The Power of Green Finance

Climate change is one of the greatest threats to economic growth and the future welfare of the planet. If countries are to meet the ambitious goals of the Paris Climate Summit, including limiting the average global temperature rise to 2° Celsius, governments alone will not be able to provide the necessary financing. It will require innovative financing tools to attract private sector money.

Fortunately, green finance is one of the fastest-growing segments of financial markets. Today, more than $30.7 trillion in funds are allocated to sustainable or green investments, up 34% from 2016, according to a report by the  Global Sustainable Investment Alliance . Major financial firms such as Goldman Sachs, Bank of America, and BlackRock have made significant pledges to promote the use of private money to encourage green development and to exercise their financing clout to encourage others in their ecosystem to do the same.

China has emerged as one of the leading advocates for green finance. In the past three years, China has:

• Launched a national carbon market that is the world's largest.
• Established a leading green bond market.
• Standardized voluntary lending principles for financial institutions that finance Belt and Road Initiative projects.

However, green finance is still a nascent market facing a number of challenges. No clear definition exists for a “green” investment. Some countries, including China, consider "clean coal" to be a green investment, though any type of coal would be considered a brown investment in Western nations. Additionally, other countries have been slow to adopt green finance. Even China, with arguably the most ambitious green finance agenda, has reconsidered its targets as its economy slows.

The Paulson Institute is dedicated to increasing the capacity of the private sector to drive green development as the Institute believes this is the only way to ensure long term adoption. However, it will take good government policy, political will, and support from international institutions and the private sector to be successful.