The need to address these global concerns and hasten an integrated response has never been higher. 6.5 million premature deaths are caused each year by air pollution linked to the energy system, according to an October 2016 report by the United Nations Environment Programme (UNEP) titled The Financial System We Need: From Momentum to Transformation. Startlingly, industry causes greenhouse gas emissions to be added to the atmosphere at a rate of four nuclear bombs every second. And if that isn’t scary enough, 2015 was the hottest year on record and the number of people displaced from their homes due to natural disasters averages 26.4 million per year. It is incontrovertible that governments across the world need to take immediate action.
Also, there is a US$260 billion annual investment gap in agriculture in developing countries, and 17 percent of the world’s population lack access to electricity. While the microfinance industry continues to evolve in the emerging markets, only 5-10 percent of the bank loans are “green”.
What can we do?
At the moment, governments are executing over 217 measures in almost 60 countries. Five core areas highlighted for a transition include national strategies, technological innovation, public finance, awareness raising, and common methods, tools, and standards. Sustainability needs to be embedded into countries long-term road maps for financial reform. Moreover, they need to align fintech developments with sustainable development. Where possible, public finance should have a direct impact on establishing new markets, rules, and practices. An important factor will be to continue to raise awareness to educate policymakers and professionals about the risks and the need for public debate. And, common internationally recognized tools and standards should be introduced to maximise knowledge sharing from one country to the next.
The impact of emerging countries
Both emerging and developing countries have increased their share of national action plans from 29 percent to 38 percent in 2015. Significant developments have been initiated in countries like The Philippines where a public-private disaster insurance pool will make disaster insurance compulsory for homeowners and SMEs. Indonesia announced in January of this year, a target to increase its share of renewable energy to 25 percent by 2025. Last year, Mexico became the first developing country to publish a climate action plan. Pakistan, a country at high-risk when it comes to climate change has submitted an application to the Green Climate Fund. They estimate that 7,101,000 remain at risk from the 3,044 glacial lakes that have formed in Northern Pakistan.
Opportunity for G20
The G20 is an international forum for the governments and central banks of the top 20 global economies. There is now an opportunity for the G20 to design efficient green financing models for the developing world. There is a surplus of capital globally, but governments need to devise the right conditions to attract this capital. Their role will include setting policies, regulations, incentives, and ensuring that they are enforced. Global capital markets have immense powers which if directed intelligently can go a long way in unlocking a sustainable economic future for emerging countries.