Unit 1: An Introduction to Green and Sustainable Finance

Question 1

How much is the transition to a low-carbon, more sustainable world forecasted to cost?

Answer 1

The transition is estimated to require approximately $6 trillion annually for the foreseeable future, mainly from private finance rather than public funds.

It is estimated that up to 80% of the funds required will need to come from private sources.

Question 2

What is meant by the term ‘green’ finance?

Answer 2

Green finance, therefore, is:

“any financial initiative, strategy, product or service that is designed to protect the natural environment and support the transition to a sustainable, low-carbon world; and/or manage climate-related and other environmental risks impacting finance and investment”.

Question 3

What is meant by the term ‘sustainable’ finance?

Answer 3

Sustainable finance as: “the inclusion of economic, environmental and social factors in an organisation’s strategy, management, activities and operations; combined with the financing of sustainable economic, environmental and social objectives”.

Question 4

What is the difference between ‘green’ finance and ‘sustainable’ finance?

Answer 4

Green and sustainable finance being highly interrelated, with green finance being a major and integral element of sustainable finance overall.

Question 5

Describe a range of approaches to green and sustainable finance?

Answer 5

approaches to sustainability focus on three key aspects, often described as a ‘three-legged stool’ or similar: the economy, environment and society

Question 6

Describe the UN Sustainable Goals (SDG)

Answer 6

The UN Sustainable Development Goals (SDGs) were defined and adopted by 193 countries in 2015. They encourage governments, business and civil society to tackle these wider issues of sustainability – the major economic, environmental, and social challenges faced by our world.

There are 17 SDGs.

Question 7

What is Financing Green?

Answer 7

Increasing flows of finance to support green and sustainable development objectives.

For example:
investment in renewable energy or other ‘clean’ technologies
bank lending to support organisations’ transitions to more sustainable business models.

Question 8

What is Greening Finance?

Answer 8

Integrating considerations of environmental sustainability into financial institutions’ strategies, activities and operations.

For example:

identifying, disclosing and managing climate-related financial risks
developing financial products and services to manage climate risks and support environmental sustainability.

Question 9

What is the EU Taxonomy for Sustainable Activities?

Answer 9

In 2020, the EU Taxonomy for Sustainable Activities was published. It defines sustainable economic activities as those that make a substantial contribution to at least one of the six environmental objectives set out below, without detracting from any of the others:
1. Climate Change Mitigation
2. Climate Change Adaption
3. Sustainable Use and Protection of Water and Marine Resources
4. Transition to a Circular Economy
5. Pollution Prevention and Control
6. Protection and Restoration and Biodiversity and Ecosystems

Question 10

What will the EU Taxonomy be used for?

Answer 10

The EU Taxonomy provides a foundation for many of the activities in the EU’s 2018 Action Plan for Sustainable Finance and 2020 European Green Deal. It will be used to underpin the EU’s forthcoming Green Bond Standard, helping to define which activities and investments can/cannot be financed by a bond defined as being ‘green’.

Question 11

What is Climate Change Mitigation?

Answer 11

Climate change mitigation activities seek to address the causes of climate change; for example, by funding renewable energy systems to reduce carbon emissions, or cleaner transport systems.

Question 12

What is Climate Change Adaption?

Answer 12

Climate change adaptation activities address the impacts of climate change, both those that are already visible (e.g. measures to reduce coastal community flooding caused by rising sea levels) and those that are anticipated as a result of global warming (e.g. developing new agricultural crops and techniques to reduce water use and vulnerability to higher temperatures).

Question 13

What is Transition Finance?

Answer 13

The transition will take time, and the finance sector needs to provide finance to support organisations and communities moving to net zero, recognising that the extent and pace of transition will vary between firms and sectors, and across geographies. This is often referred to as transition finance.

Question 14

What are the estimates of investment needed to achieve global sustainable development and climate objectives?

Answer 14

$90 trillion by 2030

Question 15

What are the estimates of investment needed to fully fund nations green infrastructure requirements?

Answer 15

$6 trillion per year

Question 16

What are the estimates of investment needed to achieve Net Zero by 2050?

Answer 16

Approximately $5 trillion per year in energy transition investments by 2030

Question 17

What are the estimates of investment needed to achieve to meet 2 degrees and 1.5 degrees Paris Agreements Targets?

Answer 17

$15 trillion and $30 trillion respectively

Question 18

What are the estimates of investment needed to achieve net zero emissions by 2050 (globally)?

Answer 18

$1-2 trillion per year

Question 19

What are the estimates of investment needed for the EU tp achieve met zero by 2050?

Answer 19

Approximately Euro 28 trillion in clean technologies and techniques

Question 20

What are the estimates of investment needed for the UK to achieve net zero by 2050?

Answer 20

Approximately £50 billion per year

Question 21

What are the estimates of investment needed to achieve the SGDs?

Answer 21

Up to $7 trillion per year

Question 22

What is Greenwashing?

Answer 22

We define greenwashing as:

inadvertently or deliberately misleading others about the environmental or broader sustainability benefits of an activity, project, product or service.

Question 23

What are the two types of Green and Sustainable Finance?

Answer 23

1. Products and services that finance sustainable activities (e.g. a green bond that funds the construction of an offshore windfarm); and
2. Products and services that incentivise sustainable consumption and behaviour by individuals and organisations (e.g. a green mortgage, or a sustainability-linked loan).

Question 24

What are the barriers to sustainable finance?

Answer 24

1. Short-termism
2. Narrow focus (make decisions based on maximising shareholder returns as sole motivation_
3. Failure to Address Externalities (un-costed effects of economic activities)

Question 25

What is Biodiversity?

Answer 25

The full range of ecosystems, species and gene pools in the environment – the full variety of plant and animal life on Earth.

Question 26

What is decarbonisation?

Answer 26

Reducing the amount of carbon (for example, carbon dioxide or methane) emitted from an agricultural, industrial or other process.

Question 27

What is divestment?

Answer 27

The opposite of an investment, e.g. selling rather than buying an asset such as shares in a firm.

Question 28

What is an embedded approach?

Answer 28

An approach that sees the financial system as embedded in the economy, society and the environment.

Question 29

What is the IPCC?

Answer 29

Intergovernmental Panel on Climate Change (IPCC). The United Nations body that assesses the science related to climate change. The IPCC provides regular assessments of the scientific basis of climate change, its impacts and future risks, and options for adaptation and mitigation.

Question 30

What is a Just Transition?

Answer 30

Ensuring that the transition from a high- to a low-carbon economy is fair for current and future generations, particularly those communities and workers most impacted.

Question 31

What is Net Carbon Footprint?

Answer 31

Total greenhouse gas emissions associated with the production, processing and consumption of products and services, offset by activities to mitigate emissions, such as Carbon Capture and Storage.

Question 32

What is Stakeholder Value Approach?

Answer 32

An approach that sees the role of business as generating value for all the stakeholders it serves.

Question 33

What is the Tragedy of the Horizon?

Answer 33

The mismatch between business, political and regulatory cycles, and the timescale needed to prevent climate change impacting on financial stability.

Question 34

What is UNFCCC?

Answer 34

United Nations Framework Convention on Climate Change. Agreed in 1992, and ratified by 197 parties to the Convention, the UNFCCC is the key international treaty providing a global framework for combating climate change. The Paris Agreement (see above) is an agreement reached within the UNFCCC.

Question 35

How has the green and sustainable finance sector developed globally?