We often talk about it, also because of Eni's huge commitment. But what exactly do we mean by the term "green finance"?
International attention to environmental protection issues has grown in recent years and interest in transitioning toward a “green” economy has increased as a result. In particular, the adoption of the UN’s 2030 Agenda for Sustainable Development and its 17 Sustainable Development Goals in September 2015 and the COP21 Paris Agreement three months later represented important steps toward an economic development model based on decarbonisation. In this context, “green finance” plays an increasingly active role in the mobilisation of capital for environmentally friendly projects.
But who are the green financiers? Projects with a green vocation are prevalently funded by governments, public bodies and financial institutions (such as the World Bank and the European Investment Bank) on account of the high initial risks that these types of investments, for the most part with high technological and innovative content, involve. However, the support of the private sector is steadily increasing in the form of public-private partnerships and through the participation of institutional investors like pension funds and insurance companies whose long-term vision is well suited to the time frames of investments in the environmental area. Technological innovation in the energy sector, in particular, has taken on a prominent role in the mobilisation of increased public and private investment at world level, as shown by the recent development of sizeable green funds that privilege environmental criteria in investment selection. This is the case, for example, of the Breakthrough Energy Coalition, a private capital network that, in collaboration with governments and research institutions, aims to accelerate change in the energy field by investing in innovative low-carbon solutions.
The escalation of investments in projects connected with environmental and climate issues has required the introduction of specific financing mechanisms. In particular, the last few years have seen the spread of so-called green bonds, i.e., debentures that encourage investments in projects favourable to the environment and climate. The way they work is similar to normal debt securities: the body that issues the bond receives capital, while investors enjoy a fixed return in the form of interest. The difference is that green bonds explicitly foresee using the proceeds for environmental purposes. To ensure transparency and credibility of these mechanisms, a certification method has been set up that ensures their green vocation. It can be based on two different standards:
Starting in 2007, the year in which they began to win acceptance internationally, they have displayed exponential growth: the market value of the issues of certified green bonds – which the CBI defined “labelled green bonds” – has soared from about $800m at the outset to the record figure of $155bn in 2017. The prospects for 2018 are even more optimistic with forecasts indicating they will exceed $250 - 300bn by the end of the year. And this is just the tip of the iceberg: also considering uncertified bonds – which the CBI terms “climate-aligned bonds” – issued for funding green investments, it is estimated that in 2017 the overall market value reached $895bn.
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