Green finance blooms as investors look beyond profits
Environment-friendly finance is blooming thanks to investors willing to weigh profits against ecology, but decisions about meaningful investments can be complex.
At first sight the idea of “green finance” as a vehicle to protect the environment or help businesses in their transition toward a more sustainable future seems non-controversial.
But in fact, green finance lumps together a dizzying array of options and a debate is raging over which ones are truly worthy of green investor money.
What about, say, oil companies? No way, respond critics, pointing to the damage that the exploration and use of fossil fuel has done to the planet. But others say it would be ecologically responsible to help petroleum majors shift toward a greener future by developing alternative energy sources.
A decade after the launch of the early green bonds — long-term borrowing for environmental projects — investors’ options have grown dramatically, but the share of green instruments in global finance is still small.
“Green bond issuance in 2018 so far has reached $156.8 billion, which is around two percent of the global bond market,” said Frederic Gabizon, head of Debt Capital Markets at HSBC France.
“This may seem marginal, but growth has been exponential since the start,” he said, adding that investors needed to take the long view given the slow pace of green infrastructure growth.
Pressure from civil society, governments and private citizens has prompted money professionals to look beyond purely financial motives as they respond to green investor interest.
“We’re seeing a new young generation of savers coming through now, who want slightly different things,” said Rob Hardy,
This trend, he said, was particularly important to combat “green washing,” the attempt to put an environment-friendly spin on practices that are actually harmful.
Experts say evaluating the carbon footprint of a wind turbine is relatively easy, but what about the complexity of measuring the environmental impact of an urban rehabilitation program?
Green washing is, however, still very common, according to the French Social Investment Forum, an association promoting responsible finance.
“Although outright lies are very rare thankfully, there are still bad practices and some people abuse the ecology argument,” it said.
If they do, they risk losing their good name in the investment community with serious consequences, according to Stephane Marciel, of Societe Generale.
“Reputation is a very powerful weapon,” he said. “If funds are not used properly, the borrower’s reputation is ruined and they lose access to the market.”