Why Care About Green Finance In The First Place?

By Richard Howard

Every so often it is good to reflect on why you are doing what you are doing.

Without a regular period of reflection there is a risk that you could fall into a predictable pattern of arguments, repeating the same old cliches, getting inexplicably angry with anyone who takes an opposing view, and ultimately drifting away from your original reasoning. Furthermore, things change: you change; society changes; science changes. Therefore, regular reappraisals can help us make minor tweaks that keep us heading in a purposeful direction.

With this in mind we have done a quick recap of why we have chosen to focus on Green Finance.

Why do we care about the ‘Green’ in Green Finance?

From the middle of the 20th Century to the present day, society has been waking up to the fact that human beings are having an increasingly negative impact on the natural environment. This is not due to humanity having an inbuilt tendency towards ecological destruction, but due to the industrial and agricultural revolutions of the previous two centuries. The technologies and systems created underpinned resource consumption on a scale never witnessed in history. Access to fossil fuels (and therefore energy on demand) created unimaginable benefits to humanity, but at the same time huge unforeseen drawbacks, especially on the natural world.

But that still does not answer the question. Why do we care about the natural world and want to care for it? Could we live happily in a world without a functioning environment? Unlikely. The natural world strikes a chord within us, lights a fire within us. There is something fundamental about our personal harmony with nature, whether that’s a walk in the park or camping in the wilderness. Whether you believe that it is God-given or the vestiges of our primate ancestors, nature is a deep part of our identity.

The Force of Nature

Furthermore, humanity is a minnow compared to the full force of nature. Before the agricultural and industrial revolutions our ancestors (in the ‘west’) were constantly at the mercy of floods, famines, disease, freezing winters, and the rest. The industrial and agricultural revolutions tamed these extremes but the continued destruction of the natural world and climate change risk history repeating itself.

Home

And finally, we live on a little blue dot in the middle of the vacuum of space. Our only home. The only planet we currently know of in the universe that can sustain life.

In fact the habitable zone is even smaller, we can only survive in a wafer thin layer of air on that blue dot, between zero and a few miles altitude. Even worse, there are large areas on the little blue dot which are completely inhospitable for large populations of humans (e.g. The Sahara, Antarctica, and The Ocean).

Simply, there is no Planet B.

Photo by NASA on Unsplash
View of the Earth as seen by the Apollo 17 crew travelling toward the moon

Why do we care about the ‘Finance’ in Green Finance?

Finance is a big player in modern society, but is it a suitable way to thoroughly effect environmental change?

Multidisciplinary

As we have talked about previously there are no simple fixes for climate change, i.e. there is no single technology or industry that is able to mitigate carbon emissions in their entirety. This is also an issue for other environmental issues, such as biodiversity loss.

As a result a multidisciplinary approach is required. Many industries will need to be simultaneously engaged to push through different types of changes. For example, whole supply chains will need to adapt and decarbonise, with each individual supplier investing in new and different zero carbon equipment and approaches.

Take the automotive supply chain: basic materials (steel, aluminium, plastics, rubber, textiles, glass), component suppliers (semiconductors, pneumatics, wiring), automotive manufacturing equipment (robots, material handling equipment), logistics (component delivery, shipping), and many more. All these sub-industries will need to adapt, each in their own way.

Finance is well placed to serve multiple industries at once and it already has many of the contacts and knowledge about how these areas operate.

Dealing with Intangibles

The finance industry is well versed at dealing with intangible concepts and making contracts based on those concepts. Insurance, bonds, mortgages, and even money itself are all non-physical socially-created phenomena, yet are still measured, valued, bought, sold, inherited and fought over.

Although carbon emissions are a physical phenomena, they are difficult to measure in real time and even more conceptually difficult to assign responsibility for. Other environmental concepts are even harder to define, such as biodiversity loss.

Where a real difference can be made is in creating contracts based on the complexities of the environment. As common vocabularies and approaches evolve then businesses and individuals will be able to contextualise the issues much more easily. Enabling more environmentally focused decision making and binding responsibility.

One Eye On Financial Sustainability

Finally, like it or not, finance is crucial to the operation of modern society. And there is little time to reconfigure the fundamentals of the modern economy. As a result we acknowledge that we must work with the system to promote financial sustainability in harmony with environmental sustainability.

Furthermore, money is the current mechanism by which food is put on the table, people are clothed, and accommodation is paid for. Very few people in ‘developed’ nations have the skills to build or manufacture any of these things from scratch. Therefore, without respecting the financial nature of modern society you would be hard pressed to find many listeners.

Corporate behaviour is also driven by financial fundamentals and therefore linking finance to environmental fundamentals can influence corporate behaviour.

It must be said that the above does not excuse many of the negatives created by the current financial system. That said, green or environmental finance may even create opportunities to fix it.

Photo by Eric Muhr on Unsplash
Photo by Eric Muhr on Unsplash

Green Finance Guide’s Mission

Hopefully, this will give you a good idea why the Green Finance Guide exists in the first place.

At Green Finance Guide our aim is to provide a steady stream of articles and reports to businesses, private investors and the general public that will demystify, clarify, and explain the growing world of green and sustainable finance. We will also fairly challenge unhelpful actions and greenwashing.

The subject matter is growing quickly and new ideas are surfacing all the time. Some develop further and embed themselves as received wisdom, others will pass quickly. New words and phrases will enter the green finance vocabulary and new actors will come and go. Our objective is to keep on top of these developments and provide easily accessible and relevant analysis.

Finally, we are seeking to be collaborative not combative. As we touched upon in a recent blog, there are very few large organisations run by out-and-out climate deniers in the world. Their objectives are multifaceted, climate change is one of them but not everything. So part of our mission is to encourage these organisations – and their potential investors – find a route to a sustainable world as quickly as possible.

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