Green Finance – The Road from Billions to Trillions

Ishac Diwan () and Homi Kharas

Chapter 11 in New Normal, New Technologies, New Financing, pp 130-140 from Economic Research Institute for ASEAN and East Asia (ERIA)

Abstract: Green financing can be considered as a structured financial activity that contributes to better environmental outcomes. As a general proposition, these activities can be disaggregated into three main areas: (i) sustainable infrastructure, notably the transition of energy systems to reduce the use of fossil fuels; (ii) adaptation and resilience, including the use of nature-based solutions; and (iii) agriculture and the transformation of land use, including the need for biodiversity conservation. In this paper, we refer to these as green activities – the investments, policies, and institutional changes needed to implement ambitions for a green and just transition of the global economy. The main constituent elements of green activities have been clearly articulated by recent reports (e.g., IMF, 2021; World Bank, 2020; and United Nations Inter-agency Task Force on Financing for Development, 2021). For developing countries, in particular, they include a major role for public sector activities that allows countries to fulfil their nationally determined contributions (NDCs) under the Paris Agreement (UNFCCC, 2015). Green finance, as used here, is any finance that supports these activities. It therefore extends beyond climate finance, although the greenhouse gas emissions reductions involved in energy, transport, and land use transitions represent a large part of the financing needs.

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