New financial systems are becoming more popular as a way to assist in the climate crisis. Sustainable finance options create an opportunity for governments, investors, business owners, and individuals to take action against rising global emissions.
A handful of terms are used on this general topic: sustainable finance, green finance, climate finance, and carbon finance. There is a degree of overlap when discussing these financial opportunities, so this article clarifies what each of these terms means.
Overall, these financial schemes aim to achieve one goal: to reduce emissions to combat climate change and global warming. We’ll cover sustainable finance and how it works. Then, we will move into climate finance to explore how money flows between nations and why that is important. After that, we’ll look at carbon finance, an area that provides the opportunity to offset carbon emissions by purchasing carbon credits, plus how you can participate.
What Is Sustainable Finance?
Sustainable finance, also known as green finance, is a term applied to any financial venture that seeks to positively impact the state of the environment. The primary goal of sustainable finance is to promote the funding of projects that reduce the effects of climate change. Encouraging public and private sector involvement can help reduce our impact on the environment.
How Does Sustainable Finance Work?
This financial structure directs money from the public and private sectors into projects for a sustainable future. This is achieved through changing financial regulations and incentivizing money flow to green projects.
Involvement from both the public and private sectors is essential to reducing the effects of climate change. Partnerships between public and private entities mean governments, investors, financial institutions, and businesses can all come together and direct money toward reducing emissions and creating renewable projects, and climate action goals can be achieved much faster.
An example of sustainable finance would be implementing a new financial structure to more efficiently fund green projects and create an environment that incentivizes involvement in green finance activities. This would allow governments to utilize the money for renewable energy solutions while promoting green energy action from investors and businesses. Policymakers can work to make sustainable finance on a regulatory basis to encourage the transition to this financial structure.
What Is a Green Bond?
Currently, one of the best sustainable finance solutions is green bonds. These bonds are specifically used to fund environmental projects that reduce climate risk for society. Renewable energy, environmental conservation, and emission reductions are some of the projects green bonds support, providing a significant amount of money toward curbing global warming and climate change.
In 2020, $270 billion worth of green bonds were issued. Since 2015, over $1 trillion worth of green bonds have been issued. This makes green bonds a significant player in sustainable investments.
Also called climate bonds or sustainable bonds, this responsible investment opportunity may come with tax incentives for investors while supporting much-needed sustainability projects. Green bonds are considered environmental, social, and governance (ESG) investments and often qualify for tax breaks.
Market participants and institutional investors will find tax breaks attractive and feel good knowing the bond money was used to fund a project that reduces the threat of climate change in the future. Like other bonds, stakeholders stand to make money off the bond as the investment ages.
What Type of Projects Does Sustainable Finance Support?
Sustainable finance projects include renewable energy and energy efficiency, pollution prevention, biodiversity conservation, and circular economy initiatives. These low-carbon projects are essential to slowing the devastating effects caused by global warming and climate change. Let’s look at some of the issues green finance projects can help.
Renewable energy and energy efficiency are both essential in the fight against climate change. Developing projects like hydropower, wind power, and solar power are great renewable energy options with no greenhouse gas emissions and can reduce our dependence on fossil fuels. Energy efficiency is needed to limit energy loss during its creation, transfer, and storage. Maintaining energy infrastructure and replacing old infrastructure can improve energy efficiency.
Pollution has negative consequences on our environment’s land, air, and water. Land pollution can degrade the fertility of the soil, making farming difficult. Air pollution is responsible for causing health issues in populations subject to poor air quality. Freshwater sources and oceans suffer from pollution, resulting in a limited drinking water supply and ecological damages. Projects that work toward reducing these problems can go a long way in preserving our planet for future generations.
Climate change has threatened biodiversity in many ecosystems around the world. Drought, fire, flooding, and ocean acidification have contributed to biodiversity loss from plant species to insects to marine life. Funding to conserve these delicate ecosystems can prevent species from being lost and entire ecological structures from being altered.
