Green Financing of Climate Projects: Focus on Green Investment Banks

Abstract

The finance sector presides over a large pool of capital, more of which could be steered towards low carbon, climate resilient activities. The core participants in the finance sector include banks, insurance companies, pension funds, fund managers, mutual funds, sovereign wealth funds, charities and endowment funds. In aggregate the value of the assets these groups manage, as measured by the value of equity-market capitalization, corporate and government bonds, and loans, was estimated to be worth US$225 trillion in 20121. Capital flows want to shift from high to low carbon activities. There is growing recognition that the world needs to shift capital and investment from high to low carbon activities if we are to avoid dangerous climate change outcomes. Green Finance has become a new and universal paradigm in order to enable the transition of today's existing carbon intensive economies to a Green Economy (GE) which the United Nations Environmental Program defines as follows: "A green economy can be defined as one that results in improved human well-being and social equity, while significantly reducing environmental risks and ecological scarcities."
Among others, Green Investment Banks have played a pivotal role in mobilizing and investing green funding financial resources to a large number of Climate projects (viz. mitigation, adaptation) globally. The core objective of GIBs is to increase private sector investment in domestic LCR infrastructure using limited public capital. However, governments tailor their GIBs and GIB-like entities based on their unique national and local contexts, and have diverse rationales and goals.
The paper highlights the different facets of climate projects and the crucial roles played by the Green Investment Banks in funding the projects in a long-term and sustainable manner