1.1 Scope of this chapter The earlier chapters of this report have highlighted how the successful emergence of a green economy is critically dependent on new approaches to finance and investment. Innovation is needed to consistently deliver dramatically higher volumes of annual investment in key segments of the green economy market. The vast majority of this investment will need to come from the private financial sector, supported by the enabling actions of farsighted policy makers, as well as the catalytic role of development finance institutions (DFIs) and supranational bodies such as the United Nations.
The quality of this investment – such as tenor and risk/ return requirements – is arguably just as important as the quantity. As a result, many other interrelated issues need to be considered. For example, partnership is needed to support pre-investment market development and formulate cost-effective policy-based incentives that facilitate private sector investment in the green economy.
International accounting practices need to evolve to incorporate environmental externalities. New
instruments need to be developed for risk-sharing and financial intermediation. These new instruments could enable more private investors – ranging from individual savers to large pension funds representing thousands of people – to participate in financing the transition to a green economy.
This chapter examines how the green economy is currently being financed and explores the priorities and potential methods for increasing this investment. The chapter seeks to make the case for scaling up financing available for the transition to a green economy and amplifying the financial sector’s role as an agent of change.
The analysis emphasises investing, lending by banks, and insuring - focused primarily on private sector sources of finance. In addition, reference is made to the enabling and complementary role of governments, DFIs and other non-private sector entities. There is already significant momentum in this field, but greater challenges lie ahead. This chapter also examines the main challenges, opportunities and key enabling conditions for progress.