Green Finance: Bridging Investment and Sustainability for a
Greener Future
While the contemporary world finds its trajectory amid global geopolitical chaos, every sector of
an economy stands before the uncertain patterns of global order. Among the various sectors which
are undergoing swift changes across national economies, the finance sector together with fintech
segment observably and statistically absorbed quite a few economic shocks since last couple of
years. These varied shocks across the national economies had given rise to a quickly emerging
phenomenon, known as Green Finance. Green Finance represents a pivotal mechanism in
reshaping global financial systems towards a more environmentally conscious and resilient future.
This phenomenon leads to creation of financial arrangements which are useful to projects which
are environmentally sustainable and adopt to the aspects of climate change.
Dwindling share of natural resources, rampant pollution and rising natural calamities pose serious
challenges to sustainable growth objectives. Thus economies are eventually shifting to ecofriendly technologies through incentivizing allocation of financial resources for sustainable
projects, made possible by green finance. Hence, targeted policies relevant to all sectors of an
economy to achieve these objectives have been formed in many nations, being followed by others.
A country’s existing stock of technological quotient and innovation scale is an essential
determinant which can aid it in adopting sustainability policies in certain critical sectors such as
renewable energy. This article aims to focus upon the state and future of green finance in Asian
economies.
Sustainable development along with economic growth is a universal challenge most of the
economies face today. In particular growth models across Asian economies tend to be more carbon
intensive and resource intensive, making this a pressing issue for policymakers. As an element of
green finance, huge investments in green and climate resilient infrastructure are needed across the
region. The infrastructure gap in developing Asia has been assessed by the Asian Development
Bank to amount to USD 26.2 trillion between 2016 and 2030 or USD 1.7 trillion annually1.
1
*Fostering green finance for sustainable development in Asia (econstor.eu)
Climate change, a fundamental agenda at the G20 forum has led to several flagship programmes
which aim at increasing awareness for funding of green projects across the globe. Some of these
flagship programmes, such as United Nations Environment Programme (UNEP) and Statement of
Commitment by financial bodies lays out the pathway for implementing green finance among the
participating nations. If there is a reliable source of symmetric information on economies’ overall
environmental and social risk, it would stimulate the formulation of a green corpus for achieving
this goal. A reliable tool which has gained significant light under the ESG (Environmental, Social
and Governance) principles by integrating the leading corporations focused on green investment
projects is the Sustainable Stock Exchange. This involves a methodology to adjust stock price
indices, taking into account the performance of these environmentally focused companies, which
are rooting for investors in green activities.
In clear analysis over a number of past global phenomena which have affected the entire
economies, only a global coordinated effort can assist in fostering a steady culture of green finance.
Since this nascent field of finance grows slowly, the financial institutions must be entrusted to play
an imperative role. This would involve integrating ESG factors into their lending and investment
decision making processes. But in recent years, a relatively small number of Asian financial
institutions have signed up to global sustainable finance initiatives. Only 122 out of 1,874
Signatories to the Principles for Responsible Investment (6.5%) are from Asia2.
3
2
4
*Fostering green finance for sustainable development in Asia (econstor.eu)
: Compiled with data from ASrIA (2015: 11), GSIA (2017: 16, 27), JSIF (2013a: 4), JSIF (2013b)
4
Source: Volz, U. (2018, March). The latest information collected from the programmes’ websites. Notes: Asia
includes Australia and New Zealand. *: Includes 3 from India: SBI Funds Management Private Limited, Equicap
Asia Management Private Limited and Indus Environmental Services Pvt. Ltd.
**: Only IDFC from India.
***: Includes both Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) from India.
3
If the economies of Asia aspire to tap into this dynamic initiative of Green Finance and bridge this
investment gap for a green future, the market policies must be based on disclosure, analysis and
risk management. Under upgrading of governance architectures, in addition to internalizing
sustainable development objectives at various government levels, environmental risk must be
included as a comprehensive body of study and research at higher education institutions. In April
2015, the Reserve Bank of India (RBI) included lending to small renewable energy projects and
drinking water facilities within the Priority Sector Lending (PSL) targets. This scheme requires
banks to allocate 40% of lending to key sectors such as agriculture and energy generation. Ahead
of these targeted steps, essential financial instruments such as Green Bonds (issued in India since
2015) which are issued by any sovereign entity, inter-governmental groups or alliances and
corporates for projects classified as environmentally sustainable should be maintained in global
financial markets to shift the world view towards sustainability.
Although the global view concerning sustainability and green finance had experienced
transformational journey in recent times, a cluster of challenges exist amid this effort to integrate
the combined efforts in policymaking. Absence of a universal definition of green finance and
information asymmetry often result in “green-washing”, whereby investors face uncertainty
regarding instruments such as green bonds. This presents a potential challenge to India, where the
financial market is still emerging as compared to the developed markets.
The high cost of borrowing remains a major challenge, and our analysis suggests that this may
stem from gaps in information. By establishing a more effective information management system
in India, we could address issues like mismatched loan maturities, reduce borrowing costs, and
enable better resource allocation in this sector. Many countries, such as Australia, China, India,
and the United States, have created databases to track green building projects, which helps bridge
such information gaps.
While green finance and investment is currently still a niche market in Asian financial systems,
growth rates have been high, along with critical innovations. Thus global dialogue among the
leading economies and financial bodies, along with reliable policy suggestions from valuable
research institutions would serve a great deal in moving towards a green future.
References
 Green finance and renewable energy: A worldwide evidence (sciencedirectassets.com)
 21066.pdf (ijfmr.com)
 Climate Policy Initiative Launches the "Landscape of Green Finance in India" Report CPI
 04AR_2101202185D9B6905ADD465CB7DD280B88266F77.PDF (rbi.org.in)
 Fostering green finance for sustainable development in Asia (econstor.eu)