Green Finance, why it matters.
Temperatures are breaking records around the world. In fact, Earth’s global surface temperatures in 2017 ranked as the second warmest since 1880, according to an analysis by NASA. When temperatures rise, ice melts and water from glaciers and ice caps flows to the seas. When ocean water warms, it expands in volume and, consequently, sea level rises. Warmer seas also mean more precipitation, and sea level rise is more likely to make future coastal storms, including hurricanes, more damaging.  It is no coincidence that hurricanes occurring in some regions including the North Atlantic have increased in intensity over the past two to three decades.
Recent climate change events are leading to widespread concern about our planet and its future. The Intergovernmental Panel on Climate Change has published five assessment reports that present evidence of climate change based on many independent scientific analyses from observations of the climate system, paleoclimate archives, theoretical studies of climate processes and simulations using climate models. It has been proven that greenhouse gas emissions from human activities are driving climate change and continue to rise.
People all over the world are experiencing the significant impacts of climate change, including changing weather patterns, rising sea level, and more extreme weather events. People living in poverty are often the ones most vulnerable because they:
- lack access to natural resources (water, arable land and energy resources),
- suffer the most from climate change events, such as droughts, floods, and severe weather events
- lack access to financial products and services.
Indeed, the livelihoods of smallholder farmers are even more precarious as extreme climate change events shrink their crop production and revenues.
As a result, environmentally sustainable ways of conducting business are in growing demand, and green finance is becoming an effective tool in the pursuit of sustainable policy goals.
What is Green Finance?
Green finance is an umbrella term that encompasses financial products and services that benefit the natural environment and serve green policy goals such as climate change mitigation, climate change adaptation, biodiversity loss, natural resource depletion, pollution prevention and control, while improving the livelihoods and quality of life of the population.
Green finance can be presented as a subset of sustainable finance that uses a triple bottom line approach:
- economic development
- social inclusion
- and environmental sustainability
Green finance is part of a comprehensive environmental approach that seeks to combat environmental degradation. It analyzes how clients are affected by environmental degradation and how clients’ activities affect the environment.
The aim of green financial products is to provide banks, insurers, investors, government, businesses and individuals with strong incentives to increase investments in sustainable natural resource management. These financial products and services are then made available for sustainable development projects and initiatives.
Green Financial Products and Services
Green products and services seek to advance environmental sustainability and to promote product re-use and recycling, waste reduction, environmental protection and innovation. Green products and services include:
- energy efficiency technologies, such as high-efficiency appliances, LED lights and clean cookstoves;
- products and practices that avoid greenhouse gas emissions, such as renewable energy technologies, electric vehicles and storage from non-recyclable waste;
- products without toxic chemicals, such as biodegradable home-cleaning products and natural fertilizers;
- products and practices that conserve natural resources, such as rain barrels, drip irrigation, green buildings etc.
Advancing Financial Inclusion and Environmental Sustainability
MEDA believes that entrepreneurship and innovation can empower business people of all income levels to act as leaders of environmentally-responsible growth. We work with businesses and entrepreneurs, and local partners to promote the business case for good environmental management and addressing climate change.
To counteract these effects of poverty and climate change, many microfinance institutions are beginning to provide green financial products (such as green loans and insurance) to individuals and micro, small, medium enterprises willing to implement green practices. Some green finance products are supported by government programs and private banks to attract customers looking to finance green initiatives, as a tool to finance sustainable development. Financial institutions are finding that providing discounted rates for green initiatives attracts clients concerned by their environment, or whose land and businesses are affected by climate change events.
MEDA's Green Finance Partners
Agro Capital Management (ACM) facilitates the provision of agro-technology products to agricultural entrepreneurs and provides financing for farmers to purchase technologies designed specifically for small business and household farms. In partnership with MEDA, ACM financed the acquisition and installation of modern energy efficient greenhouses and drip irrigation systems.
First Microfinance Bank in Afghanistan (FMFB), has a housing loan that provides construction technical advisory to borrowers. By educating customers on proper construction materials and techniques, people learned to avoid materials that lead to significant health risks and pollution (such as asbestos), adopt seismic resistant construction techniques, improve their water consumption and supplies etc.
Al-Amal Bank has developed an alternative energy loan product for solar and wind energy systems. Since the civil war, there has been high demand for solar energy systems to pump water, provide lighting and run electrical appliances. Their loan helps people access environmentally-friendly systems.
Green financing is a fantastic tool that provides pathways and solutions to achieving the UN’s Sustainable Development Goals (SDG) by providing access to funds for efficient and effective technologies and business ideas in sustainable resource management. Over time, this will improve livelihoods; creating new businesses and employment opportunities with environmentally friendly practices.
Green finance is a solution, and MEDA is here for it.