Circular Economy Initiatives
Circular economies are structured to limit the amount of waste generated. These economic structures rely on recycling resources for as long as possible. This economic structure includes everything from manufacturing to business models. Instead of resources being acquired, manufactured, and then turned into waste, resources are reused, and waste is utilized for a beneficial purpose (like methane gas capture to create energy).
What Is Climate Finance?
Climate finance is a type of sustainable finance. It is money spent on projects that support fighting climate change and reducing the emissions that cause it. Generally, climate finance money comes from wealthy, developed nations’ public and private sectors. It is given to developing countries so they have the means to achieve sustainable development goals.
In 2016, $75 billion worth of climate finance was raised by developed nations and distributed to poorer countries worldwide. Of the $75 billion, governments gave $57 billion, while the private sector donated the rest.
Why Is Climate Finance Important?
Climate finance is essential because it provides developing nations the capital required to reduce carbon emissions through creating sustainable energy projects. Developing countries are responsible for 63% of global emissions. Without support from developed nations, they will have difficulty affording projects that can curb their emission levels caused by large-scale industry.
Carbon emissions cause climate change, which is a global threat. Environmentally sustainable projects in developed nations alone are not enough to stop the effects of climate change. Money granted to developing nations can go a long way in helping these countries build green energy infrastructure and fight carbon levels at the global level. The more nations involved in resisting climate change, the better chance our planet has at avoiding the complications that come with it.
What Are the Top 5 Countries That Gave the Most Climate Finance?
The nations on the list below accounted for 70% of all the climate finance given over 2015 and 2016.
The countries that donated the most money were:
Japan: $10,322 million per year
Germany: $6,493 million per year
France: $3,671 million per year
United Kingdom: $2,618 million per year
United States: $2,370 million per year
What Are the Top 5 Countries That Received the Most Climate Finance?
The countries on the list below received 21% of all the climate finances given over 2015 and 2016.
The countries that received the most climate finance were:
India: $2,603 million per year
Bangladesh: $1,357 million per year
Vietnam: $1,344 million per year
Philippines: $1,296 million per year
Thailand: $963 million per year
What Is Carbon Finance?
Carbon finance is yet another form of sustainable finance. It is part of the carbon market, which includes voluntary and compliance markets. It is a system designed to reduce greenhouse gas emissions by allowing businesses and individuals to purchase carbon credits to offset their greenhouse gas emissions. These credits have a value of one metric ton of carbon.
How Is a Carbon Credit Created?
A carbon credit is created when one metric ton of CO2 is reduced from the atmosphere. This mitigation occurs due to projects like wind power, reforestation, methane gas capture, and other projects that reduce greenhouse gases from the atmosphere. The owners of these projects create a carbon credit for every ton of CO2 their project removes from the atmosphere. These credits can then be sold to individuals and businesses who wish to offset their emissions.
How Do I Participate in Carbon Finance?
Carbon finance creates an extraordinary opportunity for funding green energy projects worldwide while allowing individuals and businesses to participate in slowing climate change. Whether you are an individual, small business owner, or represent a medium to large-sized corporation, carbon finance is an excellent option for promoting environmentally sound projects.
You must purchase carbon credits from a reputable and responsible carbon-offsetting company to participate in carbon finance. Terrapass, for example, works with individuals and businesses of all sizes to become more sustainable. Our products include carbon offset products and our cryptocurrency Terrapass Coin (TPSC). They are backed by environmentally sound projects like forestry, gas capture, and renewable energy.
You can purchase as many or as few carbon credits as you need to cover your emissions, making carbon finance a flexible option for those looking to participate in reducing their impact on climate change.
Sustainable Finance Provides a Solution
Sustainable finance, climate finance, and carbon finance provide a much-needed solution to help us achieve net-zero emissions in the future. Increasing cooperation between the public and private sectors is the best way for substantial amounts of money to make its way toward sustainability projects worldwide.
Funding clean energy products in developing nations can go a long way in reducing global emissions. In the meantime, individuals and business owners can participate freely in carbon finances to reduce their carbon footprint and contribute to keeping our planet a healthy place to live.
If you are ready to participate in purchasing carbon credits today, visit Terrapass for more information about how you can get involved.
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