Green finance refers to financial services and investments that support sustainable development and environmental conservation. It includes funding and investments in projects that promote renewable energy, energy efficiency, sustainable agriculture, green buildings, and other initiatives aimed at reducing carbon emissions and mitigating climate change. Green finance also encompasses financial instruments like green bonds, green loans, and sustainability-linked loans, which are specifically designed to fund environmentally friendly projects.
Key components of green finance include:
- Green Bonds: Bonds specifically earmarked to raise money for climate and environmental projects. They are similar to traditional bonds but must be used exclusively for green projects.
- Sustainable Investing: Investing in companies and projects that have a positive environmental impact, often evaluated using Environmental, Social, and Governance (ESG) criteria.
- Green Loans: Loans provided for projects that contribute to environmental sustainability, often with favorable terms for borrowers who meet specific green criteria.
- Carbon Trading: A market-based system where companies buy or sell allowances or credits to emit a certain amount of carbon dioxide, encouraging lower emissions overall.
- Climate Finance: Financial resources mobilized to support mitigation and adaptation activities in response to climate change, often directed towards developing countries.
- Environmental Impact Assessment: Financial decision-making processes that consider the environmental impacts of projects and investments.
Green finance aims to align financial systems with sustainable development goals, incentivizing environmentally responsible behavior and fostering long-term ecological balance.