Sri Lanka (Commonwealth) _ In order to focus on green finance, the Central Bank of Sri Lanka has entered into a cooperation arrangement with the World Bank Group and the International Finance Corporation (IFC) to receive financial and technical support.
According to the central bank, this will aid in updating the Green financing Taxonomy and Roadmap for Sustainable Finance and broadening the scope of the National Financial Inclusion Strategy Phase II by incorporating inclusive green financing with a focus on SMEs that are focused on exports.
The Accelerating Climate-Smart and Inclusive Infrastructure in South Asia Program of the European Union, which promotes the growth of the private sector sustainably, provides some funding for the initiative.
The phrase refers to a wide spectrum of financing for environmental initiatives, enterprises, industries, or technology. Bonds, credit cards, insurance, and other environment-focused financial goods and services are included under a more limited definition of “green finance.”
Through banking, microcredit, insurance, and investment, green finance seeks to increase the amount of money going into sustainable development initiatives from the public, private, and not-for-profit sectors.
The practice of considering environmental, social, and governance (ESG) factors fairly when making investment decisions in the financial industry is known as “sustainable finance,” and it results in higher longer-term investments in sustainable economic ventures. – European Commission Goals for Sustainable Development (SDGs) Development that is sustainable is one which satisfies current demands without jeopardizing the capacity of future generations to satisfy their own.
The United Nations approved the Sustainable Development Goals (SDGs), sometimes referred to as the Global Goals, in 2015 as a global call to action to eradicate poverty, safeguard the environment, and guarantee that by 2030 all people live in peace and prosperity. The 17 SDGs are interconnected; they acknowledge that decisions made in one area will have an impact on other areas and that development must strike a balance between environmental, social, and economic sustainability.
Its main objective is to “limit the temperature increase to 1.5°C above pre-industrial levels” and to “hold the increase in the global average temperature to well below 2°C above pre-industrial levels.” Nationally Determined Contributions (NDCs), or national climate action plans, have been submitted by nations since 2020.
The Agreement is based on a five-year cycle of nations implementing ever more aggressive climate policies. It supports the idea that wealthy nations need to take the initiative in giving more vulnerable and less developed nations financial support. Because of the NDCs’ effect, it is anticipated that by 2030, carbon neutral industries will be competitive. NDCs in Sri Lanka Sri Lanka, a nation that had joined the Paris Agreement, filed its first round of NDCs in September 2016. Prior to COP26, which was held in Glasgow, Scotland, the United Kingdom, in 2020, the Climate Change Secretariat started the process of revising the NDCs that will be submitted to the UNFCCC.
Of the estimated 33 billion US dollars in outstanding green loans, only 1.6 billion are currently in developing countries, despite the fact that many of these nations are among the most vulnerable to climate change and have the greatest investment needs to promote nature-positive economic growth[i]. Policymakers, regulators, and financial intermediaries in Sri Lanka are becoming more interested in the ideas and potential of green finance, and some preliminary moves have been taken in that direction toward green financing.
However, how far along is the actual execution, and what are the short-term prospects? What are some of the most important challenges facing the financial industry as it seeks to encourage investments in an economic recovery that is both nature-positive and climate resilient? In this piece, we examine a few of these issues and offer suggestions for further reading.
Green finance
When a bank makes a loan in traditional banking, it takes into account a number of client-related factors to assess how the loan will affect its bottom line. These factors include the purpose of the funds, the borrower’s ability to repay the loan, the length of the loan, the pricing, and the overall risk. Environmental factors would not be taken into account unless the borrower’s project required environmental permissions. But it goes much farther under green finance.
Greening finance is the process of managing financial risks associated with climate change and the environment better. Green finance is the gathering of finances for resolving climate and environmental issues. To put it simply, green finance is any financial arrangement—like a loan—that is intended to have a positive environmental impact. According to the IFC (2023), a green loan is characterised as a type of finance that permits borrowers to allocate the funds solely towards initiatives that significantly advance an environmental goal.
