Climate change is an innate reality and the approach needed to stop it shall be systematic as well as dynamic.
With increasing threats from ever-disturbed weather patterns and indirect afflictions on Human lives from its off-shoots like Covid, there is dire need to incorporate and understand impact of Climate change on different spheres.
It will significantly affect monetary policy, too, by inhibiting productivity growth, heightening uncertainty and inflation volatility, which is not difficult to witness nowadays.
But measuring the economic costs of climate change remains a work in progress as the economic impact is expected to increase in future and not slow down. Hence, our policies for today can limit the extent of damage in future although being an expensive endeavor.
In the manner Climate change impacts the financial stability in the World, there is equal evidence that Finance in right direction can accelerate the efforts under Climate Action.
In order to implement any change in the World, financing the change is ultimately required. Climate finance is a tool that can serve this motive, especially in sectors that are known to emit large quantities of greenhouse gases.
It is equally important for adaptation as well as mitigation, for which considerable financial influx will be similarly required to allow societies and economies fall in line with adverse effects and changing realities across globe.
What is Climate Finance?
Climate finance refers to local, national, or cross-border financing that aims at reducing emissions, enhancing sinks to absorb excess Carbon as well as aims at reducing vulnerability and increasing the resilience of, human and ecological systems to prevalent impacts of Climate change.
Kyoto Protocol and the Paris Agreement call for financial subsistence from Parties with more financial resources to those less privileged and more vulnerable to Climate risks.
Changing Lives, Changing Finance: Funding the Sustainable Development
Climate finance is a mere connectible in a bigger game: Green Finance. Green finance is any financial activity that’s been structured carefully to ensure a better environmental outcome in the long run.
It may include product or service, an array of loans, debt mechanisms and investments used to encourage the development of green projects or maybe minimize the impact of bare regular projects.
A form of “blended finance,” i.e. government-provided funds for climate finance coupled with private funds offered to recipients through various national and multilateral banks has also surfaced but it is known to be less transparent.
Global investment required to address the climate change is estimated to be trillions of US dollars, with investments in infrastructure alone requiring about $6 trillion per year up to 2030 (OECD 2017).
Most of these investments are to be sourced through the established financial system. Climate change can thus be inferred to represent a probable source of opportunity as well as a source of risk.
Coming from the Central bank of India:
Reserve Bank of India (RBI) has recently joined hands with 83 other central banks under the umbrella of Network for Greening the Financial System.
It is a voluntary group of central banks that aims to help members design policies that incorporate environment and climate risk resilience in the financial sector and was launched at Paris One Planet Summit 2017.
Not far away than a month, New Zealand also decided to become the first country to announce a law requiring financial firms to disclose climate-related risks and opportunities in investments.
It seeks to bring climate risks and resilience into the heart of financial and business decision-making that involves assessing and reporting the systemic risks from climate change.
Is the current provision for addressing Green Finance needs enough?
According to World Economic Forum projections, nearly $5 trillion will be required to sustain the Green Infrastructure and the current annual commitment has been $100 billion per year by 2020.
However, this bedrock of International financial Climate justice is still a point of contention for many prescribing Nations and it severely falls short of the requirement in trillions.
This anyhow calls for a fundamental shift in World finance system with a substantial increase in private finance to leap from “billions to trillions” in need.
Prospects in India for a Clean-green Financial system:
India’s promotion of local innovations regarding solar incentive and energy storage shall be a priority to receive climate-aligned finance and becoming a manufacturing hub in future.
India needs to shift for greater good: for economy, for social and civil stability. India’s gross domestic product can succumb to losses of $1,178 billion, by 2050 due to climate change.
Task Force on Climate-related Financial Disclosures (TFCD) is also attracting private sector contribution in India to nurture climate positive action. About 32 Indian organizations have joined including the Mahindra Group, Wipro, Confederation of Indian Industries, National Stock Exchange, Havells India, Hero MotoCorp, Piramal Enterprises etc.
How can Governments assist?
Government can stir up this life-rendering Finance with conforming policy guidelines. China’s green credit policy is one such savior. Green bonds to raise money are sought after across the world.
UK’s Green Investment Bank created in 2010, capitalized by GBP 3.8 billion from the government, has changed the game altogether.
In India, Securities and Exchange Board of India (SEBI) has increased attention to sustainability reporting across Firms and extend support to ESG(Environmental, social, and governance (ESG) criteria) disclosure and standard setting initiatives under ‘National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business’ by the Ministry of Corporate Affairs (MCA).
Governments at the local level can provide financial “sweeteners” to induce companies undertake the energy efficiency investment, in real-estate or insurance sector.
Together, The Government, regulators, NGOs or even the development Banks can play a prominent role in adoption of this technology.
Therefore, at times when Climate change has opened all avenues to hit us hard, we have got to fight it by all means. Finance will thus, have to play an important role in managing the needed transition, for the benefit of future generations.